AdvanSix Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 19, 2021. The filing also provides unaudited fourth-quarter results. AdvanSix is a single-segment, integrated U.S. chemical producer with products spanning Nylon 6, caprolactam, chemical intermediates and ammonium sulfate fertilizer.
Key financial results
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Sales | $1,157.9 million | $1,297.4 million | Down 10.8% |
| Gross profit / gross margin | $133.7 million / 11.6% | $135.5 million / 10.4% | Profit slightly lower; margin improved |
| Net income | $46.1 million | $41.3 million | Up 11.4% |
| Diluted EPS | $1.64 | $1.43 | Up $0.21 |
| EBITDA, non-GAAP | $123.7 million | $115.6 million | EBITDA margin: 10.7% vs. 8.9% |
| Operating cash flow | $111.8 million | $120.4 million | Down $8.5 million |
| Capital expenditures | $82.9 million | $150.3 million | Down $67.4 million |
Sales fell mainly because lower feedstock costs and weaker market pricing reduced selling prices; annual volume was slightly higher, reflecting favorable ammonium sulfate mix and timing, partly offset by weaker caprolactam and chemical-intermediate volumes. Lower raw-material costs supported margin improvement. Interest expense increased to $7.8 million from $5.5 million, while the effective tax rate declined to 16.3% from 22.5%, contributing to higher net income.
Fourth quarter: Sales were $340.3 million versus $326.7 million a year earlier; net income was $26.8 million versus a $2.1 million loss. Management reported overall demand and volume above 2019 pre-pandemic levels in the quarter.
Balance sheet, debt and liquidity
- At year-end, cash was $10.6 million, total assets $1.263 billion, total liabilities $819.3 million and equity $444.1 million.
- Revolving-credit borrowings were $275 million, all classified as long-term and due in 2023. The company reported approximately $149 million of additional revolver capacity and compliance with its financial covenants at year-end and through the filing date.
- Operating cash flow was $111.8 million; investing cash outflow was $84.1 million and financing cash outflow was $24.2 million. Cash increased by $3.6 million during the year.
- Management said cash, operating cash flow and available credit were expected to fund operating needs and plans. Capital expenditures are forecast at approximately $80–$90 million for 2021; this is company guidance, not a guarantee.
Changes, outlook and notable items
- COVID-19 reduced demand, especially for nylon, caprolactam and phenol, and lowered second-quarter 2020 sales volume approximately 19% year over year. Demand improved in the second half; management expected gradual improvement through 2021 but cautioned that resurgences and renewed restrictions could interrupt recovery.
- The company reduced capital spending and discretionary costs in 2020, reporting approximately $26 million in cost reductions versus 2019. It expected about half of the costs reduced temporarily to return in 2021.
- Acetone market conditions benefited from U.S. anti-dumping orders on imports from Singapore, Spain, Belgium, South Africa and South Korea. The orders carry administrative-review and litigation-related uncertainty.
- The continuing shutdown of the PES refinery affected cumene sourcing; the company reported an approximately $11 million unfavorable pretax impact in 2020 from its realigned supply chain, comparable to 2019.
- The company recorded no 2020 restructuring charge; the 2019 Pottsville films-plant closure generated an $11.0 million charge, and related liabilities were fully paid by year-end 2020. In January 2021, AdvanSix acquired ammonium-sulfate packaging, warehousing and logistics assets for approximately $9.5 million net of assumed liabilities.
- A COVID-related triggering event prompted a goodwill impairment test; the company reported no impairment and retained $15.0 million of goodwill.
- AdvanSix recorded a $12.2 million federal tax refund receivable under the CARES Act, expected in the first half of 2021, and deferred approximately $6.5 million of Social Security taxes.
- Risk exposures include chemical-plant or logistics disruption, cyclical prices and demand, raw-material availability and costs, customer concentration (top 10 customers were approximately 43% of sales; Shaw was 14%), environmental and safety obligations, pension funding, and floating-rate debt/LIBOR transition. The EPA matter concerning alleged Hopewell consent-decree violations remained under negotiation; management did not expect a material adverse effect.
Investor verification priorities
- Check whether 2021 demand recovery and pricing spreads—particularly in nylon and caprolactam—were sustained, and compare subsequent results with management’s outlook.
- Track cash conversion, working-capital needs, planned capital spending and revolver usage, as well as compliance with leverage and interest-coverage covenants.
- Verify receipt and cash-flow treatment of the $12.2 million tax refund and the timing of deferred payroll-tax payments.
- Assess whether cumene supply, the PES-related cost burden and acetone anti-dumping orders or reviews changed materially.
- Review the 2021 acquisition’s integration and returns, pension contributions, environmental contingencies and any later goodwill impairment indicators.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2020.