Avient Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; this is an annual report, not a standalone fourth-quarter filing. Avient formulates specialty and sustainable polymer materials and reported two continuing-operation segments: Color, Additives and Inks, and Specialty Engineered Materials. The Distribution business was sold on November 1, 2022 and is presented as discontinued operations.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Continuing-operations sales | $3,396.9 million | $3,315.5 million |
| Gross margin | $882.7 million; 26.0% of sales | $943.8 million; 28.5% of sales |
| Operating income | $243.3 million; 7.2% of sales | $279.7 million; 8.4% of sales |
| Continuing-operations net income | $83.1 million; diluted EPS $0.90 | $151.6 million; diluted EPS $1.65 |
| Net income including discontinued operations | $703.4 million; diluted EPS $7.63 | $230.6 million; diluted EPS $2.51 |
| Cash from operating activities | $398.4 million | $233.8 million |
| Capital expenditures | $105.5 million | $100.6 million |
Sales rose 2.5%; acquisitions added 4.0% while foreign exchange reduced sales 5.6%. Pricing increases more than offset lower global demand. Gross margin declined amid raw-material inflation, restructuring costs, and $34.4 million of APM inventory step-up amortization. Higher interest expense and other expense also reduced continuing earnings. The 2022 effective tax benefit rate was 30.2%, including a $56.2 million benefit associated with capital-loss deductions; the rate and benefit include significant unusual tax items.
Liquidity, debt and significant transactions
- Year-end cash was $641.1 million; revolving-credit availability was $246.2 million, for reported liquidity of $887.3 million. About 57% of cash was held outside the United States.
- Total debt carrying value was $2,178.9 million, up from $1,858.9 million. Avient reported no revolving-credit borrowings and was in compliance with debt covenants at year-end. Management said cash, operating cash flow and available borrowing capacity should support obligations and operations for at least twelve months.
- Avient acquired DSM Protective Materials, including the Dyneema brand, for approximately $1.4 billion net of cash acquired, and financed part of the purchase with a $575 million term loan and $725 million of 7.125% notes due 2030. It used Distribution-sale proceeds and cash to repay $950 million of debt in Q4.
- Distribution was sold for $950 million cash, subject to a working-capital adjustment. The sale generated a $550.1 million after-tax gain. Its 2022 discontinued-operations income was $620.3 million, so reported total net income is not representative of continuing operations alone.
Segments, outlook and risks
- Color, Additives and Inks sales declined 1.9% to $2,355.0 million; operating income was $301.0 million, down 0.7%. Specialty Engineered Materials sales increased 14.6% to $1,044.4 million, principally reflecting APM; operating income increased 11.6% to $140.1 million.
- Management estimated 2023 capital expenditures of approximately $150 million, primarily for growth, recent acquisitions and strategic investments. The filing provides no specific 2023 revenue or earnings guidance.
- Management emphasized margin, profitability and cash-flow improvement through pricing, supply-chain and operational initiatives, while citing weaker demand in some markets, raw-material volatility and logistics-cost inflation.
- Key risks include economic and end-market downturns; raw-material, energy and logistics costs and availability; foreign-exchange movements; higher interest expense and debt restrictions; integration of APM; environmental and regulatory obligations; cybersecurity; and international political and trade risks.
- Environmental liabilities totaled $118.3 million, including $108.6 million related to the Calvert City site. The company stated that additional remediation costs are reasonably possible but cannot currently be estimated.
Important facts for investors to verify
- Separate recurring continuing-operations performance from Distribution’s discontinued results and the one-time sale gain.
- Assess whether APM can deliver expected growth and synergies after its partial-year contribution, while considering preliminary purchase accounting and acquisition-related costs.
- Review debt-service capacity, variable-rate exposure, 2025 debt maturities, and the effect of elevated interest costs.
- Monitor demand, pricing versus input-cost inflation, segment margins, and delivery of management’s 2023 capital-spending plans.
- Track the Calvert City remediation estimate and any changes in environmental requirements or other contingencies.
- Note that management and the auditor reported effective internal control over financial reporting, but APM was excluded from the 2022 control assessment.