2017
Annual Report
To My Fellow Stockholders,
Safety. Accountability. Integrity. Respect.
These are the values that ring the AdvanSix challenge coin, distributed to every employee last October to
mark the company’s first year as a stand-alone enterprise. Our values embody how we act each and every
day, how we collaborate with our suppliers and customers, engage with our stockholders, and how we
make decisions both big and small.
Health, safety and environmental (HSE) performance is -- and will always be -- our top priority. Our
commitment to ensuring the safety of our employees and the communities in which we operate,
combined with smart investments in mechanical integrity and maintenance excellence, create a platform
for safe and stable operations and higher returns for our business. In 2017, we achieved record HSE
performance, while at the same time setting numerous production records across our integrated plant
network.
The resulting operational leverage underpins the financial results detailed in the following pages. 2017
was a terrific year for AdvanSix highlighted by higher sales volume, margin expansion and improved cash
flow. Collectively, our Nylon, Ammonium Sulfate and Chemical Intermediates product lines generated
strong results in the dynamic markets they serve, supported by robust operational and commercial
excellence across the organization.
The materials we manufacture are found in a wide range of end-products that people use every day, from
carpet to food packaging to automotive parts and more. We continue to invest in our future, working
with customers to broaden and differentiate in higher-value applications, while also driving strategic
investments. We announced an incremental $20-30 million of high-return growth and cost saving capital
expenditure projects in 2018, which will provide benefits in 2019 and beyond.
The foundation of our success resides with our 1,500 dedicated and talented employees, bound by trust
and common values, our culture of continuous improvement, and the pride and support we have for one
another and in all that we do. Our employees demonstrated their generosity and commitment to our
communities in new and meaningful ways from supporting the Gulf Coast hurricane relief efforts to
working closely with local fire and rescue squads, donating time and money to STEM (science, technology,
engineering and math) programs and putting our engineering skills to work rebuilding homes in our
Virginia neighborhoods.
Our focus remains on sustaining our global low-cost advantage while delivering the highest quality
products and finding new, sustainable and innovative ways to create value. We have built a solid
foundation and are confident that AdvanSix is well-positioned over the long term.
Thank you for your continued interest in AdvanSix.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-37774
AdvanSix Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
81-2525089
(I.R.S. Employer Identification No.)
300 Kimball Drive, Suite 101 Parsippany,
New Jersey
(Address of principal executive offices)
07054
(Zip Code)
Registrant’s telephone number, including area code (973) 526-1800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.01 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes □ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes □ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No □
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). Yes ☒ No □
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See definition of ‘‘accelerated filer,’’ ‘‘large accelerated filer,’’ and ‘‘smaller reporting
company’’ in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer ☒ Accelerated filer □ Non-accelerated filer □ Smaller reporting company □
Emerging growth company □
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. □
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes □ No ☒
The aggregate market value of common stock held by non-affiliates of the Registrant was approximately $952 million
as of June 30, 2017. The market value held by non-affiliates excludes the value of those shares held by executive officers
and directors of the Registrant.
There were 30,482,966 shares of common stock outstanding at February 1, 2018.
Documents Incorporated by Reference
Part III: Proxy Statement for Annual Meeting of Stockholders to be held June 14, 2018.
[This page intentionally left blank]
TABLE OF CONTENTS
PART I.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III.
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accounting Fees and Services
PART IV.
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
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Item 1. Business
PART I.
In this Annual Report on Form 10-K, unless the context otherwise dictates, “AdvanSix”, the “Company”, “we” or “our” means
AdvanSix Inc. and its consolidated subsidiaries.
Separation from Honeywell
On October 1, 2016, Honeywell International Inc. (“Honeywell”) completed the previously announced separation of AdvanSix
Inc. The separation was completed by Honeywell distributing (the “Distribution”) all of the then outstanding shares of common
stock of AdvanSix on October 1, 2016 (the “Distribution Date”) through a dividend in kind of AdvanSix common stock, par
value $0.01, to holders of Honeywell common stock as of the close of business on the record date of September 16, 2016
who held their shares through the Distribution Date (the “Spin-Off”). Each Honeywell stockholder who held their shares
through the Distribution Date received one share of AdvanSix common stock for every 25 shares of Honeywell common
stock held at the close of business on the record date of September 16, 2016. We filed our Form 10 describing the Spin-Off
with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on September 8, 2016
(the “Form 10”). On October 3, 2016, AdvanSix stock began “regular-way” trading on the New York Stock Exchange under
the “ASIX” stock symbol. The Spin-Off is further described in Note 1 to the Consolidated Financial Statements included in
Item 8 of this Form 10-K.
Description of Business
AdvanSix Inc. 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
electrical 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,
and other chemical intermediates:
•
•
•
•
Nylon – We sell our Nylon 6 resin globally, primarily under the Aegis® brand name. In addition, we use our Nylon 6
resin to produce nylon films which we primarily sell to our customers under the Capran® brand name.
Caprolactam – Caprolactam is the key chemical compound used in the production of Nylon 6 resin. In recent years,
approximately 60% of the caprolactam we have produced at our facility in Hopewell, Virginia has been shipped to our
facility in Chesterfield, Virginia to manufacture Nylon 6 resin. We market and sell the caprolactam that is not consumed
internally in Nylon 6 resin production to customers who use it to manufacture polymer resins to produce nylon fibers,
films and other nylon products. Our Hopewell manufacturing facility is one of the world’s largest single-site producers
of caprolactam as of December 31, 2017.
Ammonium Sulfate Fertilizers – Ammonium sulfate fertilizers are derived from the caprolactam manufacturing
process. Because of our Hopewell facility’s size, scale and technology design, we are the world’s largest single-site
producer of ammonium sulfate fertilizer as of December 31, 2017. We market and sell ammonium sulfate primarily to
North American and South American distributors, farm cooperatives and retailers to fertilize crops.
Chemical Intermediates – We manufacture, market and sell a number of other chemical products that are derived
from the chemical processes within our integrated supply chain. Most significant is acetone which is used by our
customers in the production of adhesives, paints, coatings, solvents, herbicides and other engineered plastic resins.
Other intermediate chemicals that we manufacture, market and sell include phenol, alpha-methylstyrene (“AMS”),
cyclohexanone, methyl ethyl ketoxime (“MEKO”), cyclohexanol, acetaldehyde oxime, 2-pentanone oxime, sulfuric acid,
ammonia and carbon dioxide.
Each of these product lines represented the following approximate percentage of total sales:
4
Nylon
Caprolactam
Ammonium Sulfate Fertilizers
Chemical Intermediates
Years Ended December 31,
2016
28%
17%
24%
31%
100%
2015
27%
18%
25%
30%
100%
2017
29%
19%
19%
33%
100%
The following charts illustrate the distribution of our sales by product category and by region, measured by the destination
of each sale, for the year ended December 31, 2017:
For information concerning revenues and assets by geographic region, see “Note 16 – Geographic Areas and Major Customers
– Financial Data” to our Consolidated Financial Statements included in this Form 10-K, which information is incorporated
here by reference.
Our manufacturing process is backward integrated. We use cumene, a chemical compound produced from benzene and
propylene, to manufacture phenol, acetone and AMS, at our Frankford, Pennsylvania plant. The majority of the phenol we
manufacture is further processed at our Hopewell facility through an integrated series of unit operations which also consume
natural gas and sulfur, to produce caprolactam and ammonium sulfate. In recent years, approximately 60% of our caprolactam
is then shipped to our Chesterfield plant, where it is polymerized into Nylon 6 resin. In addition, we use our Nylon 6 resin to
produce nylon films at a facility located in Pottsville, Pennsylvania, which we primarily sell to our customers under the Capran®
brand name.
5
Our integrated manufacturing process, scale and the quantity and range of our products make us one of the most efficient
manufacturers in our industry. We consistently focus on and invest in improving production yields from our various
manufacturing processes to build on our leading cost position. Our global logistics infrastructure enables a reliable intra-
plant supply chain and consistent and timely delivery to our customers. In addition, we strive to understand the product
applications and end-markets into which our products are sold, which helps us upgrade the quality, chemical properties or
packaging of our products in ways to attract price premiums and greater demand.
We serve over 500 customers globally located in more than 40 countries. For the years ended December 31, 2017, 2016
and 2015, we had sales of $1,475 million, $1,192 million and $1,329 million with net income of $147 million, $34 million and
$64 million, respectively. For the years ended December 31, 2017, 2016 and 2015, our international sales were $286 million,
$216 million and $372 million, respectively.
AdvanSix is a single reportable segment, operating through four integrated U.S.-based manufacturing sites located in
Frankford and Pottsville, Pennsylvania and Hopewell and Chesterfield, Virginia. The Company's headquarters is located in
Parsippany, New Jersey.
Competitive Strengths
Large-Scale Single-Site Producer of Caprolactam and Ammonium Sulfate. We operate one of the world’s largest single-
site caprolactam and ammonium sulfate production facilities, which is a competitive advantage in our fragmented industry.
Our scale provides operating leverage and the opportunity to achieve stronger business performance than our competitors
in several ways. Most fundamentally, it enables us to spread fixed and overhead costs across more pounds of production,
thereby enabling us to produce caprolactam at a lower per pound cost than our competitors, as well as benefiting our
procurement activities for raw materials and services. We believe that our reputation as one of the world’s largest producers
of caprolactam, Nylon 6 resin, ammonium sulfate and associated chemical intermediates, encourages potential customers
to approach us for stability of their supply requirements.
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Low Cost Position Driven by Favorable Geographical Location, Integrated Manufacturing Footprint and High
Utilization Rates. Our access to lower cost raw materials, backward integrated manufacturing facilities and high plant
utilization rates help us maintain our position as the world’s lowest cost producer of caprolactam. First, the location of our
manufacturing operations in the United States affords us access to the world’s lowest cost natural gas, which is a key raw
material needed to manufacture the ammonia used in the production of caprolactam as well as the source of energy for our
manufacturing operations. By contrast, a significant number of our competitors are located in geographic locations where
energy prices are substantially higher. Second, we are backward integrated into several key feedstock materials necessary
to produce caprolactam and Nylon 6 resin, particularly phenol, ammonia and oleum/sulfuric acid, which we believe is a unique
advantage in our industry. Backward integration contributes to higher operating margins by lowering raw material
transportation, handling and storage costs. It also allows us to remain flexible, while optimizing sales from our diverse portfolio
of products. Finally, our long-term customer relationships and contracts enable us to maintain high plant utilization rates,
which, along with our large scale, provide significant operating and purchasing leverage.
Global Reach. The global reach of our sales and marketing capabilities enables us to compete everywhere nylon resin,
caprolactam, ammonium sulfate and chemical intermediates are consumed. In 2017, approximately 19% of our sales were
outside the United States. Our freight and logistics capabilities and terminal locations position us well to serve global markets,
including the dock and loading facility at our Hopewell facility which serves ocean-going freight vessels. Our global reach
enables us to arbitrage geographic price variations to ensure we are receiving the highest value for our products.
Technical Know-how, Customer Intimacy and Application Development Capabilities. Intimate knowledge of our
customers and end-market applications, combined with our technical know-how, enables us to develop specialty products
that are often valued higher by customers compared to commodity products. We have an R&D department consisting of
approximately 50 scientists and engineers with advanced degrees in polymer synthesis, catalysis and chemical engineering,
who work not only on developing new products for nylon resins but also driving unique offerings for our chemical intermediates
and ammonium sulfate customers. Our R&D team has expanded our capabilities to test and scale production of copolymer
Nylon 6/6.6 resin, which is used in food packaging films and other applications. We also have R&D resources located in
Shanghai, China that specialize in working with nylon resin customers to develop products for specialty applications. Further,
our agronomists provide the latest scientific information on the importance of sulfur nutrition for crops and how to optimize
the benefits of ammonium sulfate fertilizer to our global customers through a variety of channels including webinars, an “Ask
the Agronomist” blog, technical training sessions for retailers and direct grower meetings.
Diverse Revenue Sources from the Sale of Fertilizer, Acetone and Other Chemical Intermediates. Due to our specific
chemical manufacturing processes, backward integration and scale, we produce ammonium sulfate fertilizer, acetone and
a wide range of other chemical intermediates that enable us to diversify our revenue sources. Most significantly, for every
pound of caprolactam produced, we produce approximately four pounds of ammonium sulfate, a fertilizer used by farmers
around the world. For the past two decades, we have employed agronomists to educate growers and retailers in the Americas
on the yield value of using ammonium sulfate fertilizer on key crops including corn, wheat, coffee, sugar and cotton. Sales
of ammonium sulfate in 2017 were $277 million and represented 19% of our total sales. We are among the most significant
suppliers of acetone to a variety of end-markets in North America. Sales of acetone in 2017 were approximately $231 million
and represented 16% of our total sales. In addition to fertilizer and acetone, other products from our manufacturing process
include high-purity phenol, AMS, cyclohexanone, cyclohexanol, sulfuric acid, ammonia, MEKO and carbon dioxide. The
diversity of our sales portfolio helps to mitigate, to some extent, the cyclicality in our end-markets.
Business Strategies
Build on our Low Cost Leadership Position. Through our size, access to low cost raw materials, backward integration
and high utilization rates, we seek to expand operating margins by reducing our Nylon 6 resin, caprolactam and ammonium
sulfate production costs. Our focus on operational excellence and ongoing productivity improvements concentrate on the
following:
•
•
•
•
Increasing production volume through asset reliability, flexibility and capacity;
Investing in intermediate chemical buffer storage capacity to mitigate the unfavorable impact of routine maintenance
and unplanned interruptions;
Energy and direct material initiatives aimed at increasing plant productivity and lowering costs; and
Procurement processes, competitive bidding and supplier diversification to reduce raw material costs.
Leverage our R&D Investments and Applications Expertise. Our customers typically buy caprolactam and nylon resin
for compounding or extruding with additives and other materials, to increase strength or flexibility or to add color to make
the resin more suitable for use in their end products such as textiles, packaging and industrial materials. We leverage our
R&D investments, customer intimacy and knowledge of product applications to develop new formulations of resin products
to better serve our customers and increase the value of our resin products portfolio. For example, engineered plastics that
utilize Nylon 6 and Nylon 6.6 resin are being increasingly used in automobiles to reduce weight as automobile manufacturers
7
strive to meet stricter fuel efficiency standards. We work with our customers serving this market to develop resin products
specifically tailored for these product applications. Likewise, we are working to develop and sell nylon resin products with
differentiated characteristics for wire and cable applications and flexible food packaging. Another focus of our R&D initiatives
includes nylon resin processing technologies that can produce existing high value resins at lower costs. Our R&D team works
with existing and potential customers to understand end-use applications, build application development capabilities and
protect the value proposition of our new products.
Selective Investments to Produce Higher Value Products. Historically, a significant portion of our Nylon 6 resin was sold
as a commodity product and, as a result, was subject to cyclicality. Over the past several years, we have invested in capabilities
to increase the value of our product portfolio. We installed a production line at our Chesterfield facility that is capable of
producing multiple grades of higher value Nylon 6 resin as well as copolymer Nylon 6/6.6 resin, both of which are used in
engineered plastics for the automotive industry, films for food packaging, as well as other higher value applications. Similarly,
we will explore other investments that will enable us to produce products that meet customer specifications in certain high
value industries.
Use of Toll Manufacturers to Produce Higher Margin, AdvanSix-Developed Specialty Products. We use our technical
know-how and customer intimacy to develop products that blend our nylon resin with other types of nylon and non-nylon
resin products and additives to produce higher value products. Where we do not have the in-house manufacturing capabilities
to produce these products, we contract with third-party compounders to toll manufacture for us. Utilizing third party toll
manufacturing has enabled the Company to diversify away from certain commodity end-markets, provide a low cost way to
access certain geographic regions and, in some cases, explore new end-markets and applications with less risk.
Pursue a Highly-Selective Acquisition Strategy. We evaluate strategic acquisitions and alliances to supplement our organic
sales by broadening our customer base, expanding our geographic reach and developing our technology and product
portfolios.
Industry Overview
Nylon and Caprolactam. According to PCI Wood Mackenzie, estimated 2017 annual global demand for Nylon 6 resin was
approximately 5,500 kMT, spanning a variety of end-uses such as engineered automotive plastics, carpets, textiles, industrial
filament, and food and industrial films. The market growth typically tracks global growth but varies by end-use. Some of these
end-markets, such as engineered automotive plastics, are experiencing increased demand due to trends in lightweighting
to meet stricter fuel efficiency standards. We expect this trend of increasing demand to continue as our customers find new
uses for Nylon 6 resin within existing and new applications.
Generally, prices for Nylon 6 resin and caprolactam reflect supply and demand in the marketplace as well as the value of
the basic raw materials used in the production of caprolactam, consisting primarily of benzene and, depending on the
manufacturing process utilized, natural gas and sulfur. The price of benzene is a key driver of caprolactam prices because
it is the common chemical compound used in the petrochemical derivatives, such as phenol and cyclohexane, which are the
key feedstock materials for caprolactam depending on the chosen manufacturing technology. As a result, the global prices
for caprolactam typically track as a spread over the price of benzene. Generally, Nylon 6 resin prices track the cyclicality of
caprolactam prices, although, to the extent Nylon 6 resin producers are able to manufacture specialized nylon resin products,
prices set above the spread are achievable.
The global market for Nylon 6 resin and caprolactam has undergone significant change in the past seven years as Chinese
manufacturers have entered the market and increased global supply at a time when demand growth has remained relatively
stable. As a result of the increased capacity and competitive intensity, margins for Nylon 6 resin and caprolactam have
declined to historic lows over this period. Throughout 2017, industry spreads fluctuated near marginal producer cost.
Ammonium Sulfate. Ammonium sulfate fertilizer products are primarily sold in North and South America. Ammonium sulfate
is used as a nitrogen fertilizer on key crops that benefit from sulfur micronutrients and, as of December 31, 2017, accounts
for approximately 5% of the global market for nitrogen fertilizer. Global prices for ammonium sulfate fertilizer are influenced
by several factors including the price of urea, which is the most widely used source of nitrogen-based fertilizer in the world.
Urea pricing has declined in recent years due to global production expansions outpacing demand. In late 2017, urea prices
firmed as Chinese environmental regulations reduced exports. Another global factor driving demand for ammonium sulfate
fertilizer is general agriculture trends including the price of crops.
Chemical Intermediates. Chemical intermediates are used as key inputs for a variety of end-market products including
construction materials, paints and coatings, packaging and consumer applications. The prices for our chemical intermediates
generally correlate to the prices of their underlying raw materials and supply and demand dynamics.
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Competition
Competition across our product offerings is based on a variety of factors including price, reliability of supply, product innovation,
and quality. Other competitive factors include breadth of product line, R&D efforts and technical and managerial capability.
While the competitive position of our individual products varies, we believe we are a significant competitor in each major
product class. AdvanSix competes with integrated manufacturers, such as BASF Corporation, Sinopec Limited, DOMO
Chemicals GmbH, LANXESS AG and Ube Industries, Ltd. We also compete with manufacturers such as Li Peng Enterprise
Co. Ltd. and Zig Sheng Industrial Co., Ltd. that produce only polymer resin; synthetic manufacturers of ammonium sulfate,
such as Pasadena Commodities International; and phenol producers, such as Ineos. A number of our products are sold in
markets with many competitors, some of whom have substantial financial resources and significant technological capabilities.
Additionally, our competitors include companies with global operations as well as those operating only within specific
geographic regions.
Product Overview
Nylon
We manufacture our Nylon 6 resin in our Chesterfield plant. We sell our Nylon 6 resin globally, primarily under the Aegis®
brand name. In addition, we use our Nylon 6 resin to produce nylon films at our Pottsville plant, which is sold to our customers
under the Capran® brand name. In 2017, our Nylon products generated $423 million of sales. In 2017, 2016 and 2015, Nylon
sales were 29%, 28% and 27% of our total sales, respectively.
Caprolactam
We produce caprolactam, the key monomer used in the production of Nylon 6 resin, at our Hopewell plant using phenol
produced at our Frankford plant and sulfur and natural gas obtained from third-party suppliers. In 2017, caprolactam generated
$288 million of sales. In 2017, 2016 and 2015, caprolactam sales were 19%, 17% and 18% of our total sales, respectively.
Ammonium Sulfate
Ammonium sulfate fertilizer is produced simultaneously with caprolactam as part of our integrated caprolactam manufacturing
process at our Hopewell plant. We manufacture these products in a ratio of approximately four pounds of ammonium sulfate
to one pound of caprolactam. Our competitors typically produce approximately two pounds or less of ammonium sulfate for
each pound of caprolactam. Approximately 60% of the ammonium sulfate we produce is in granular form. We sell ammonium
sulfate under the brand name Sulf-N®, and in 2017, our ammonium sulfate products generated $277 million of sales. In
2017, 2016 and 2015, ammonium sulfate sales were 19%, 24% and 25% of our total sales, respectively.
Chemical Intermediates
We produce and sell chemical intermediates to a range of customers for use in many different types of end-products. In
2017, our chemical intermediates generated $487 million of sales, of which $399 million, or 82%, came from sales of acetone,
phenol and cyclohexanone, and $88 million, or 18%, came from sales of our other chemical intermediates. In 2017, 2016
and 2015, sales of chemical intermediates were 33%, 31% and 30% of our total sales, respectively.
Phenol is a key chemical intermediate of caprolactam, and we produce the phenol we use in our caprolactam manufacturing
process at our Frankford plant. Approximately 75% to 80% of the phenol we produce is used in production of caprolactam
and other chemical intermediates at Hopewell, and approximately 20% to 25% of our phenol is sold to customers for use in
their product applications such as resins, epoxies and Bisphenol A.
All our acetone is sold to customers for use in end-products such as adhesives, paints, coatings, solvents, herbicides and
other engineered plastic resins. Acetone is typically used by our customers as a key raw material in the production of a variety
of other chemicals which are then used in the applications listed above.
We also produce and sell alpha methylstyrene ("AMS"), methyl ethyl ketoxime ("MEKO"), cyclohexanone, cyclohexanol,
acetaldehyde oxime and 2-pentanone oxime. We use some of these products in our manufacturing process and sell some
to customers for use in end-products such as resins, inks, paints, coatings and agricultural chemical intermediates and
detergents.
Raw Materials
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The primary raw material used in our manufacturing process is cumene, which is produced from benzene and propylene.
We purchase cumene from multiple suppliers to ensure stability of supply and optimal terms. Other important raw materials
used in our manufacturing process are natural gas and sulfur, which are used to produce caprolactam and ammonium sulfate.
We purchase natural gas and sulfur from a diverse set of suppliers.
Historically, we have been able to renew contracts with our suppliers and obtain sufficient quantities of cumene, sulfur, natural
gas and any other key raw materials. Global supply and demand can significantly impact the price of our key raw materials,
and historically prices have been cyclical. We primarily mitigate our exposure to commodity price risk through the use of
long-term, formula-based price contracts with our suppliers and formula-based price agreements with customers. We
continually seek to reduce costs of key raw materials and do not foresee any material constraints in the near term resulting
from pricing or availability.
Sales, Marketing and Distribution
We have a global sales force with long-standing customer relationships and deep expertise with our products, product
applications and end-markets. We predominantly sell directly to our customers, primarily under contracts but also through
spot transactions under purchase orders.
Our products are supported by our global logistics capability that we employ to ensure reliable and timely delivery to our
customers while maximizing distribution resources and efficiency.
Customers
Globally, we serve over 500 customers in a wide variety of industries located in more than 40 countries. In 2017, the Company's
10 largest customers accounted for approximately 44% of total sales. Our largest customer is Shaw Industries Group, Inc.,
one of the world’s largest consumers of caprolactam and Nylon 6 resin which we sell to them under a long-term contract. In
2017, 2016 and 2015, sales to Shaw were 22%, 17% and 16%, respectively, of our total sales. We typically sell to our other
customers under short-term contracts, with one- to two-year terms, or by purchase orders. We have historically experienced
low customer turnover.
Seasonality
Except for sales of our ammonium sulfate fertilizer products, which are influenced by seasonal growing patterns in North and
South America, sales of most of our products are subject to minimal or no seasonality. We occasionally build up higher
inventory balances because the production volumes are generally steady month-to-month rather than tied to seasonal demand
for fertilizers.
Backlog
In general, the Company does not manufacture its products against a backlog of orders and does not consider backlog to
be a significant indicator of the level of future sales activity. Therefore, the Company believes that backlog information is not
material to understanding its overall business and should not be considered a reliable indicator of the Company’s ability to
achieve any particular level of revenue or financial return. However, we do have long-term supply contracts that carry minimum
order obligations.
Research & Development and Intellectual Property
We believe success in our industry is driven not only by operational excellence and cost position but also through technological
strength and innovation. Our R&D activities focus on improving our chemical manufacturing processes to increase efficiency,
capacity, and productivity, and lowering our production and operating costs, as well as innovating and developing new product
applications.
We benefit from numerous patents and trademarks that we own. We sell our Nylon 6 resin under the Aegis® brand name,
our nylon films under the Capran® brand name and our ammonium sulfate fertilizer under the Sulf-N® brand name. Chemical
intermediates are sold under the brand names of Nadone®, Naxol® and EZ-Blox™. We also benefit from technology covered
by trade secrets, including know-how and other proprietary information relating to many of our products, processes and
technologies. We do not consider any individual patent, trademark or licensing or distribution rights related to a specific
process or product to be of material importance in relation to our total business. In our judgment, our intellectual property
rights are adequate for the conduct of our business. We intend to continue taking steps as necessary to protect our intellectual
property, including when appropriate, filing patent applications for inventions that are deemed important to our business.
10
We conduct R&D at technology centers with approximately 50 researchers in total. We lease R&D space from Honeywell in
Colonial Heights, Virginia and have R&D resources located in Shanghai, China. For the years ended December 31, 2017,
2016 and 2015, our R&D expenses were approximately $12.9 million, $13.8 million and $12.8 million, respectively.
Regulation and Environmental Matters
We are subject to various federal, state, local and foreign government requirements regarding protection of human health
and the environment. Compliance with these laws and regulations results in higher capital expenditures and costs. We believe
that, as a general matter, our policies, practices and procedures are properly designed to prevent unreasonable risk of
environmental impact, and any resulting financial liability. Some risk of environmental impact is, however, inherent in some
of our operations and products, as it is with other companies engaged in similar businesses.
We are and have been engaged in the handling, manufacture, use and disposal of many substances classified as hazardous
by one or more regulatory agencies. It is possible that future knowledge or other developments, such as improved capability
to detect substances in the environment or increasingly strict environmental laws, standards and enforcement policies, could
bring into question our current or past handling, manufacture, use or disposal of these substances.
Among other environmental laws and regulations, we are subject to the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA” also known as the “Federal Superfund Law”); the Resource Conservation and
Recovery Act (“RCRA”) and similar state, foreign and global laws for management and remediation of hazardous materials;
the Clean Air Act (“CAA”) and the Clean Water Act, for protection of air and water resources; the Toxic Substance Control
Act (“TSCA”), for regulation of chemicals in commerce and reporting of potential known adverse effects. There are also
numerous other federal, state, local and foreign laws and regulations governing materials transport and packaging, under
which we may be designated as a potentially responsible party liable for cleanup costs associated with current operating
sites and various hazardous waste sites.
In July 2013, a consent decree was finalized among the United States, the Commonwealth of Virginia and AdvanSix regarding
alleged violations of the CAA and the air operating permit at our manufacturing facility in Hopewell, Virginia. In the consent
decree, we agreed to pay a civil penalty of $3 million and, among other things, install certain pollution control and other
equipment in accordance with a schedule ending in 2019. In October 2015, a consent order was finalized between the Virginia
Water Control Board and AdvanSix regarding alleged violations of Hopewell’s Virginia Pollutant Discharge Elimination System
permit and other discharge requirements. In the consent order, we agreed to pay a civil penalty of $300,000 and, among
other things, take corrective action with respect to process sewers and sumps at our Hopewell facility in accordance with a
schedule ending in 2018.
Our business may be impacted by potential climate change legislation, regulation or international treaties or accords in the
foreseeable future. We will continue to monitor emerging developments in this area.
Our accounting policy for environmental expenditures is discussed in “Note 2 – Summary of Significant Accounting Policies”
to the audited Consolidated Financial Statements included elsewhere in this Form 10-K. We continuously seek to improve
our environment, health and safety performance. We have expended funds to comply with environmental laws and regulations
and expect to continue to do so.
Our Frankford and Hopewell facilities are regulated facilities under the Maritime Transportation Security Act of 2002 (“MTSA”)
due to the nature of our operations and the proximity of the facilities to adjacent waterways. As a result, we are required to
comply with numerous regulations administered by the Department of Homeland Security, including the development and
implementation of compliant security procedures and protocols. Additionally, sales of acetone, which is a List II Chemical
under the TSCA, are regulated by the Drug Enforcement Act. This classification subjects us to audits by the Drug Enforcement
Administration and ongoing restrictions on our sales activities with respect to acetone.
See “Risk Factors – We are subject to extensive environmental, health and safety laws and regulations that may result in
unanticipated loss or liability, which could adversely affect our business, financial condition and results of operations” in Item
1A.
Employees
As of December 31, 2017, the Company employed approximately 1,510 people. Of this total, approximately 590 are salaried
employees and approximately 920 are hourly employees. Approximately 760 employees are covered under collective
bargaining agreements that expire between 2018 and 2021.
11
Executive Officers of the Registrant
The executive officers of AdvanSix Inc., listed as follows, are appointed annually by the Board of Directors. Each of the
individuals was first appointed as an executive officer in 2016.
There are no family relationships among them.
Name, Age
Erin N. Kane, 41
Position
Chief
Executive
Officer and
Director
Michael Preston, 46
Senior Vice
President and
Chief
Financial
Officer
John M. Quitmeyer, 67 Senior Vice
President,
General
Counsel and
Corporate
Secretary
Jonathan Bellamy, 52 Senior Vice
President and
Chief Human
Resources
Officer
Business Experience
Prior to joining the Company, Ms. Kane served as vice president and general
manager of Honeywell Resins and Chemicals since October 2014. She joined
Honeywell in 2002 as a Six Sigma Blackbelt of Honeywell’s Specialty Materials
business. In 2004, she was named product marketing manager of Honeywell’s
Specialty Additives business. From 2006 until 2008, Ms. Kane served as global
marketing manager of Honeywell’s Authentication Technologies business, and in
2008 she was named global marketing manager of Honeywell’s Resins and
Chemicals business. In 2011, she was named business director of chemical
intermediates of Honeywell’s Resins and Chemicals business. Prior to joining
Honeywell, Ms. Kane held Six Sigma and process engineering positions at
Elementis Specialties and Kvaerner Process. Ms. Kane brings to the Board her
extensive leadership experience as well as knowledge of AdvanSix’s business,
industry, health, safety and environmental (HSE), and operations.
Prior to joining the Company, Mr. Preston held a number of finance roles with
Honeywell for over 15 years. Most recently, Mr. Preston served as vice president
and chief financial officer for Honeywell’s UOP division (2013-2016). Prior to this
role, Mr. Preston was vice president of business analysis & planning (2012–2013)
with Honeywell corporate. Mr. Preston also held several finance leadership roles
within businesses and Honeywell corporate, including chief financial officer for
Fluorine Products, director of financial planning & analysis for Performance
Materials and Technologies, and director of business analysis & planning for
Honeywell corporate. Mr. Preston began his career with Honeywell in September
of 2001 as manager of investor relations. Prior to joining Honeywell, he spent
seven years in investor relations consulting. Mr. Preston was awarded the
Chartered Financial Analyst designation in September of 2001 and is a member
of CFA Institute and New York Society of Security Analysts.
Prior to joining the Company, Mr. Quitmeyer served as vice president and general
counsel of Honeywell’s Automation and Control Solutions strategic business group
since 2005. He joined Honeywell in 1997 as general counsel of Honeywell’s safety
restraint business. From 1997 until 1998, Mr. Quitmeyer served as general counsel
of Honeywell’s automotive products group. From 1998 until 2000, Mr. Quitmeyer
served as general counsel of Honeywell’s consumer products group. From 2000
until 2002, Mr. Quitmeyer was Honeywell’s chief litigation counsel. From 2002 until
2005, Mr. Quitmeyer served as general counsel of Honeywell’s Specialty Materials
business. Prior to joining Honeywell, Mr. Quitmeyer was a litigation partner at
Rogers & Wells.
Prior to joining the Company, Mr. Bellamy served as vice president of human
resources of the Defense and Space business of Honeywell’s Aerospace division
since 2015. He joined Honeywell in 1997 as human resources manager of the
Turbo Technologies division. From March 2000 until February 2003, Mr. Bellamy
served as human resources manager, then regional director of Honeywell’s Turbo
Technologies division. From February 2003 until December 2004, he served as
director of human resources of Honeywell Transportation Systems, Asia. From
December 2004 until November 2005, Mr. Bellamy served as global human
resources director of Honeywell’s Friction Materials division. From November 2005
until July 2010, Mr. Bellamy served as corporate human resources director. From
2010 to 2015, he was vice president of human resources of Honeywell UOP. Prior
to joining Honeywell, Mr. Bellamy held human resources and operations positions
at BTR Brook Hansen and N.S.K./RHP Bearings.
12
Name, Age
Position
Christopher Gramm,
48
Vice
President,
Controller
Business Experience
Prior to joining the Company, Mr. Gramm served as vice president and controller
of the aerospace and corporate government compliance divisions at Honeywell
International Inc. From August 2014 to November 2015, Mr. Gramm served as
vice president of finance for the integrated supply chain of the aerospace division
at Honeywell International Inc. Beginning in March 2011, he was vice president
and controller of the aerospace division at Honeywell International Inc. Over the
course of the period from 1997 to March 2011, Mr. Gramm held several positions
at Honeywell International Inc., including controller and chief financial officer of
various divisions focused on areas including specialty materials and resins and
chemicals. He joined Honeywell International Inc. in 1997 as a senior staff
accountant. Before joining Honeywell International Inc., Mr. Gramm was a
manager at Corning Life Sciences.
Other Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to
those reports are available free of charge on our website (www.AdvanSix.com) under the heading Investors (see SEC filings)
immediately after they are filed with, or furnished to, the Securities and Exchange Commission (SEC). In addition, in this
Form 10-K, the Company incorporates by reference certain information from parts of its Proxy Statement for the 2018 Annual
Meeting of Stockholders, which will also be available free of charge on our website. Information contained on, or connected
to, our website does not and will not constitute part of this Form 10-K.
We are a Delaware corporation that was incorporated on May 4, 2016. Effective February 1, 2017, our principal executive
offices are located at 300 Kimball Drive, Suite 101, Parsippany, NJ 07054. Prior to February 1, 2017, our principal executive
offices were located at 115 Tabor Road, Morris Plains, NJ 07950. Our telephone number is (973) 526-1800. Our website
address is www.AdvanSix.com.
13
Item 1A. Risk Factors
Cautionary Statement Concerning Forward-Looking Statements
All statements other than statements of historical fact included in this Form 10-K including, without limitation, statements
under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other parts
of this Form 10-K regarding our financial position, business strategy and the plans and objectives of management for future
operations, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. When used in this Form 10-K, words such as “anticipate,” “believe,” “estimate,” “expect,” “plan,” “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. They are not guarantees of future performance and actual results could differ materially from those
contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent
written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by
this paragraph. We do not undertake to update or revise any of our forward-looking statements. Our forward-looking statements
are also subject to risks and uncertainties that can affect our performance in both the near-and long-term. These forward-
looking statements should be considered in light of the information included in this Form 10-K, including, in particular, the
factors discussed below. These factors may be revised or supplemented in subsequent reports on Forms 10-Q and 8-K.
Risk Factors
You should carefully consider all information in this Form 10-K and each of the risks described below, which we believe are
the principal risks we face. Any of the following risks could materially and adversely affect our business, financial condition
and results of operations and the actual outcome of matters as to which forward-looking statements are made in this Form
10-K.
Risks Relating to Our Business
Difficult and volatile conditions in the overall economy, particularly in the United States but also globally, and in the
capital, credit and commodities markets could adversely affect our business, financial condition and results of
operations.
Our business, financial condition and results of operations could be adversely affected by difficult global economic conditions
and significant volatility in the capital, credit and commodities markets and in the overall economy. For example:
• Weak economic conditions, especially in our key markets, could reduce demand for our products, impacting our
sales and margins;
• As a result of volatility in commodity prices, we may encounter difficulty in achieving sustained market acceptance
of past or future price increases;
• Under difficult market conditions, there can be no assurance that access to credit or the capital markets would be
available or sufficient, and as such, we may not be able to successfully obtain additional financing on reasonable
terms, or at all;
• Market conditions and credit availability could adversely affect the financial situation of key raw material suppliers’
ability to deliver key materials, thus impacting our ability to run our production facilities at the intended rates; and
• Market conditions could result in our key customers experiencing financial difficulties and/or electing to limit spending,
which in turn could result in decreased sales and earnings for us.
The industries in which we operate are highly competitive and experience cyclicality which can cause significant
fluctuations in our cash flows. These industry dynamics may adversely affect our business, financial condition and
results of operations.
Competition in the industries we serve is based on factors such as price, product quality and service. We face significant
competition from major international and regional competitors. Our competitors may improve their competitive positions in
our core markets by successfully introducing new products or innovations in their manufacturing processes or improving their
cost structures. If we are unable to keep pace with our competitors’ product and manufacturing process innovations or cost
position improvements, our business, financial condition and results of operations could be adversely affected.
14
Our historical operating results reflect the cyclical and sometimes volatile nature of the Nylon 6 resin, caprolactam and
ammonium sulfate industries. We experience cycles of fluctuating supply and demand for each of the products we sell
resulting in changes in selling prices and margins. Periods of high demand, tight supply and increasing operating margins
tend to result in increases in capacity and production until supply exceeds demand, generally followed by periods of oversupply
and declining prices. For example, in the past, nylon and caprolactam prices have experienced a cyclical period of downturn
as the global market has experienced large increases in supply without a commensurate increase in demand. Decreases in
the average selling prices of our products could have an adverse effect on our profitability. While we strive to maintain or
increase our profitability by reducing costs through improving production efficiency, by emphasizing higher margin products
and by controlling transportation, selling and administration expense, we cannot assure you that these efforts will be sufficient
to offset fully the effect of possible decreases in pricing on operating results. Because of the cyclical nature of our businesses,
we cannot assure you that pricing or profitability in the future will be comparable to any historical period, including the most
recent period shown in our operating results.
Any significant unplanned downtime or material disruption at one of our production facilities or logistics operations
may adversely affect our business, financial condition and results of operations.
We seek to run our complex production facilities on a nearly continuous basis for maximum efficiency and we rely on the
integrity of our logistics operations for the uninterrupted operations of our business. While we have made significant annual
capital improvements at our manufacturing plants, operational issues have occurred in the past and may occur in the future,
which could cause damage to our manufacturing and production equipment and ancillary facilities. Unplanned interruptions
in our production capabilities adversely affect our production costs, product lead times and earnings during the affected
period.
Although our integrated manufacturing, scale and the quantity and range of our product offerings make us one of the most
efficient manufacturers in our industry, the significant level of integration across our manufacturing facilities exposes us to
increased risk associated with unplanned downtime or material disruptions at any one of our production facilities which could
impact our supply chain and our manufacturing process.
We seek to mitigate the risk of unplanned downtime through regularly scheduled maintenance for both major and minor
repairs at all of our production facilities. We also utilize maintenance excellence and mechanical integrity programs and
maintain what we believe is an appropriate buffer inventory of intermediate chemicals necessary for our manufacturing
process, both of which are intended to mitigate the extent of any production losses as a result of unplanned downtime.
However, unplanned outages may still occur or we may not have enough intermediate chemical inventory at any given time
to offset production losses. Moreover, taking our production facilities offline for regularly scheduled repairs can be an expensive
and time-consuming operation with risk that discoverable items and delays during the repair process may cause additional
unplanned downtime. Any such unplanned downtime at any of our production facilities may adversely affect our business,
financial condition and results of operations.
Our production facilities and logistics operations are also subject to the risk of catastrophic loss and material disruptions due
to unanticipated events, such as unexpected repairs or other operational and logistical problems, severe weather conditions,
personal injury or major accidents, prolonged power failures, chemical spills, fires, explosions, acts of terrorism, earthquakes
or other natural disasters, that we or a third-party on which we rely may experience. Depending on the nature, extent and
length of any operational interruption from any such event, the results could adversely affect our business, financial condition
and results of operations.
Raw material price fluctuations and the ability of key suppliers to meet delivery requirements can increase the cost
of our products and services, impact our ability to meet commitments to customers and cause us to incur significant
liabilities.
The cost of raw materials, including cumene, natural gas and sulfur, is a key element in the cost of our products. Our inability
to offset material price inflation through increased prices to customers, formula-based or long-term fixed price contracts with
suppliers, productivity actions or commodity hedges could adversely affect our business, financial condition and results of
operations.
Although we believe that our sources of supply for raw materials are generally robust, it is difficult to predict what effects
shortages of raw materials or price increases may have in the future. Our ability to manage inventory and meet delivery
requirements may be constrained by our suppliers’ inability to scale production and adjust delivery of long lead-time products
during periods of fluctuating demand. Our inability to fill our supply needs would jeopardize our ability to fulfill obligations
under contracts, which could, in turn, result in reduced sales and profits, contract penalties or terminations and damage to
customer relationships.
15
When possible, we have purchased, and we plan to continue to purchase, raw materials, including cumene, natural gas and
sulfur, through negotiated medium- or long-term contracts. To the extent we have been able to achieve favorable terms in
our existing negotiated contracts, we may not be able to renew such contracts at the current terms or at all, and this may
adversely impact our results of operations. To the extent the markets for our raw materials significantly change, we may be
bound by the terms of our existing supplier contracts and obligated to purchase raw materials at disadvantaged terms as
compared to other market participants.
Our operations require substantial capital and we may not be able to obtain additional capital that we need in the
future on favorable terms or at all.
Our industry is capital intensive, and we may require additional capital in the future to finance our growth and development,
upgrade and improve our manufacturing capabilities, implement further marketing and sales activities, fund ongoing R&D
activities, satisfy regulatory and environmental compliance obligations and meet general working capital needs. Our capital
requirements will depend on many factors, including acceptance of and demand for our products, the extent to which we
invest in new technology and R&D projects and the status and timing of these developments. We may need to seek additional
capital in the future, and debt or equity financing may not be available to us on terms we find acceptable, if at all. If we incur
additional debt or raise equity through the issuance of our preferred stock, the terms of the debt or our preferred stock may
give the holders rights, preferences and privileges senior to those of holders of our common stock, particularly in the event
of liquidation. If we raise funds through the issuance of additional common equity, ownership in AdvanSix would be diluted.
Also, regardless of the terms of our debt or equity financing, our agreements and obligations under the Tax Matters Agreement
entered into in connection with the Spin-Off that address compliance with Section 355(e) of the Internal Revenue Code of
1986, as amended (the “Code”), may limit our ability to issue stock. We believe that we have adequate capital resources to
meet our projected operating needs, capital expenditures and other cash requirements. However, we may need additional
capital resources in the future, and if we are unable to obtain sufficient resources for our operating needs, capital expenditures
and other cash requirements for any reason, our business, financial condition and results of operations could be adversely
affected.
Failure to develop and commercialize new products or technologies could adversely affect our business, financial
condition and results of operations.
Our successful development and commercialization of new products and technologies are drivers to our future strategy. The
development and commercialization of new products and technologies requires significant investment in research and
development, capital expenditures, production and marketing. We cannot be certain that costs incurred by investing in new
products and technologies will result in an increase in our revenues or profits. The success of any such new products and
technologies is uncertain and could adversely affect our business, financial condition and results of operations.
Our operations are dependent on numerous required permits and approvals.
We hold numerous environmental and other governmental permits and approvals authorizing operations at each of our
facilities. In addition, any expansion or major modification of our operations is dependent upon securing the necessary
environmental or other permits or approvals. A decision by a government agency to deny or delay issuing a new or renewed
material permit or approval, or to revoke or substantially modify an existing material permit or approval, could have an adverse
effect on our ability to continue operations at the affected facility and on our business, financial condition and results of
operations.
The loss of one or more of our significant customers could adversely affect our business, financial condition and
results of operations.
Our business depends on significant customers, many of whom have been doing business with us for decades. The loss of
one or several significant customers may have an adverse effect on our business, financial condition and results of operations.
In 2017, our 10 largest customers accounted for approximately 44% of our total sales. Our largest customer is Shaw Industries
Group, Inc. (“Shaw”), one of the world’s largest consumers of caprolactam and Nylon 6 resin, which we sell to them under
a long-term contract. We typically sell to other customers under short-term contracts with one- to two-year terms or by
purchase orders. If our sales to any of our significant customers were to decline, we may not be able to find other customers
to purchase the excess supply of our products. The loss of one or several of our significant customers, or a significant
reduction in purchase volume by any of them, or significant unfavorable changes to pricing or other terms in contracts with
any of them, could have an adverse effect on our business, financial condition and results of operations. We are also subject
to credit risk associated with customer concentration. If one or more of our largest customers were to become bankrupt or
insolvent, or otherwise were unable to pay for our products, we may incur significant write-offs of accounts that may have
an adverse effect on our business, financial condition and results of operations.
16
We are subject to risks related to adverse trade policies imposed against exports from the United States in certain
important markets for our products.
As a U.S.-based producer, we are impacted by antidumping investigations which have had, and may continue to impose,
significant antidumping duties on our products. Such duties place us at a significant competitive disadvantage in the applicable
markets. In each case, we diligently evaluate our commercial and legal options to defend these investigations and their
subsequent sunset reviews. Historically, we have successfully mitigated these risks through geographical mix management
so that the imposition of duties does not materially affect our business results. However, such duties could have an adverse
effect on the sales of key product lines and affect our business performance in the future.
There can be no assurance that, in the future, any governmental or international trade body will not institute trade policies
or remedies that are adverse to exports from the United States. Any significant changes in international trade policies, practices
or trade remedies, especially those instituted in our target markets or markets where our major customers are located, such
as NAFTA, could potentially increase the price of our products relative to our competitors or decrease our customers’ demand
for our products, which in turn may adversely affect our business, financial condition and results of operations.
We are subject to extensive environmental, health and safety laws and regulations that may result in unanticipated
loss or liability, which could adversely affect our business, financial condition and results of operations.
Various federal, state, local and foreign governments regulate the discharge of materials into the environment and can impose
substantial fines and criminal sanctions for violations and require installation of costly equipment or operational changes to
limit emissions and/or decrease the likelihood of accidental hazardous substance releases. If we are found to be in violation
of these laws or regulations, we may incur substantial costs, including fines, damages, criminal or civil sanctions and
remediation costs, or experience interruptions in our operations. See “Item 1. Business - Regulation and Environmental
Matters” for more information on the environmental laws and regulations to which we are subject.
Primarily because of past operations at our current manufacturing locations and other locations used in our operations as
currently conducted, we may be subject to potentially material liabilities related to the remediation of environmental hazards
and to claims of personal injuries or property damages that may have been or may be caused by hazardous substance
releases and exposures or other hazardous conditions. Lawsuits, claims and costs involving these matters may arise in the
future. In addition, changes in laws, regulations and enforcement of policies, the discovery of previously unknown
contamination or other information related to individual sites, the establishment of stricter state or federal toxicity standards
with respect to certain contaminants or the imposition of new clean-up requirements or remedial techniques could require
us to incur additional costs in the future that would have a negative effect on our business, financial condition and results of
operations.
Additionally, there are substantial uncertainties as to the nature, stringency and timing of any future regulations or changes
in regulations, including greenhouse gas (“GHG”) and water nutrient regulations. More stringent regulations, especially of
GHGs, may require us to make changes in our operating activities that would increase our operating costs, reduce our
efficiency, limit our output, require us to make capital improvements to our facilities, increase our costs for or limit the availability
of energy, raw materials or transportation or otherwise adversely affect our business, financial condition and results of
operations. If enacted, more stringent GHG limitations are likely to have a significant impact on us because our production
facilities emit GHGs such as carbon dioxide and nitrous oxide and because natural gas, a fossil fuel, is a primary raw material
used in our production process. In addition, to the extent that GHG restrictions are not imposed in countries where our
competitors operate or are less stringent than regulations that may be imposed in the United States, our competitors may
have cost or other competitive advantages over us.
There is also a risk that one or more of our key raw materials or one or more of our products may be found to have, or be
characterized as having, a toxicological or health-related impact on the environment or on our customers or employees,
which could potentially result in us incurring liability in connection with such characterization and the associated effects of
any toxicological or health-related impact. If such a discovery or characterization occurs, we may incur increased costs to
comply with new regulatory requirements, or the relevant materials or products, including products of our customers that
incorporate our materials or products, may be recalled or banned. Changes in laws and regulations, or their interpretations,
and our customers’ perception of such changes or interpretations may also affect the marketability of certain of our products.
Additionally, sales of acetone, which is a List II Chemical under TSCA, are regulated by the Drug Enforcement Act. This
classification subjects us to periodic audits by the Drug Enforcement Administration and ongoing restrictions on our acetone
sales activities.
Due to concerns related to terrorism, we are subject to various security laws including MTSA regulations. Our Frankford and
Hopewell facilities are regulated facilities under MTSA due to the nature of our operations and the proximity of the facilities
to adjacent waterways. Federal, state, local and foreign governments could implement new or impose more stringent
17
regulations affecting the security of our plants, terminals and warehouses or the transportation and use of fertilizers or other
chemicals. These regulations could result in higher operating costs or limitations on the sale of our products and could result
in significant unanticipated costs, lower sales and reduced profit margins. It is possible that federal, state, local and foreign
governments could impose additional limitations on the use, sale or distribution of chemicals we produce and sell, thereby
limiting our ability to manufacture or sell those products, or that illicit use of our products could result in liability for us.
Hazards associated with chemical manufacturing, storage and transportation could adversely affect our business,
financial condition and results of operations.
There are hazards associated with chemical manufacturing and the related storage and transportation of raw materials,
products and wastes. These hazards could lead to an interruption or suspension of operations and could have an adverse
effect on the productivity and profitability of a particular manufacturing facility, or on us as a whole. While we endeavor to
provide adequate protection for the safe handling of these materials, issues could be created by various events, including
natural disasters, severe weather events, acts of sabotage and performance by third parties, and as a result, we could face
potential hazards such as piping and storage tank leaks and ruptures, mechanical failure, employee exposure to hazardous
substances and chemical spills and other discharges or releases of toxic or hazardous substances or gases.
These hazards may cause personal injury and loss of life, damage to property and contamination of the environment, which
could lead to government fines, work stoppage injunctions, lawsuits by injured persons, damage to our public reputation and
brand and diminished product acceptance. If such actions are determined to be adverse to us or there is an associated
economic impact to our business, we may have inadequate insurance or cash flow to offset any associated costs. Such
outcomes could adversely affect our business, financial condition and results of operations.
Our business, financial condition and results of operations could be adversely affected by litigation and other
commitments and contingencies.
We face risks arising from various unasserted and asserted litigation matters, including, but not limited to, product liability
and claims for third-party property damage or personal injury stemming from alleged environmental or other torts. We have
noted a nationwide trend in purported class actions against chemical manufacturers generally seeking relief such as medical
monitoring, property damages, off-site remediation and punitive damages arising from alleged environmental or other torts
without claiming present personal injuries. We also have noted a trend in public and private nuisance suits being filed on
behalf of states, counties, cities and utilities alleging harm to the general public.
Various factors or developments can lead to changes in current estimates of liabilities such as a final adverse judgment,
significant settlement or changes in applicable law. An adverse outcome or unfavorable development in any one or more of
these matters could be material to our financial results and could adversely impact the value of any of our brands associated
with any such matters.
In the ordinary course of business, we may make certain commitments, including representations, warranties and indemnities
relating to current and past operations, including those related to divested businesses, and issue guarantees of third-party
obligations. Additionally, we will be required to indemnify Honeywell for amounts related to liabilities allocated to, or assumed
by, us under each of the Separation and Distribution Agreement, the Employee Matters Agreement and the Tax Matters
Agreement entered into in connection with the Spin-Off. If we are required to make any such payments, the payments could
be significant and could exceed the amounts we have accrued with respect thereto, adversely affecting our business, financial
condition and results of operations.
Any acquisition, strategic relationship, joint venture or investment could disrupt our business and harm our financial
condition. Our inability to successfully acquire and integrate other businesses, assets, products or technologies
or realize the financial and strategic goals that were contemplated at the time of any transaction could adversely
affect our business, financial condition and results of operations.
We actively evaluate acquisitions, strategic relationships, joint ventures, collaborations, and strategic investments in
businesses, products or technologies that we believe could complement or expand our business, broaden our technology
and intellectual property, increase market share in our current markets or expand into adjacent markets or otherwise offer
growth or cost-saving opportunities. Lack of control over the actions of our business partners in any strategic relationship,
joint venture or collaboration, could significantly delay the introduction of planned products or otherwise make it difficult or
impossible to realize the expected benefits of such relationship. Any transactions may be complex, time consuming and
expensive, and may present numerous challenges and risks. An investment in, or acquisition of, complementary businesses,
products or technologies in the future could materially decrease the amount of our available cash or require us to seek
additional equity or debt financing. We may not be successful in negotiating the terms of any potential acquisition, conducting
thorough due diligence, financing the acquisition or effectively integrating the acquired business, product or technology into
18
our existing business and operations. Our due diligence may fail to identify all of the problems, liabilities or other shortcomings
or challenges of an acquired business, product or technology, including issues related to intellectual property, product quality
or product architecture, regulatory compliance practices, revenue recognition or other accounting practices or employee or
customer issues. Additionally, in connection with any acquisitions we complete, we may not achieve the synergies or other
benefits we expected to achieve, and we may incur unanticipated expenses, write-downs, impairment charges or unforeseen
liabilities that could negatively affect our business, financial condition and results of operations, have difficulty incorporating
the acquired businesses, disrupt relationships with current and new employees, customers and vendors, incur significant
debt or have to delay or not proceed with announced transactions. Further, contemplating or completing an acquisition and
integrating an acquired business, product or technology could divert management and employee time and resources from
other matters.
Failure to protect our intellectual property could adversely affect our business, financial condition and results of
operations.
Intellectual property rights, including patents, trade secrets, confidential information, trademarks, trade names and trade
dress, are important to our business. We will endeavor to protect our intellectual property rights in key jurisdictions in which
our products are produced or used. However, we may be unable to obtain protection for our intellectual property in such key
jurisdictions. Although we own and have applied for numerous patents and trademarks, we may have to rely on judicial
enforcement of our patents and other proprietary rights. Our patents and other intellectual property rights may be challenged,
invalidated, circumvented, and rendered unenforceable or otherwise compromised. If we must take legal action to protect,
defend or enforce our intellectual property rights, any suits or proceedings could result in significant costs and diversion of
our resources and our management’s attention, and we may not prevail in any such suits or proceedings. A failure to protect,
defend or enforce our intellectual property could have an adverse effect on our business, financial condition and results of
operations. Similarly, third parties may assert claims against us and our customers and distributors alleging our products
infringe upon third-party intellectual property rights.
We also rely materially upon unpatented proprietary technology, know-how and other trade secrets to maintain our competitive
position. While we maintain policies and internal security measures to protect our trade secrets and other intellectual property,
failure to protect this intellectual property could negatively affect our future performance and growth.
We may be required to make significant cash contributions to our defined benefit pension plan.
After the Spin-Off, we sponsored a defined benefit pension plan under which certain eligible AdvanSix employees will earn
pension benefits following the Spin-Off as if they remained employed by Honeywell. Significant changes in actual investment
return on pension assets, discount rates, retirement rates and other factors could require cash pension contributions in future
periods. Changes in discount rates and actual asset returns different from our anticipated asset returns can result in significant
non-cash actuarial gains or losses. With regard to cash pension contributions, funding requirements for our pension plans
are largely dependent upon interest rates, actual investment returns on pension assets and the impact of legislative or
regulatory changes related to pension funding obligations. Our pension contributions may be material and could adversely
impact our financial condition, cash flow and results of operations. We made pension contributions of approximately $17
million in 2017, and we plan to make pension contributions in future periods sufficient to satisfy funding requirements.
Some of our workforce is represented by labor unions and our business could be harmed in the event of a prolonged
work stoppage.
Approximately 760 of our employees are unionized, which represents approximately 50% of our employee-base as of
December 31, 2017. We cannot predict how stable our union relationships will be or whether we will be able to successfully
negotiate successor agreements without impacting our financial condition. In addition, the presence of unions may limit our
flexibility in dealing with our workforce. We may experience work stoppages, which could negatively impact our ability to
manufacture our products on a timely basis and, ultimately, our business, financial condition and results of operations.
We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such personnel
could adversely affect our business, financial condition and results of operations.
Due to the complex nature of our manufacturing business, our future performance is highly dependent upon the continued
services of our key engineering personnel, scientists and senior management, the development of additional management
personnel and the hiring of new qualified engineering, manufacturing, marketing, sales and management personnel for our
operations. Competition for qualified personnel in our industry is intense, and we may not be successful in attracting or
retaining qualified personnel. The loss of key employees, our inability to attract new, qualified employees or adequately train
employees, or the delay in hiring key personnel, could negatively affect our business, financial condition and results of
operations.
19
Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information,
and adversely impact our reputation and results of operations.
Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access
to information technology (“IT”) systems to sophisticated and targeted measures known as advanced persistent threats,
directed at AdvanSix, its plants and operations, its products, its customers and/or its third-party service providers including
cloud providers. While we have experienced, and expect to continue to experience, these types of threats and incidents,
none of them to date have been material to the Company. We are transitioning away from certain transition services provided
by Honeywell with respect to our information technology infrastructure, including cybersecurity, which seeks to deploy
comprehensive measures to deter, prevent, detect, respond and mitigate these threats including access controls, data
encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup
and protective systems. We are actively implementing such measures internally as we establish the information technology
infrastructure needed to operate independently. Despite these efforts, cybersecurity incidents, depending on their nature and
scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential
or proprietary information (our own or that of third parties) and the disruption of business operations. The potential
consequences of a material cybersecurity incident include reputational damage, claims from and litigation with third parties,
fines levied by governmental authorities, diminution in the value of our investment in research, development and engineering,
and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness and
results of operations.
Failure to maintain effective internal controls could adversely impact our ability to meet our reporting requirements.
We are required, under the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), to maintain effective internal control
over financial reporting and disclosure controls and procedures. This includes performing system and process evaluations
and testing of our internal control over financial reporting to allow management and our independent registered public
accounting firm to report on the effectiveness of our internal control over financial reporting, as required by the Sarbanes-
Oxley Act, with auditor attestation of the effectiveness of our internal controls. If we are not able to comply with these
requirements, or if we or our independent registered public accounting firm identify deficiencies in our internal control over
financial reporting that are deemed to be material weaknesses, the market price of our common shares could decline and
we could be subject to penalties or investigations by the NYSE, the SEC or other regulatory authorities, which would require
additional financial and management resources.
Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports, and to
effectively prevent fraud. Internal controls over financial reporting may not prevent or detect misstatements because of
inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore,
even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation
of financial statements. If we fail to maintain the effectiveness of our internal controls, including any failure to implement
required new or improved controls, or if we experience difficulties in their implementation, our business and operating results
could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on our stock
price.
The ongoing process of implementing internal controls requires significant attention from management and we cannot be
certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and
reporting in the future. Difficulties encountered in their implementation could harm our results of operations or cause us to
fail to meet our reporting obligations. If we fail to obtain the quality of services necessary to operate effectively or incur greater
costs in obtaining these services, our profitability, financial condition and results of operations may be materially and adversely
affected.
Risks Relating to the Spin-Off
The Spin-Off could result in significant tax liability.
Completion of the Spin-Off was conditioned on Honeywell’s receipt of a written opinion of Cravath, Swaine & Moore LLP to
the effect that the Distribution should qualify for non-recognition of gain and loss under Section 355 of the Code. The opinion
of counsel did not address any U.S. state, local or foreign tax consequences of the Spin-Off. The opinion assumed that the
Spin-Off was completed according to the terms of the Separation and Distribution Agreement and relied on the facts as stated
in the Separation and Distribution Agreement, the Tax Matters Agreement, the other ancillary agreements, the Information
Statement filed as Exhibit 99.1 to the Form 10 and a number of other documents. In addition, the opinion was based on
certain representations as to factual matters from, and certain covenants by Honeywell and us. The opinion cannot be relied
on if any of the assumptions, representations or covenants is incorrect, incomplete or inaccurate or is violated in any material
20
respect. The opinion of counsel is not binding on the Internal Revenue Service (“IRS”) or the courts, and there can be no
assurance that the IRS or a court will not take a contrary position. Honeywell did not request a ruling from the IRS regarding
the U.S. Federal income tax consequences of the Spin-Off.
If the Distribution were determined not to qualify for non-recognition of gain and loss under Section 355(e) of the Code, our
U.S. stockholders could be subject to tax. In this case, each U.S. stockholder who received our common stock in the Distribution
would generally be treated as having received a distribution in an amount equal to the fair market value of our common stock
received, which would generally result in (1) a taxable dividend to the U.S. stockholder to the extent of that U.S. stockholder’s
pro rata share of Honeywell’s current and accumulated earnings and profits; (2) a reduction in the U.S. stockholder’s basis
(but not below zero) in its Honeywell common stock to the extent the amount received exceeds the stockholder’s share of
Honeywell’s earnings and profits; and (3) a taxable gain from the exchange of Honeywell common stock to the extent the
amount received exceeds the sum of the U.S. stockholder’s share of Honeywell’s earnings and profits and the U.S.
stockholder’s basis in its Honeywell common stock. A discussion of the material U.S. federal income tax consequences of
the Spin-Off can be found in the Form 10.
We could have an indemnification obligation to Honeywell if the Distribution were determined not to qualify for non-
recognition treatment, which could adversely affect our business, financial condition and results of operations.
If, due to any of our representations being untrue or our covenants being breached, it were determined that the Distribution
did not qualify for non-recognition of gain and loss under Section 355 of the Code, we could be required to indemnify Honeywell
for the resulting taxes and related expenses. Any such indemnification obligation could adversely affect our business, financial
condition and results of operations. In addition, Section 355(e) of the Code generally creates a presumption that the Distribution
would be taxable to Honeywell, but not to stockholders, if we or our stockholders were to engage in transactions that result
in a 50% or greater change by vote or value in the ownership of our stock during the four-year period beginning on the date
that begins two years before the date of the Distribution, unless it were established that such transactions and the Distribution
were not part of a plan or series of related transactions giving effect to such a change in ownership. If the Distribution were
taxable to Honeywell due to such a 50% or greater change in ownership of our stock, Honeywell would recognize gain equal
to the excess of the fair market value of our common stock distributed to Honeywell stockholders over Honeywell’s tax basis
in our common stock and we generally would be required to indemnify Honeywell for the tax on such gain and related
expenses. Any such indemnification obligation could adversely affect our business, financial condition and results of
operations.
We are subject to numerous restrictions to preserve the non-recognition treatment of the Spin-Off, which may reduce
our strategic and operating flexibility.
We are subject to covenants and indemnification obligations pursuant to the Tax Matters Agreement that address compliance
with Section 355 of the Code and preserve the tax-free nature of the Spin-Off. These covenants include certain restrictions
on our activity unless Honeywell gives its consent for us to take a restricted action, which Honeywell is permitted to grant or
withhold at its sole discretion. These covenants and indemnification obligations may limit our ability to pursue strategic
transactions or engage in new businesses or other transactions that may maximize the value of our business, and might
discourage or delay a strategic transaction that our stockholders may consider favorable.
We have limited operating history as an independent, publicly-traded company, and our historical consolidated
financial information is not necessarily representative of the results we would have achieved as an independent,
publicly-traded company and may not be a reliable indicator of our future results.
We derived the historical consolidated financial information prior to the Spin-Off included in this Form 10-K from Honeywell’s
consolidated financial statements, and this information does not necessarily reflect the results of operations and financial
position we would have achieved as an independent, publicly-traded company during the periods presented, or those that
we will achieve in the future. This is primarily because of the following factors:
• Prior to the Spin-Off, we operated as part of Honeywell’s broader corporate organization, and Honeywell performed
various corporate functions for us. Our historical consolidated financial information prior to the Spin-Off reflects
allocations of corporate expenses from Honeywell for these and similar functions. These allocations may not reflect
the costs we will incur for similar services in the future as an independent, publicly-traded company.
• We have entered into transactions with Honeywell that did not exist prior to the Spin-Off, such as Honeywell’s provision
of transition and other services, which will cause us to incur new costs. See the section titled “Certain Relationships
and Related Party Transactions” of the Company’s Information Statement filed as Exhibit 99.1 to the Form 10 and
"Note 3 - Related Party Transactions with Honeywell" to our Consolidated Financial Statements included in this Form
10-K.
21
• Our historical consolidated financial information prior to the Spin-Off does not reflect changes that we expect to
experience in the future as a result of our separation from Honeywell, including changes in the financing, cash
management, operations, cost structure and personnel needs of our business. As part of Honeywell, there were
certain benefits derived from Honeywell’s operating diversity, size, purchasing power, borrowing leverage and
available capital for investments. As an independent entity, we may be unable to purchase goods, services and
technologies, such as insurance and health care benefits and computer software licenses, or access capital markets
on terms as favorable to us as those we obtained as part of Honeywell prior to the Spin-Off. In addition, our historical
consolidated financial data does not include an allocation of interest expense comparable to the interest expense
we will incur as a result of the series of internal transactions which were effected in order for us to hold, directly or
through our subsidiaries, the businesses constituting Honeywell’s Resins and Chemicals business and related
operations, and the Spin-Off, including interest expense in connection with the incurrence of indebtedness at
AdvanSix.
Following the Spin-Off, we are also responsible for the additional costs associated with being an independent, publicly-traded
company, including costs related to corporate governance, investor and public relations and public reporting. While we have
been profitable as part of Honeywell, we cannot assure you that our profits will continue at a similar level as an independent,
publicly-traded company.
Risks Relating to the Indebtedness
We incurred indebtedness in connection with the Spin-Off, and our leverage could adversely affect our business,
financial condition and results of operations.
In connection with the Spin-Off, we incurred indebtedness in the aggregate principal amount of approximately $270 million
in the form of term loans. We also entered into a $155 million revolving facility to be available for our working capital and
other cash needs. Following the Spin-Off, we are responsible for servicing our own debt and obtaining and maintaining
sufficient working capital and other funds to satisfy our cash requirements.
Our ability to make payments on and to refinance our indebtedness, including the debt incurred in connection with the Spin-
Off, as well as any future debt that we may incur, will depend on our ability to generate cash in the future from operations,
financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
The terms of our indebtedness restrict our current and future operations, particularly our ability to incur debt that
we may need to fund initiatives in response to changes in our business, the industries in which we operate, the
economy and governmental regulations.
The terms of our indebtedness include a number of restrictive covenants that impose significant operating and financial
restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term best interests.
These may restrict our and our subsidiaries’ ability to take some or all of the following actions:
•
Incur or guarantee additional indebtedness or sell disqualified or preferred stock;
• Pay dividends on, make distributions in respect of, repurchase or redeem capital stock;
• Make investments or acquisitions;
• Sell, transfer or otherwise dispose of certain assets;
• Create liens;
• Enter into sale/leaseback transactions;
• Enter into agreements restricting the ability to pay dividends or make other intercompany transfers;
• Consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries’ assets;
• Enter into transactions with affiliates;
• Prepay, repurchase or redeem certain kinds of indebtedness;
22
•
Issue or sell stock of our subsidiaries; and/or
• Significantly change the nature of our business.
As a result of all of these restrictions, we may be limited in how we conduct our business and pursue our strategy, unable to
raise additional debt financing to operate during general economic or business downturns or unable to compete effectively
or to take advantage of new business opportunities.
A breach of any of these covenants, if applicable, could result in an event of default under the terms of this indebtedness. If
an event of default occurs, the lenders would have the right to accelerate the repayment of such debt and the event of default
or acceleration may result in the acceleration of the repayment of any other debt to which a cross-default or cross-acceleration
provision applies. Furthermore, the lenders of this indebtedness may require that we pledge our assets as collateral and, in
the event we were unable to repay any amount of this indebtedness when due and payable, the lenders could proceed
against the pledged collateral. In the event our creditors accelerate the repayment of our borrowings, we may not have
sufficient assets to repay such indebtedness, which could adversely affect our business, financial condition and results of
operations.
Risks Relating to Our Common Stock and the Securities Market
Our stock price may fluctuate significantly and investments in our stock could lose value.
The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our
control, including:
• Actual or anticipated fluctuations in our results of operations due to factors related to our business;
• Success or failure of our business strategies;
• Competition and industry capacity;
• Changes in interest rates and other factors that affect earnings and cash flow;
• Our level of indebtedness, our ability to make payments on or service our indebtedness and our ability to obtain
financing as needed;
• Our ability to retain and recruit qualified personnel;
• Our quarterly or annual earnings, or those of other companies in our industry;
• Announcements by us or our competitors of significant acquisitions or dispositions;
• Changes in accounting standards, policies, guidance, interpretations or principles;
• Changes in earnings estimates by securities analysts or our ability to meet those estimates;
• The operating and stock price performance of other comparable companies;
•
Investor perception of our company and our industry;
• Overall market fluctuations and volatility unrelated to our operating performance;
• Results from any material litigation or government investigation;
• Changes in laws and regulations (including tax laws and regulations) affecting our business;
• Changes in capital gains taxes and taxes on dividends affecting stockholders; and
• General economic conditions and other external factors.
23
General or industry-specific market conditions, stock market performance or macroeconomic and geopolitical factors
unrelated to our performance may also affect our stock price. For these reasons, investors should not rely on recent or
historical trends to predict future stock prices, financial condition, results of operations or cash flows. Volatility in our stock
price could expose us to litigation, which could result in substantial costs and the diversion of management time and resources.
We will evaluate whether to pay cash dividends on our common stock in the future, and the terms of our indebtedness
will limit our ability to pay dividends on our common stock.
We will evaluate whether to pay cash dividends to our stockholders and the timing, declaration, amount and payment of
future dividends to stockholders, if any, will fall within the discretion of our Board. Among the items we will consider when
establishing a dividend policy will be the capital intensive nature of our business and opportunities to retain future earnings
for use in the operation of our business and to fund future growth. Additionally, the terms of our indebtedness may limit our
ability to pay cash dividends. There can be no assurance that we will pay a dividend in the future or continue to pay any
dividend if we do commence paying dividends.
Stockholder percentage ownership in AdvanSix may be diluted in the future.
A stockholder’s percentage ownership in AdvanSix may be diluted in the future because of common stock-based equity
awards that we have granted and expect to grant in the future to our directors, officers and other employees. In addition, we
may issue equity as all or part of the consideration paid for acquisitions and strategic investments that we may make in the
future or as necessary to finance our ongoing operations.
Certain provisions in our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws
and Delaware law may discourage takeovers.
Several provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-laws and Delaware
law may discourage, delay or prevent a merger or acquisition that is opposed by our Board. These include, among others,
provisions that:
• Provide for staggered terms for directors on our Board through our 2020 annual meeting of stockholders;
• Do not permit our stockholders to act by written consent and require that stockholder action must take place at an
annual or special meeting of our stockholders;
• Establish advance notice requirements for stockholder nominations and proposals;
•
•
Limit the persons who may call special meetings of stockholders; and
Limit our ability to enter into business combination transactions with certain stockholders.
These and other provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated By-laws and
Delaware law may discourage, delay or prevent certain types of transactions involving an actual or a threatened acquisition
or change in control of AdvanSix, including unsolicited takeover attempts, even though the transaction may offer our
stockholders the opportunity to sell their shares of our common stock at a price above the prevailing market price.
Our Amended and Restated Certificate of Incorporation designates the courts of the State of Delaware as the sole
and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which
could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers
or other employees.
Our Amended and Restated Certificate of Incorporation provides, unless we consent in writing to the selection of an alternative
forum, the Court of Chancery located within the State of Delaware is the sole and exclusive forum for any derivative action
or proceeding brought on behalf of AdvanSix, any action asserting a claim of breach of a fiduciary duty owed by any director,
officer or other employee or stockholder of AdvanSix to AdvanSix or AdvanSix’s stockholders, any action asserting a claim
arising pursuant to the Delaware General Corporate Law (“DGCL”) or as to which the DGCL confers jurisdiction on the Court
of Chancery located in the State of Delaware or any action asserting a claim governed by the internal affairs doctrine. However,
if the Court of Chancery within the State of Delaware does not have jurisdiction, the action may be brought in any other state
or federal court located within the State of Delaware. Any person or entity purchasing or otherwise acquiring or holding any
interest in shares of our capital stock will be deemed to have notice of and to have consented to these provisions. This
provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our
directors, officers or other employees, which may discourage such lawsuits. Alternatively, if a court were to find this provision
24
of our Amended and Restated Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of the
specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other
jurisdictions.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Effective February 1, 2017, our principal executive offices are located at 300 Kimball Drive, Suite 101, Parsippany, NJ 07054.
Prior to February 1, 2017, our principal executive offices were located at 115 Tabor Road, Morris Plains, NJ 07950. We also
own three production facilities located in Frankford, Pennsylvania, Chesterfield, Virginia and Hopewell, Virginia. In addition,
we lease space at Honeywell’s facility in Pottsville, Pennsylvania and its R&D center in Colonial Heights, Virginia. Honeywell
leases space in our Chesterfield, Virginia manufacturing site. We have entered into one or more site sharing and services
agreements and transition agreements with Honeywell under which we and Honeywell will allow each other to use these
shared R&D facilities and manufacturing sites for specified fees.
We consider the manufacturing facilities and technology centers and the other properties that we own or lease to be in good
condition and generally suitable for the purposes for which they are used. Our manufacturing facilities are maintained through
ongoing capital investments, regular maintenance and equipment upgrades. We believe our facilities are adequate for our
current operations.
Item 3. Legal Proceedings
From time to time, we are involved in litigation relating to claims arising out of the ordinary course of our business operations.
We are not a party to, and, to our knowledge, there are no threats of any claims or actions against us, the ultimate disposition
of which would have a material adverse effect on our consolidated financial position, results of operations or liquidity.
Environmental Matters Involving Potential Monetary Sanctions in Excess of $100,000
The United States Environmental Protection Agency (“EPA”) notified the Company in December 2016 that alleged violations,
involving the enhanced leak detection and repair program and emission testing requirements, at the Company’s manufacturing
facility in Hopewell, Virginia, potentially may subject the Company to stipulated penalties under the 2013 consent decree
among the Company, the U.S. and the Commonwealth of Virginia. The Company has discussed this matter with the EPA
and negotiations to resolve it are ongoing. Although the outcome of the matter cannot be predicted with certainty, we do not
believe that it will have a material adverse effect on our consolidated financial position, results of operations or operating
cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
25
PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange under the symbol “ASIX”. On February 1, 2018, there were
34,394 holders of record of our common stock and the closing price of our common stock on the New York Stock Exchange
was $40.28 per share.
As of February 1, 2018, 30,482,966 shares of our common stock and 0 shares of our preferred stock were outstanding.
As described in Item 1, on October 1, 2016, Honeywell completed the previously announced separation of AdvanSix Inc.
Following the Spin-Off, our authorized capital stock consisted of 200,000,000 shares of common stock, par value $0.01 per
share, and 50,000,000 shares of preferred stock, par value $0.01 per share. The Spin-Off is further described in Note 1 to
the Consolidated Financial Statements included in Item 8 of this Form 10-K.
The following table sets forth the high and low market prices of our common stock for the quarterly periods indicated since
the first day of “regular-way” trading on the New York Stock Exchange on October 3, 2016:
2017
Quarter ended December 31, 2017
Quarter ended September 30, 2017
Quarter ended June 30, 2017
Quarter ended March 31, 2017
2016
Quarter ended December 31, 2016
Dividends
Market Prices
Low
High
39.28 $
29.55 $
24.72 $
20.88 $
46.51
40.34
33.67
30.21
13.70 $
23.35
$
$
$
$
$
We evaluate the payment of cash dividends to our stockholders and the timing, declaration, amount and payment of future
dividends to stockholders, if any, will fall within the discretion of our Board. Holders of shares of our common stock will be
entitled to receive dividends when and if declared by our Board at its discretion out of funds legally available for that purpose,
subject to the preferential rights of any preferred stock that may be outstanding. The timing, declaration, amount and payment
of the future dividends will depend on our financial condition, earnings, capital requirements and debt service obligations,
as well as legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant.
We did not declare or pay any dividends during the year ended December 31, 2017 or during the fourth quarter of 2016.
Performance Graph
The following graph compares the cumulative total stockholder return on the Company’s common stock to the total returns
on the Standard & Poor’s (S&P) Small Cap 600 Stock Index and the S&P Small Cap 600 Chemicals Index. The changes for
the periods shown in the graph assume that $100 had been invested in AdvanSix stock and each index on October 3, 2016,
the date that AdvanSix common stock began “regular-way” trading on the New York Stock Exchange, and that all dividends,
if any, were reinvested. The share price performance in the graph is not necessarily indicative of future price performance.
26
COMPARISON OF CUMULATIVE TOTAL RETURN
October 3,
2016
December 31,
2016
March 31,
2017
June 30,
2017
September 30,
2017
December 31,
2017
AdvanSix Inc.
S&P Small Cap 600
S&P Small Cap 600 Chemicals
100
100
100
135
112
116
166
113
117
190
115
117
242
121
126
256
126
131
Item 6. Selected Financial Data
Selected Historical Consolidated Financial Data
The following tables present certain selected historical consolidated financial information as of and for each of the years in
the five-year period ended December 31, 2017. The selected historical consolidated financial data as of and for the years
ended December 31, 2017, 2016, 2015, 2014 and 2013 are derived from our historical audited Consolidated Financial
Statements. The selected historical data related to the balance sheet information for December 31, 2017 and 2016 and the
statement of operations information for the years ended December 31, 2017, 2016 and 2015 are included in this Form 10-
K. The selected historical data related to the balance sheet information for December 31, 2015, 2014 and 2013 and statement
of operations information for the years ended December 31, 2014 and 2013 are not included in this Form 10-K.
The selected historical consolidated financial data presented below should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our historical Consolidated Financial
Statements and the accompanying Notes thereto included elsewhere in this Annual Report. For the periods presented, our
business was wholly owned by Honeywell through October 1, 2016. The financial information included herein may not
necessarily reflect our financial position, results of operations and cash flows in the future or what our financial position,
results of operations and cash flows would have been had we been an independent, publicly-traded company during the
periods presented prior to October 1, 2016. In addition, our historical consolidated financial information does not reflect
changes as a result of our separation from Honeywell, including changes in the financing, operations, cost structure and
personnel needs of our business. Further, the historical consolidated financial information includes allocations of certain
Honeywell corporate expenses, as described in “Note 3 – Related Party Transactions with Honeywell” to the historical
Consolidated Financial Statements. We believe the assumptions and methodologies underlying the allocation of these
27
expenses are reasonable. However, such expenses may not be indicative of the actual level of expenses that we would have
incurred if we had operated as an independent, publicly-traded company or of the costs expected to be incurred in the future.
Selected Statement of Operations
Information (Dollars in thousands):
Sales
Net Income
Selected Balance Sheet Information
(Dollars in thousands):
Total assets
Total liabilities
Total equity
Earnings Per Common Share (a)
Basic:
Diluted:
Weighted average common shares (a)
Basic:
Diluted:
Year Ended December 31,
2017
2016
2015
2014
2013
$ 1,475,194 $ 1,191,524 $ 1,329,409 $
34,147
146,699
63,776
1,790,372 $ 1,766,586
83,858
118,746
As of December 31,
2017
2016
2015
2014
2013
$ 1,050,274 $
673,949
376,325
904,957 $
840,986 $
823,048 $
733,981
689,595
215,362
361,916
479,070
406,293
416,755
313,407
420,574
$
4.81 $
4.72
1.12 $
2.09 $
1.12
2.09
2.75 $
2.75
3.90
3.90
30,482,966
30,482,966
30,482,966
30,482,966
30,482,966
31,091,601
30,503,587
30,482,966
30,482,966
30,482,966
(a) On October 1, 2016, the date of consummation of the Spin-Off, 30,482,966 shares of the Company’s common stock were distributed to Honeywell
stockholders of record as of September 16, 2016. Basic and Diluted EPS for all periods prior to the Spin-Off reflect the number of distributed shares,
or 30,482,966 shares. These shares were treated as issued and outstanding from January 1, 2013 for purposes of calculating historical basic earnings
per share. No dividends have been paid by the Company from October 1, 2016 through December 31, 2017.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except per share data or unless otherwise noted)
The following Management’s Discussion and Analysis of the Company’s financial condition and results of operations
discussion, which we refer to as our “MD&A,” should be read in conjunction with the Consolidated Financial Statements and
the notes thereto contained in this Form 10-K.
Separation from Honeywell
On October 1, 2016, Honeywell International Inc. (“Honeywell”) completed the previously announced separation of AdvanSix
Inc. 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”). Each Honeywell stockholder who held their shares through the Distribution
Date received one share of AdvanSix common stock for every 25 shares of Honeywell common stock held at the close of
business on the record date of September 16, 2016. We filed our Form 10 describing the Spin-Off with the Securities and
Exchange Commission (the “SEC”), which was declared effective by the SEC on September 8, 2016 (the “Form 10”). On
October 3, 2016, AdvanSix stock began “regular-way” trading on the New York Stock Exchange under the “ASIX” stock
symbol. The spin-off is further described in Note 1 to the Consolidated Financial Statements included in Item 8.
Business Overview
We produce and sell our Nylon 6 resin and caprolactam as commodity products, and also produce and sell our Nylon 6 resin
as a specialized resin product. The production of these products is capital intensive, requiring ongoing investments to increase
production capacity as well as investments to improve plant reliability and the quality of our products. Our results of operations
28
are primarily driven by production volume and the spread between the sales prices of our products and the costs of the
underlying raw materials built into the market-based pricing models for most of our products. The global prices for nylon resin
typically track a spread over the price of caprolactam, which in turn tracks as a spread over benzene because the key
feedstock materials for caprolactam, phenol or cyclohexane, are derived from benzene. This price spread has historically
experienced cyclicality as a result of global changes in supply and demand. Generally, Nylon 6 resin prices track the cyclicality
of caprolactam prices, although prices set above the spread are achievable when nylon resin manufacturers like AdvanSix
formulate and produce specialized nylon resin products. Our specialized Nylon 6 products are typically valued at a higher
level than commodity resin products.
In recent years, nylon and caprolactam prices have experienced a cyclical period of downturn as the global market has
experienced large increases in supply without a commensurate increase in demand. Most of this supply increase has been
built by new Chinese manufacturers, resulting in margin compression for Nylon 6 resin and caprolactam in recent years to
historic lows. Over the last year, capacity reductions by our competitors have occurred in North America and Europe improving
supply/demand fundamentals in North America with continued dynamic conditions globally. We believe that, in addition to a
potential recovery that has historically followed periods of oversupply and declining prices, Nylon 6 end-market growth will
continue to generally track global GDP with certain applications growing at faster rates including engineered plastics and
packaging. Additionally, one of our strategies is to continue developing specialty nylon and copolymer products that we
believe will generate higher margins.
Our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur, two key crop nutrients. Global
prices for ammonium sulfate fertilizer are influenced by several factors including the price of urea, which is the most widely
used source of nitrogen-based fertilizer in the world. Another global factor driving demand for ammonium sulfate fertilizer is
general agriculture trends, including the price of crops. We expect agriculture fundamentals to remain challenging through
the 2018 planting season.
We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, but sales
experience quarterly cyclicality based on the timing and length of the growing seasons in North and South America. Due to
the ammonium sulfate fertilizer sales cycle, we occasionally build up higher inventory balances because our production is
continuous and not tied to seasonal demand for fertilizers. Sales of most of our other products have generally been subject
to minimal, or no, seasonality.
We seek to run our production facilities on a nearly continuous basis for maximum efficiency and several of our intermediate
products are key feedstock materials for other products in our integrated manufacturing chain. We schedule several planned
outages each year to conduct routine and major maintenance across our facilities, which are referred to as plant turnarounds.
While we may experience unplanned interruptions from time to time, we seek to mitigate the risk through regularly scheduled
maintenance both for major and minor repairs at all of our production facilities. We also utilize maintenance excellence and
mechanical integrity programs and maintain 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.
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 downtime or material
disruptions at any one of our production facilities which could impact our supply chain to downstream plants in our
manufacturing process. Unplanned outages may occur and we may not have enough intermediate chemical inventory at
any given time to offset such production losses. Moreover, taking our production facilities offline for regularly scheduled
repairs 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. For a description of our principal risks, see “Risk Factors" in Item 1A.
Recent Developments
In January 2018, as previously announced, the Company experienced a temporary production issue at its Hopewell, Virginia
facility related to severe winter weather. As a result of this unplanned interruption, caprolactam and resin production were
reduced at our Hopewell and Chesterfield, Virginia manufacturing facilities. The Company expects to incur an approximately
$30 million unfavorable impact to pre-tax income in the first quarter of 2018, including the unfavorable impact of fixed cost
absorption, lost sales, maintenance expense and incremental raw material costs. The Company informed its customers of
this force majeure event and acted to mitigate the impact of the reduced output on its customers’ operations. The unplanned
interruption had no adverse impact on fourth quarter 2017 financial results.
29
On February 21, 2018 (the “Closing Date”), the Company and its lenders amended the Credit Agreement to provide the
Company with additional operating flexibility and lower borrowing costs. Under the amended Credit Agreement, the Company
has a single $425 million revolving credit facility which replaces the former $270 million term loan and $155 million revolving
credit facility. On the Closing Date, the Company borrowed $242 million in loans under the revolving credit facility, and the
proceeds of such loans were used to repay the outstanding term loan facility. For a discussion of the amendment to the
Credit Agreement, please refer to Note 18. "Subsequent Events."
2016 Operational Events
On December 8, 2016, the Company announced that it experienced a temporary outage at its Hopewell, Virginia facility
reducing caprolactam production and a resulting reduction in resin production at its downstream Chesterfield, Virginia
polymerization plant. The Company had previously resumed operations on November 21, 2016 following additional,
unplanned maintenance related to the extensive planned fourth quarter 2016 turnaround activities. Under normal conditions,
buffer inventories through the supply chain mitigate the impact of temporary production disruptions on customers. Due to
the timing of this disruption relative to the November 21 startup, where inventories were depleted by incremental downtime,
buffer inventories through the supply chain were insufficient to offset the temporary outage.
On October 31, 2016, the Company announced that the planned fourth quarter 2016 turnaround activities would be extended
due to additional, unplanned maintenance of its ammonia plant within its Hopewell, Virginia facility. The extensive planned
turnaround activities, which were coordinated across numerous operating units within the Company’s Frankford, Hopewell
and Chesterfield sites, began in early October. The ammonia plant turnaround began on October 17, 2016 and was planned
to last for 20 days but continued for an additional two weeks to address the significant inspection findings regarding a code
regulated pressure vessel. The Company worked with its customers and suppliers to mitigate the impact of the extended
turnaround.
Consolidated Results of Operations for the Years Ended December 31, 2017, 2016 and 2015
(Dollars in thousands)
Sales
Sales
% change compared with prior period
The change in sales is attributable to the following:
Volume
Price
2017 compared with 2016
2017
2016
2015
$ 1,475,194
$ 1,191,524
$ 1,329,409
23.8%
(10.4)%
(25.7)%
2017 versus 2016
2016 versus 2015
8.5%
15.3%
23.8%
(1.2)%
(9.2)%
(10.4)%
Sales increased in 2017 compared to 2016 by $283.7 million, or approximately 24%, due primarily to higher sales prices
(approximately 15%) and volume increases (approximately 9%) of chemical intermediates, caprolactam, ammonium sulfate
and nylon. Sales prices increased due primarily to (i) higher prices of the raw materials, particularly benzene and propylene,
used to manufacture nylon, caprolactam and chemical intermediates impacting formula-based pass-through pricing
(approximately 12% favorable impact), and (ii) market-based pricing due primarily to improved industry conditions in nylon,
caprolactam and chemical intermediates offset partially by lower prices of ammonium sulfate (approximately 3% favorable
impact). Volume increased in 2017 due to improved plant production and the impacts of unplanned outages in the fourth
quarter of 2016 discussed above.
2016 compared with 2015
Sales decreased in 2016 compared to 2015 by $137.9 million, or approximately 10%, due primarily to lower sales prices
(9%) and lower volumes (1%) of caprolactam and nylon, and ammonium sulfate, partially offset by volume increases in
chemical intermediates. Sales prices decreased due primarily to (i) lower prices of the raw materials used to manufacture
30
our intermediate chemicals, caprolactam and nylon impacting formula based pass-through pricing (approximately 4% impact),
(ii) the impact of unfavorable industry conditions for nitrogen fertilizers on ammonium sulfate pricing (approximately 3%
impact) and (iii) market based pricing pressure in the caprolactam and nylon end-markets (approximately 2% impact). Volumes
decreased year over year due primarily to the extended outage activity in the fourth quarter of 2016 discussed above partially
offset by year over year increased volumes from the first three quarters of 2016 due to improved production rates at our
manufacturing locations.
Cost of Goods Sold
Cost of goods sold
% change compared with prior period
Gross margin %
2017 compared with 2016
2017
2016
2015
$ 1,249,014
$1,083,894
$1,179,651
15.2%
15.3%
(8.1)%
9.0%
(26.6)%
11.3%
Costs of goods sold increased in 2017 compared to 2016 by $165.1 million, or approximately 15%, due primarily to higher
prices of raw materials (approximately 14%), particularly benzene and propylene, and a one-time prior year benefit related
to the termination of a long-term supply agreement in the three months ended March 31, 2016 (approximately 1% unfavorable).
Gross margin percentage increased by approximately 6% in 2017 compared to 2016 due primarily to higher sales and
production volumes on a year-over-year basis (approximately 6%) offset partially by the termination of a long-term supply
agreement in 2016 (approximately 1%).
2016 compared with 2015
Costs of goods sold decreased in 2016 compared to 2015 by $95.8 million, or approximately 8%, due primarily to (i) lower
prices of raw materials (approximately 8%), (ii) lower costs due to the volume reductions discussed above (approximately
1%), and (iii) the termination of a long-term supply agreement in the first quarter of 2016 (approximately 1%) partially offset
by the costs associated with the impact of the unplanned and extended plant turnarounds in the fourth quarter of 2016
(approximately 1%). Prices of raw materials decreased due primarily to cumene (approximately 4%), sulfur (approximately
2%) and natural gas (approximately 1% impact).
Gross margin percentage decreased by approximately 2% in 2016 compared to 2015 due primarily to (i) the net impact of
sales pricing over raw material costs (approximately 2% unfavorable impact) and (ii) the impact of higher plant costs primarily
associated with the unplanned and extended outages in the fourth quarter of 2016 described above (approximately 1%)
partially offset from the benefits from the termination of a long-term supply agreement (approximately 1% favorable impact).
Selling, General and Administrative Expenses
Selling, general and administrative expense
% of sales
2017
72,815
$
2016
53,753
2015
52,398
$
$
4.9%
4.5%
3.9%
Selling, general and administrative expenses increased in 2017 compared to 2016 by $19.1 million or approximately 35%
due primarily to higher stand-alone costs incurred since the Spin-Off on October 1, 2016. These stand-alone costs are related
primarily to workforce and other infrastructure including costs for transition services provided by Honeywell which were
partially offset by the elimination of costs allocated in the prior year to the Company from Honeywell on the basis of sales.
The incremental one-time and ongoing stand-alone costs to operate our business as an independent public company remain
in line with the Company’s expectations as previously disclosed in our Form 10 filed with the SEC and are expected to exceed
the historical allocations of expenses from Honeywell.
Changes in the Selling, general and administrative expenses were not significant when comparing 2016 with 2015.
31
Other Non-operating Expense (Income), Net
Other non-operating expense (income), net
2017
2016
2015
$
8,733 $
102 $
(2,877)
The increase in Other non-operating expense (income), net in 2017 compared to 2016 was due primarily to higher interest
expense for the full year in 2017 versus interest expense for only the fourth quarter in 2016 occurring in conjunction with the
establishment of debt associated with the Spin-Off. For additional discussion of long-term debt, see “Note 9. Long-term Debt
and Credit Agreement” in the Notes accompanying the audited Consolidated Financial Statements.
Changes in the Other non-operating expense (income), net were not material when comparing 2016 with 2015.
Income Tax Expense (Benefit)
Income tax expense (benefit)
Effective tax rate
2017
(2,067)
$
2016
19,628
2015
36,461
$
$
(1.4)%
36.5%
36.4%
On December 22, 2017 the U.S. government enacted significant changes to federal tax law following the passage of the Tax
Cuts and Jobs Act (the “2017 Act”). The 2017 Act significantly changes the U.S. corporate tax system. The Company has
reasonably estimated the accounting for the effects of the 2017 Act during the year ended December 31, 2017. Our financial
statements for the year ended December 31, 2017 reflect certain effects of the 2017 Act including a reduction in the corporate
tax rate to 21% from 35% and changes made to executive compensation rules. As a result of these changes to tax laws and
tax rates under the 2017 Act, the Company incurred a reduction in income tax expense of $53,424 primarily related to the
reduction in the federal corporate tax rate to 21% during the year ended December 31, 2017.
The Company's income tax benefit for 2017 was $2,067. In the absence of the changes in the 2017 Act, tax expense for
2017 would have been $51,357.
Given the significant changes resulting from and complexities associated with the 2017 Act, the financial impacts for the
fourth-quarter and full-year 2017 as well as the estimated impact on the 2018 effective tax rate are provisional and subject
to further analysis, interpretation and clarification of the 2017 Act, which could result in changes to these estimates during
2018. The Company will reflect any adjustments to the provisional amounts within one year from the enactment date of the
2017 Act, if applicable.
The Company’s effective income tax rate for 2017 was lower compared to the U.S. Federal statutory rate of 35% due primarily
to the enactment of the 2017 Act and the related remeasurement of deferred tax assets and liabilities. The Company also
intends to make certain state tax apportionment elections in 2017 which results in a state income tax rate change that is
expected to lower the Company’s overall state tax liability dependent upon the Company achieving minimum employment
thresholds in tax years 2017 to 2019.
The Company’s effective income tax rates in 2016 and 2015 were higher compared to the U.S. Federal statutory tax rate of
35% due primarily to state taxes and, to a lesser extent, losses incurred in foreign jurisdictions with rates lower than the U.S.
Federal statutory rate, partially offset by the federal tax credit for research activities and the U.S. manufacturing incentive
credits.
For 2018, the Company expects an effective tax rate (including federal, state and foreign taxes) of approximately 25%. In
the absence of the 2017 Act, the Company would have expected a 2018 overall effective tax rate of approximately 38%.
During the third and fourth quarters of 2017, the Company adjusted its deferred tax assets and liabilities to account for
changes to the September 30, 2016 deferred tax balances related to the separation from Honeywell. The changes were
attributable to the completion of Honeywell’s 2016 income tax return and related return to provision adjustment. The
adjustment resulted in a $12.5 million decrease in Deferred income taxes and an increase in Additional paid in capital.
For 2017, 2016 and 2015, there were no unrecognized tax benefits recorded by the Company. Although there are no
unrecognized income tax benefits, when applicable, the Company’s policy is to report interest expense related to unrecognized
income tax benefits in the income tax provision.
32
For additional discussion of income taxes and the effective income tax rate, see “Note 4 – Income Taxes” in the Notes
accompanying the audited Consolidated Financial Statements.
Net Income
Net income
2017 compared with 2016
2017
146,699 $
$
2016
2015
34,147 $
63,776
As a result of the factors described above, net income was $146.7 million in 2017 as compared to $34.1 million in 2016.
2016 compared with 2015
As a result of the factors described above, net income was $34.1 million in 2016 as compared to $63.8 million in 2015.
Non-GAAP Measures
The following tables set forth the non-GAAP financial measures of EBITDA and EBITDA margin. EBITDA is defined as Net
Income before Interest, Income Taxes, Depreciation and 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 part of the Company’s ongoing
operations.
These non-GAAP results are presented for supplemental informational purposes only and should not be considered a
substitute for the financial information presented in accordance with GAAP. Non-GAAP financial measures should be read
only in conjunction with the comparable GAAP financial measures. The Company’s non-GAAP measures may not be
comparable to other companies’ non-GAAP measures.
The following is a reconciliation between the non-GAAP financial measures of EBITDA and EBITDA margin to their most
directly comparable GAAP financial measure:
(Dollars in thousands, except per share amounts or unless otherwise noted)
Net income
Interest expense, net
Income tax expense (benefit)
Depreciation and amortization
EBITDA (non-GAAP)
Prior-year one-time benefit (1)
EBITDA excluding prior-year one-time benefit (non-GAAP)
Years Ended December 31,
2017
2016
2015
$
146,699
$
7,716
(2,067)
48,455
200,803
—
200,803
$
$
34,147
1,847
19,628
40,329
95,951
15,500
80,451
$
63,776
—
36,461
36,410
136,647
—
136,647
$
Sales
$ 1,475,194
$ 1,191,524
$ 1,329,409
EBITDA margin % (non-GAAP)
13.6%
8.1%
10.3%
EBITDA margin % excluding prior year one-time benefit (non-GAAP)
13.6%
6.8%
10.3%
(1) Reflects a $15.5 million one-time benefit recognized in the first quarter of 2016 related to the termination of a long-term
supply agreement.
33
The following are reconciliations between the non-GAAP financial measure of Net Income and EPS excluding the one-time
net tax benefit to its most directly comparable GAAP financial measure of Net Income and EPS:
Net Income
One-time net tax benefit (2)
Net Income excluding one-time net tax benefit
Basic
EPS
One-time net tax benefit (2)
EPS excluding one-time net tax benefit
Diluted
EPS
One-time net tax benefit (2)
EPS excluding one-time net tax benefit
Years Ended December 31,
2017
2016
2015
$
$
146,699 $
(53,424)
34,147 $
—
93,275 $
34,147 $
63,776
—
63,776
Years Ended December 31,
2017
2016
2015
4.81 $
1.12 $
(1.75)
—
3.06 $
1.12 $
2.09
—
2.09
Years Ended December 31,
2017
2016
2015
4.72 $
(1.72)
3.00 $
1.12 $
—
1.12 $
2.09
—
2.09
$
$
$
$
(2) Reflects a $53,424 one-time net tax benefit recognized in the fourth quarter of 2017 related to the 2017 Act, which was
signed and enacted effective December 22, 2017. The 2017 Act reduces the federal corporate tax rate to 21% from 35% for
tax years beginning after December 31, 2017.
Liquidity and Capital Resources
Liquidity
We believe that cash balances and operating cash flows, together with available capacity under our credit agreement, will
provide adequate funds to support our current annual operating and longer term strategic plans, subject to the risks and
uncertainties outlined below and in the risk factors as previously disclosed in in Item 1A. 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.
On a recurring basis, our primary future cash needs will be centered on operating activities, working capital, capital
expenditures including high return growth and cost savings investments, environmental compliance costs, employee benefit
obligations, interest payments, debt repayment and strategic acquisitions. We believe that our future cash from operations,
together with our access to funds on hand and credit and capital markets, will provide adequate resources to fund our expected
operating and financing needs. Our ability to fund our capital needs, however, will depend on our ongoing ability to generate
cash from operations and access to credit and capital markets, which are subject to the risk factors previously disclosed in
Item 1A as well as general economic, financial, competitive, regulatory and other factors that are beyond our control.
34
We assumed from Honeywell all health, safety and environmental (“HSE”) liabilities and compliance obligations related to
the past and future operations of our business, as well as all HSE liabilities associated with our three owned 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, our remediation costs have not been material, and we do not expect our
remediation costs to address known obligations to be material for 2018.
The Company made contributions to the defined benefit pension plan of $2.2 million in the first quarter of 2017, $1.6 million
in the second quarter of 2017, $11.0 million in the third quarter of 2017 and $2.0 million in the fourth quarter of 2017 for a
total of $16.8 million in full year 2017. The Company plans to make pension plan contributions during 2018 sufficient to satisfy
pension funding requirements of approximately $8 to $10 million. The Company made a $2.0 million contribution in January
2018 and plans to make additional contributions in future years sufficient to satisfy pension funding requirements in those
periods.
The Company made contributions to the defined contribution plan of $5.4 million for the year ended December 31, 2017.
We expect that our primary cash requirements for 2018 will be to fund our on-going operations, costs associated with planned
plant outages, capital expenditures, pension benefit obligations and the amounts related to contractual obligations noted in
the tables below. See the items noted below in “Contractual Obligations” and “Capital Expenditures” for more information.
Credit Agreement
On September 30, 2016, under the Credit Agreement, we incurred indebtedness in the aggregate principal amount of
approximately $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 $155.0 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 Financial Statements in Item 8 of this Form 10-K.
On February 21, 2018 (the “Closing Date”), the Company and its lenders amended the Credit Agreement to provide the
Company with additional operating flexibility and lower borrowing costs. Under the amended Credit Agreement, the Company
has a single $425 million revolving credit facility which replaces the former $270 million term loan and $155 million revolving
credit facility. On the Closing Date, the Company borrowed $242 million in loans under the revolving credit facility, and the
proceeds of such loans were used to repay the outstanding term loan facility under the Credit Agreement. For a discussion
of the amendment to the Credit Agreement, please refer to Note 18. "Subsequent Events."
Under the terms of the Credit Agreement, we are subject to restrictive covenants that limit our ability, among other things, to
incur additional indebtedness, pay dividends or make other distributions, and consolidate, merge, sell or otherwise dispose
of assets, as well as financial covenants that require us to maintain interest coverage and leverage ratios at levels specified
in the Credit Agreement. These covenants may limit how we conduct our business, and in the event of certain defaults, our
repayment obligations may be accelerated. We were in compliance with all of our covenants at December 31, 2017 and,
under the amended Credit Agreement, at February 21, 2018. As of December 31, 2017, $153.7 million is available for use
out of the total credit of $425 million under the Credit Agreement. As of February 21, 2018, $181.7 million was available for
use out of the total credit of $425 million under the amended Credit Agreement.
During the year ended December 31, 2017, we borrowed $308.5 million in the aggregate from our revolving credit facility to
fund our working capital and other cash needs and these borrowings were fully repaid by December 31, 2017. The revolver
amounts borrowed and repaid during each quarter are as follows:
(Dollars in millions)
Quarter ended December 31, 2017
Quarter ended September 30, 2017
Quarter ended June 30, 2017
Quarter ended March 31, 2017
2017
—
32.5
108.5
167.5
$
$
$
$
As a result of our early payment made in 2016, no amounts were due during 2017 related to our term loan. We repaid the
term loan in full in February 2018 in connection with the amendment to the Credit Agreement. Going forward, cash provided
by operating activities will be needed to fund future interest payments in respect to our outstanding indebtedness.
35
Cash Flow Summary for the Years Ended December 31, 2017, 2016 and 2015
Our cash flows from operating, investing and financing activities for the years ended December 31, 2017, 2016 and 2015,
as reflected in the audited Consolidated Financial Statements included in this Form 10-K, are summarized as follows:
(Dollars in thousands)
Cash provided by (used for):
Operating activities
Investing activities
Financing activities
Net increase in cash and cash equivalents
2017 compared with 2016
Years Ended December 31,
2017
2016
2015
$
$
134,607 $
(93,247)
113,740 $
(86,381)
(127)
(13,160)
101,536
(98,230)
(3,306)
41,233 $
14,199 $
—
Net cash provided by operating activities increased by $20.9 million for the year ended December 31, 2017 versus the prior
year period due primarily to (i) a $112.6 million increase in Net income versus the prior year period due to significantly higher
sales as a result of improved plant production and the impacts of unplanned outages in the fourth quarter of 2016 as previously
discussed and a one-time tax benefit of $53.4 million resulting from the 2017 Act, (ii) a $9.5 million cash improvement in
Other assets and liabilities related primarily to the completion of the Hopewell regional wastewater treatment facility project,
timing of deferred charges and other factors, (iii) a $9.3 million increase in Accrued liabilities due to the timing of payments.
This activity was offset partially by (i) a net $60.4 million unfavorable cash impact from Accounts and other receivables due
primarily to increased sales, the timing of collections and an increase in income tax receivables, (ii) a $21.5 million unfavorable
cash impact from inventory comparing 2017 and 2016 as inventory levels remained relatively flat in 2017 following a reduction
in inventory in 2016, (iii) a $19.0 million reduction in Deferred income taxes versus the prior year due to the remeasurement
of deferred tax accounts as a result of the 2017 Act and (iv) a $15.7 million increase in Accounts payable due to timing of
payments.
Net cash used for investing activities increased by $6.9 million for the year ended December 31, 2017 versus the prior year
period due primarily to an increase in cash paid for capital expenditures and other intangible assets.
Net cash from financing activities decreased by $13.0 million for the year ended December 31, 2017 versus the prior year
due to a $7.3 million reduction in invested equity resulting from the completion of the Spin-Off from Honeywell. Cash provided
by operating activities was sufficient to repay all current period borrowings under the revolving credit facility.
2016 compared with 2015
Net cash provided by operating activities in 2016 increased by $12.2 million compared to 2015 primarily due to (1) a $43.6
million favorable impact from net working capital outflows driven by the timing of payments on the accounts payables balance,
(2) a $3.9 million increase in depreciation and amortization expense, (3) a $1.6 million net increase in deferred income taxes
and (4) a $1.3 million increase in stock-based compensation expense which was partially offset by (A) a $29.6 million decrease
in Net income and (B) a $9.1 million net decrease in Other assets and liabilities and accrued liabilities.
Net cash used for investing activities in 2016 decreased by $11.8 million compared to 2015 primarily due to a decrease in
capital expenditures of $13.1 million.
Net cash used for financing activities in 2016 increased by $9.9 million compared to 2015 primarily due to $269.3 million
distributed to Honeywell in connection with the Spin-Off, a $4.4 million larger reduction in invested equity, $3.0 million of
financing fees related to the Credit Agreement and $3.4 million of term loan repayments, partially offset by $270.0 million
proceeds from the term loan.
36
Contractual Obligations
(Dollars in thousands, unless otherwise noted)
Payments due by period
Contractual Obligations
Long-term debt – principal repayments (1) $ 266,625 $ 16,875 $ 27,000 $ 27,000
Long-term debt – interest payments (1)
10,312
Transition services agreement (2)
Capitalized leases
11,377
3,211
40,185
3,211
11,621
Total
2019
2020
2018
125
131
601
119
—
—
2021
2022
$195,750 $
6,875
—
95
5
2023
and
Beyond
—
— $
—
—
98
3
—
—
33
—
Interest payments on capitalized leases
55
Minimum operating lease payments
126,772
22
32,661
16
9
21,002
12,488
11,780
10,628
38,213
Estimated environmental compliance
costs (3)
Purchase obligations (4)
Postretirement benefit obligations (5)
Total contractual obligations
1,661
1,515
6,837
314,429
952
83,793
37,705
7,500
$ 798,515 $157,816 $115,729 $ 96,648
46,798
7,500
39,800
8,800
1,445
37,525
7,800
1,264
17,668
8,200
—
90,940
—
$261,275 $37,861 $129,186
(1) Long-term Debt - Principal repayments: refer to Note 9--Long-term Debt and Credit Arrangements to the Consolidated
Financial Statements in Item 8 of this Form 10-K. Interest payments are estimated based on the interest rate applicable
as of December 31, 2017.
(2) Transition Services Agreement: On September 28, 2016, in connection with, and as a condition to the Spin-Off,
Honeywell and AdvanSix Inc. entered into a Transition Services Agreement. Pursuant to the Transition Services
Agreement, Honeywell agreed to provide AdvanSix Inc. with, among other things, certain information technology, human
resources, financial, health, safety and environmental, sales, product stewardship, operations and manufacturing,
procurement, customer support, legal and contractual, trade compliance, supply chain and logistics, and real estate
services for a limited period of time after the consummation of the Spin-Off (ranging from two months to two years
depending on the service), in exchange for the minimum fees set forth in the Transition Services Agreement. Additionally,
AdvanSix Inc. entered into a separate agreement with Honeywell to provide similar services with respect to certain
non-US premises of the Company.
(3) The payment amounts in the table only reflect the environmental compliance costs which we have accrued as probable
and reasonably estimable as of December 31, 2017.
(4) Purchase obligations are entered into with various vendors in the normal course of business, which are consistent with
our expected requirements and primarily relate to cumene, oleum, sulfur and natural gas, as well as a long-term
agreement for loading, unloading and handling of a portion of our ammonium sulfate export volumes.
(5) Actual contribution payments will depend on several factors, including investment performance and discount rates,
timing of benefits and changes in applicable local requirements. The Company plans to make pension plan contributions
in future years sufficient to satisfy pension funding requirements in those periods.
Capital Expenditures
Our operations are capital intensive, requiring ongoing investments that have consisted, and are expected to continue to
consist, primarily of capital expenditures required to maintain and improve equipment reliability, expand production capacity
and comply with environmental and safety regulations.
37
The following table summarizes ongoing and expansion capital expenditures.
Years Ended December 31,
2017
2016
2015
(Dollars in thousands)
Purchases of property, plant and equipment
$
86,438 $
84,009 $
97,144
Capital expenditures increased $2.4 million from 2016 to 2017 due primarily to continued emphasis on improving the
infrastructure and reliability at our manufacturing sites. Capital expenditures decreased $13.1 million from 2015 to 2016
primarily due to higher growth capital expenditures related to increased resin production in 2015. For 2018, we expect our
total capital expenditures to be approximately $110 million to $120 million, including $20 to $30 million incremental investments
in high-return growth and cost savings projects. Capital expenditures are deployed for various ongoing investments and
initiatives to improve reliability, yield and quality, expand production capacity and comply with health, safety and environmental
("HSE") regulations. For 2017, capital expenditures related to HSE were approximately $18 million and, for 2018, we expect
capital expenditures related to HSE to be approximately $19 million.
Off-Balance Sheet Arrangements
At December 31, 2017 and December 31, 2016, the Company did not have any off-balance sheet arrangements or financing
activities with special-purpose entities.
Critical Accounting Policies and Estimates (Dollars in thousands, unless otherwise noted)
The Company’s significant accounting policies are more fully described in Note 2 to the Consolidated Financial Statements.
Management believes that the application of these policies on a consistent basis enables the Company to provide the users
of the financial statements with useful and reliable information about the Company’s operating results and financial condition.
The preparation of the Consolidated Financial Statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts, including, but not limited to, inventory valuations, impairment
of goodwill, stock-based compensation, long-term employee benefit obligations, income taxes and environmental matters.
Management’s estimates are based on historical experience, facts and circumstances available at the time and various other
assumptions that are believed to be reasonable. The Company reviews these matters and reflects changes in estimates as
appropriate. Management believes that the following represents some of the more critical judgment areas in the applications
of the Company’s accounting policies which could have a material effect on the Company’s financial position, results of
operations or cash flows.
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand and on deposit and highly liquid, temporary
cash investments with an original maturity to the Company of three months or less. We reduce cash and extinguish liabilities
when the creditor receives our payment and we are relieved of our obligation for the liability when checks clear the Company’s
bank account. Liabilities to creditors to whom we have issued checks that remain outstanding aggregated $8.5 million at
December 31, 2017 and are included in Cash and cash equivalents and Accounts payable in the Consolidated Balance
Sheet.
Inventories – Substantially all of the Company's inventories are valued at the lower of cost or market using the last-in, first-
out (“LIFO”) method. The Company includes spare and other parts in inventory which are used in support of production or
production facilities operations and are valued based on weighted average cost.
Inventories valued at LIFO amounted to $129.2 million and $129.0 million at December 31, 2017 and 2016. Had such LIFO
inventories been valued at current costs, their carrying values would have been approximately $28.3 million and $29.9 million
higher at December 31, 2017 and 2016.
Property, Plant, Equipment – Property, plant, equipment are recorded at cost, including any asset retirement obligations,
less accumulated depreciation. For financial reporting, the straight-line method of depreciation is used over the estimated
useful lives of 30 to 50 years for buildings and improvements and 5 to 40 years for machinery and equipment. Our machinery
and equipment includes (1) assets used in short production cycles or subject to high corrosion, such as instrumentation,
controls and insulation systems with useful lives up to 15 years, (2) standard plant assets, such as boilers and railcars, with
useful lives ranging from 15 to 30 years and (3) major process equipment that can be used for long durations with effective
preventative maintenance and repair, such as cooling towers, compressors, tanks and turbines with useful lives ranging from
30 to 40 years. Recognition of the fair value of obligations associated with the retirement of tangible long-lived assets is
38
required when there is a legal obligation to incur such costs. Upon initial recognition of a liability, the cost is capitalized as
part of the related long-lived asset and depreciated over the corresponding asset’s useful life.
Repairs and maintenance, including planned major maintenance, are expensed as incurred. Those costs which materially
add to the value of the asset or prolong its useful life are capitalized and the assets replaced are retired. Expense for the
years ended December 31, 2017, 2016 and 2015 was $60.9 million, $70.8 million and $56.2 million, respectively.
Goodwill – The Business had goodwill of $15,005 as of December 31, 2017 and 2016. Goodwill is subject to impairment
testing annually as of March 31, or whenever events or changes in circumstances indicate that the carrying amount may not
be fully recoverable. The Company first assesses qualitative factors as described in Accounting Standards Codification Topic
350 (“ASC 350”) to determine whether it is necessary to perform the quantitative goodwill impairment test discussed in ASC
350. The Company completed its annual goodwill impairment test as of March 31, 2017 and, based on the results of the
Company's assessment of qualitative factors, it was determined that it was not necessary to perform the quantitative goodwill
impairment test as prescribed by ASC 350.
Environmental – AdvanSix accrues costs related to environmental matters when it is probable that we have incurred a
liability related to a contaminated site and the amount can be reasonably estimated.
Stock-Based Compensation Plans – The principal awards issued under our stock-based compensation plans, which are
described in "Note 15 - Stock-Based Compensation Plans", are non-qualified stock options, performance share units and
restricted stock units. The cost for such awards is measured at the grant date based on the fair value of the award. The value
of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods
(generally the vesting period of the equity award) and is included in selling, general and administrative expenses. Forfeitures
are estimated at the time of grant to recognize expense for those awards that are expected to vest and are based on our
historical forfeiture rates.
Pension Benefits – We have a defined benefit plan covering certain employees primarily in the U.S. The benefits are accrued
over the employees’ service periods. We use actuarial methods and assumptions in the valuation of defined benefit obligations
and the determination of net periodic pension income or expense. Differences between actual and expected results or changes
in the value of defined benefit obligations and fair value of plan assets, if any, are not recognized in earnings as they occur
but rather systematically over subsequent periods when net actuarial gains or losses are in excess of 10% of the greater of
the fair value of plan assets or the plan’s projected benefit obligation.
A 25 basis point increase in the discount rate would result in a decrease of approximately $0.3 million to the net periodic
benefit cost for 2018, while a 25 basis point decrease in the discount rate would result in an increase of approximately $0.3
million to the net periodic benefit cost for 2018. The resulting impact on the pension benefit obligation would be a decrease
of $2.3 million and an increase of $2.5 million, respectively.
Income Taxes – We account for income taxes pursuant to the asset and liability method which requires us to recognize
current tax liabilities or receivables for the amount of taxes we estimate are payable or refundable for the current year and
deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between
the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits
of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period
enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and
the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.
We adopted the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s
consolidated financial statements. ASC 740 prescribes a comprehensive model for the financial statement recognition,
measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.
The benefit of tax positions taken or expected to be taken in our income tax returns are recognized in the financial statements
if such positions are more likely than not of being sustained upon examination by taxing authorities. Differences between tax
positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation
are referred to as “unrecognized benefits”. A liability is recognized (or amount of net operating loss carryover or amount of
tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation
to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740. Interest
costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable. Our policy is to
39
classify tax related interest and penalties, if any, as a component of income tax expense. No interest or penalties were
recorded during the years ended December 31, 2017 and 2016. As of December 31, 2017 and December 31, 2016, no
liability for unrecognized tax benefits was required to be reported. We do not expect any significant changes in our
unrecognized tax benefits in the next year.
Prior to the Spin-Off, income taxes were calculated on a separate tax return basis modified to apply the benefits-for-loss
approach and may not be reflective of the results that would have occurred if tax returns were filed on a stand-alone basis.
In applying the benefits-for-loss methodology, the tax provision was computed as if the Business filed tax returns on a separate
tax return basis independent of other Honeywell businesses with an adjustment to reflect a tax benefit for losses generated
by the Business but utilized by other Honeywell businesses in a combined tax filing. Given that the taxpaying entities in which
the Business operates were retained by Honeywell subsequent to the Spin-Off, all tax payables and attributes, such as tax
credit and tax loss carryforwards, associated with these entities was also retained by Honeywell whether or not such attribute
was generated in whole or in part by the Business. As a result, the taxes payable and attributes that relate to the Business’s
operations were recorded and settled through intercompany accounts with Honeywell since they are attributable to the taxable
entity to be retained by Honeywell. Accordingly, a tax attribute, such as a tax loss, generated by the Business but utilized by
Honeywell, reduced the intercompany payable to Honeywell and be recorded as a current tax benefit in the calculation of
the tax provision.
We believe applying the separate tax return method modified to apply the benefits-for-loss approach was more appropriate
than carrying the tax attribute forward since the attribute no longer exists, nor was the attribute included in the assets and
liabilities of the Business subsequent to the Spin-Off. Furthermore, the amount of the attributes that were generated by the
Business but utilized by Honeywell were not material to the overall financial statements.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of US
GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Act. SAB 118
provides guidance for registrants under three scenarios where the measurement of certain tax items is either complete, can
be reasonably estimated or cannot be reasonably estimated. The Company has evaluated the 2017 Act and based upon
the information available has determined the impacts can be reasonably estimated. The impacts of those items have been
reflected in our Consolidated Financial Statements as of December 31, 2017. The impacts of those changes are disclosed
in “Note 4. Income Taxes”.
Earnings Per Share – Basic earnings per share is based on the weighted average number of common shares outstanding.
Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential
common shares outstanding. On October 1, 2016, the date of consummation of the Spin-Off, 30,482,966 shares of the
Company’s common stock were distributed to Honeywell stockholders of record as of September 16, 2016 who held their
shares through the Distribution Date. Basic and diluted EPS for all periods prior to the Spin-Off reflect the number of distributed
shares, or 30,482,966 shares. For 2016, the distributed shares were treated as issued and outstanding from January 1, 2016
for purposes of calculating historical basic earnings per share.
Use of Estimates – The preparation of the Consolidated Financial Statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements
and related disclosures in the accompanying Notes. Actual results could differ from those estimates. Estimates and
assumptions are periodically reviewed and the effects of changes are reflected in the Consolidated Financial Statements in
the period they are determined to be necessary.
Recent Accounting Pronouncements
See “Note 2 - Summary of Significant Accounting Policies” to the Consolidated Financial Statements included in Item 8 of
this Form 10-K.
40
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our exposure to risk based on changes in interest rates relates primarily to our Credit Agreement. We have not used derivative
financial instruments in our investment portfolio. The Credit Agreement bears interest at floating rates. For variable rate debt,
interest rate changes generally do not affect the fair market value of such debt assuming all other factors remain constant,
but do impact future earnings and cash flows. Accordingly, we may be exposed to interest rate risk on borrowings under the
Credit Agreement. Based on borrowing levels at December 31, 2017, a 25 basis point fluctuation in interest rates for the year
ended December 31, 2017 would have resulted in an increase or decrease to our interest expense of approximately $0.7
million.
Market Risk
See “Note 11 Financial Instruments and Fair Value Measures” to the Consolidated Financial Statements, included in this
Form 10-K, for a discussion relating to market risk.
41
Item 8. Financial Statements and Supplementary Data
ADVANSIX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
Sales
Costs, expenses and other:
Costs of goods sold
Selling, general and administrative expenses
Other non-operating expense (income), net
Income before taxes
Income tax expense (benefit)
Net income
Earnings per common share
Basic
Diluted
Weighted average common shares outstanding
Basic
Diluted
Years Ended December 31,
2017
2016
2015
$ 1,475,194 $ 1,191,524 $ 1,329,409
1,249,014
72,815
8,733
1,330,562
1,083,894
53,753
102
1,137,749
1,179,651
52,398
(2,877)
1,229,172
144,632
(2,067)
53,775
19,628
100,237
36,461
$
146,699 $
34,147 $
63,776
$
$
4.81 $
4.72 $
1.12 $
1.12 $
2.09
2.09
30,482,966
30,482,966
30,482,966
31,091,601
30,503,587
30,482,966
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
42
ADVANSIX INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Net income
Foreign exchange translation adjustment
Commodity hedges
Pension obligation adjustments
Other comprehensive income, net of tax
Comprehensive income
$
$
Years Ended December 31,
2016
2015
2017
146,699 $
12
—
(6,023)
(6,011)
140,688 $
34,147 $
154
(1,413)
1,963
704
34,851 $
63,776
(1,390)
2,865
—
1,475
65,251
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
43
ADVANSIX INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts and other receivables – net
Inventories – net
Other current assets
Total current assets
Property, plant and equipment – net
Goodwill
Other assets
Total assets
LIABILITIES
Current liabilities:
Accounts payable
Accrued liabilities
Income taxes payable
Deferred income and customer advances
Current portion of long-term debt
Total current liabilities
Deferred income taxes
Long-term debt
Postretirement benefit obligations
Other liabilities
Total liabilities
December 31,
2017
2016
$
55,432 $
196,003
129,208
7,130
387,773
612,612
15,005
34,884
$ 1,050,274 $
$
227,711 $
35,013
1
17,194
16,875
296,794
92,276
248,339
33,396
3,144
673,949
14,199
131,671
128,978
7,690
282,538
575,375
15,005
32,039
904,957
222,929
25,396
86
25,567
—
273,978
114,200
264,838
33,544
3,035
689,595
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' 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
Retained earnings (accumulated deficit)
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
—
263,081
121,985
(9,046)
376,325
—
242,806
(24,714)
(3,035)
215,362
$ 1,050,274 $
904,957
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
44
ADVANSIX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Years Ended December 31,
2016
2015
2017
$
146,699
$
34,147
$
63,776
Depreciation and amortization
Loss on disposal of assets
Deferred income taxes
Stock based compensation
Accretion of deferred financing fees
Changes in assets and liabilities:
Accounts and other receivables
Inventories
Accounts payable
Income taxes payable
Accrued liabilities
Deferred income and customer advances
Other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Expenditures for property, plant and equipment
Other investing activities
Net cash used for investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Payment of long-term debt
Payment of debt issuance costs
Borrowings under revolving credit facility
Payments of revolving credit facility
Payment of revolving credit facility fees
Principal payments under capital lease
Distribution to Honeywell in connection with Spin-Off
Net decrease in invested equity
Other financing activities
Net cash used for financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at the end of year
Supplemental non-cash investing activities:
Capital expenditures included in accounts payable
Supplemental cash investing activities:
Cash paid for interest
Cash paid for taxes
48,455
1,500
(7,513)
7,742
592
(64,320)
(230)
8,172
(85)
9,617
(8,373)
(7,649)
134,607
(86,438)
(6,809)
(93,247)
—
—
—
308,500
(308,500)
—
(127)
—
—
—
(127)
40,329
1,529
11,534
1,327
148
(3,948)
21,253
23,846
86
281
360
(17,152)
113,740
(84,009)
(2,372)
(86,381)
270,000
(3,375)
(1,881)
58,000
(58,000)
(1,080)
(165)
(269,347)
(7,312)
—
(13,160)
41,233
14,199
55,432
25,222
7,236
12,982
$
$
$
$
14,199
—
14,199
28,485
$
$
1,862
$
— $
$
$
$
$
36,410
1,308
9,913
—
—
38,399
5,021
(38,689)
—
500
(6,783)
(8,319)
101,536
(97,144)
(1,086)
(98,230)
—
—
—
—
—
—
—
—
(2,936)
(370)
(3,306)
—
—
—
22,282
—
—
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
45
ADVANSIX INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in thousands)
Balance at December 31, 2014
— $
— $
— $
— $
421,969
$
(5,214) $
416,755
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
(Accumulated
Deficit)
Invested
Equity
Accumulated
Other
Comprehensive
Income (Loss)
Total
Equity
Net Income
Comprehensive income
Foreign exchange translation adjustments
Commodity hedges
Total comprehensive income (loss), net of tax
Change in invested equity
Balance at December 31, 2015
Net Income through September 30, 2016
Net Loss from October 1, 2016
Comprehensive income
Foreign exchange translation adjustments
Commodity hedges
Pension obligation adjustments
Total comprehensive income (loss), net of tax
Change in invested equity
Issuance of common stock and reclassification
of invested equity
Stock-based compensation
Balance at December 31, 2016
Net income
Comprehensive income
Foreign exchange translation adjustments
Commodity hedges
Pension obligation adjustments
Total comprehensive income (loss), net of tax
Spin-off deferred tax adjustments
Stock-based compensation
—
—
—
—
—
—
—
—
—
—
—
—
—
30,482,966
—
30,482,966
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
305
—
305
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
241,479
1,327
242,806
—
—
—
—
—
12,533
7,742
—
—
—
—
—
—
—
(24,714)
—
—
—
—
—
—
—
(24,714)
146,699
—
—
—
—
—
—
63,776
—
63,776
—
—
—
(2,936)
482,809
58,861
—
—
—
—
—
(299,886)
(241,784)
—
—
—
—
—
—
—
—
—
(1,390)
(1,390)
2,865
1,475
—
2,865
1,475
(2,936)
(3,739)
479,070
—
—
58,861
(24,714)
154
154
(1,413)
(1,413)
1,963
704
—
—
—
1,963
704
(299,886)
—
1,327
(3,035)
215,362
—
12
—
(6,023)
(6,011)
—
—
146,699
12
—
(6,023)
(6,011)
12,533
7,742
Balance at December 31, 2017
30,482,966
$
305
$
263,081
$
121,985
$
— $
(9,046) $
376,325
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
46
ADVANSIX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts or unless otherwise noted)
Note 1. Organization, Operations and Basis of Presentation
Description of Business
AdvanSix Inc. (“AdvanSix”, the “Business”, 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 the Nylon 6 resin manufacturing process including
caprolactam, ammonium sulfate fertilizers, and other chemical intermediates.
All of our manufacturing plants and operations are located in the United States. Globally, we serve over 500 customers in a
wide variety of industries located in more than 40 countries.
For the years ended December 31, 2017, 2016 and 2015, we had sales of $1,475 million, $1,192 million and $1,329 million,
respectively, and net income of $147 million, $34 million and $64 million, respectively.
Each of these product lines represented the following approximate percentage of total sales:
Nylon
Caprolactam
Ammonium Sulfate Fertilizers
Chemical Intermediates
Years Ended December 31,
2016
28%
17%
24%
31%
100%
2015
27%
18%
25%
30%
100%
2017
29%
19%
19%
33%
100%
We evaluated segment reporting in accordance with Accounting Standards Codification Topic (“ASC”) 280. We concluded
that AdvanSix is a single operating segment and a single reportable segment based on the operating results available which
are evaluated regularly by the chief operating decision maker (“CODM”) to make decisions about resource allocation and
performance assessment. AdvanSix operations are managed as one integrated process spread across four manufacturing
sites, including centralized supply chain and procurement functions. The production process is dependent upon one key raw
material, cumene, as the input to the manufacturing of all finished goods produced for sale through the sales channels and
end-markets the Company serves. Production rates and output volumes are managed across all four plants jointly to align
with the overall Company operating plan. The CODM makes operational performance assessments and resource allocation
decisions on a consolidated basis, inclusive of all of the Company’s products.
AdvanSix operates through four integrated U.S.-based manufacturing sites located in Frankford and Pottsville, Pennsylvania,
and Hopewell and Chesterfield, Virginia. The Company's headquarters is located in Parsippany, New Jersey.
Separation from Honeywell
On October 1, 2016, Honeywell International Inc. (“Honeywell”) completed the 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”).
Each Honeywell stockholder who held their shares through the Distribution Date received one share of AdvanSix common
stock for every 25 shares of Honeywell common stock held at the close of business on the record date of September 16,
2016. The separation was completed pursuant to a Separation and Distribution Agreement and other agreements with
Honeywell related to the separation, including an Employee Matters Agreement, a Tax Matters Agreement and a Transition
Services Agreement, each of which was filed as an exhibit to our Current Report on Form 8-K, filed with the Securities and
47
Exchange Commission (“SEC”) on September 28, 2016, as well as Site Sharing and Services Agreements for facilities located
in Chesterfield, Colonial Heights and Pottsville, each of which was filed as an exhibit to our Current Report on Form 8-K,
filed with the SEC on October 3, 2016. These agreements govern the relationship between AdvanSix and Honeywell following
the separation and provide for the allocation of various assets, liabilities, rights and obligations. These agreements also
include arrangements for transition services to be provided by Honeywell to AdvanSix and by AdvanSix to Honeywell. A
description of the material terms and conditions of these agreements can be found in the section titled “Certain Relationships
and Related Party Transactions” of the Company’s Information Statement filed as Exhibit 99.1 to Amendment No. 5 to the
Registration Statement of AdvanSix Inc. on Form 10 dated and filed with the SEC on September 7, 2016 and declared
effective by the SEC on September 8, 2016 (the “Form 10”).
On October 3, 2016, AdvanSix stock began “regular-way” trading on the New York Stock Exchange under the “ASIX” stock
symbol.
Basis of Presentation
Unless the context otherwise requires, references in these Notes to Condensed Consolidated 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 intercompany transactions have been eliminated. As described in Note 3, all significant transactions between
the Business and Honeywell prior to separation have been included in these Consolidated Financial Statements and are
considered to be effectively settled for cash at the time the transaction was recorded. The total net effect of the settlement
of these pre-separation transactions is reflected in the Consolidated Statements of Cash Flows as a financing activity and
in the Consolidated Balance Sheets as invested equity.
Prior to the separation from Honeywell on October 1, 2016, these Consolidated Financial Statements were derived from the
consolidated financial statements and accounting records of Honeywell. These Consolidated Financial Statements reflect
the consolidated historical results of operations, financial position and cash flows of AdvanSix as they were historically
managed in conformity with GAAP.
Prior to the Spin-Off, Honeywell provided certain services, such as legal, accounting, information technology, human resources
and other infrastructure support, on behalf of the Business. The cost of these services has been allocated to the Business
on a direct usage basis when identifiable, with the remainder allocated on the basis of revenues, headcount or other relevant
measures. However, the financial information presented in these Consolidated Financial Statements may not reflect the
financial position, operating results and cash flows of the Business had the Business been a separate stand-alone entity
during the periods presented. Actual costs that would have been incurred if the Business had been a stand-alone company
would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including
information technology and infrastructure. Both we and Honeywell consider the basis on which the expenses have been
allocated to be a reasonable reflection of the utilization of services provided to or the benefits received by the Business during
the periods presented. After the Spin-Off, a number of the above services will continue under a transition service agreement
with Honeywell, which we will expense as incurred based on the contractual pricing terms.
Note 2. Summary of Significant Accounting Policies
Accounting Principles – The financial statements and accompanying Notes are prepared in accordance with accounting
principles generally accepted in the United States of America. The following is a description of AdvanSix’s significant
accounting policies.
Principles of Consolidation – The Consolidated Financial Statements include the accounts of AdvanSix Inc. and all of its
subsidiaries in which a controlling financial interest is maintained. Our consolidation policy requires equity investments that
we exercise significant influence over but do not control the investee and are not the primary beneficiary of the investee’s
activities to be accounted for using the equity method. Investments through which we are not able to exercise significant
influence over the investee and which we do not have readily determinable fair values are accounted for under the cost
method. All intercompany transactions and balances are eliminated in consolidation.
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand and on deposit and highly liquid, temporary
cash investments with an original maturity to the Company of three months or less. We reduce cash and extinguish liabilities
when the creditor receives our payment and we are relieved of our obligation for the liability when checks clear the Company’s
bank account. Liabilities to creditors to whom we have issued checks that remain outstanding aggregated $8.5 million at
December 31, 2017 and are included in Cash and cash equivalents and Accounts payable in the Consolidated Balance
Sheet.
48
Commodity Price Risk Management – Our exposure to market risk for commodity prices can result in changes in our 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 they do not include take-or-pay terms.
Instead, each customer agreement, the majority of which have a term of at least one year, is typically determined by monthly
or quarterly volume estimates. We 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.
Inventories – Substantially all of the Company's inventories are valued at the lower of cost or market using the last-in, first-
out (“LIFO”) method. The Company includes spare and other parts in inventory which are used in support of production or
production facilities operations and are valued based on weighted average cost.
Inventories valued at LIFO amounted to $129.2 million and $129.0 million at December 31, 2017 and 2016. Had such LIFO
inventories been valued at current costs, their carrying values would have been approximately $28.3 million and $29.9 million
higher at December 31, 2017 and 2016.
Property, Plant, Equipment – Property, plant, equipment are recorded at cost, including any asset retirement obligations,
less accumulated depreciation. For financial reporting, the straight-line method of depreciation is used over the estimated
useful lives of 30 to 50 years for buildings and improvements and 5 to 40 years for machinery and equipment. Our machinery
and equipment includes (1) assets used in short production cycles or subject to high corrosion, such as instrumentation,
controls and insulation systems with useful lives up to 15 years, (2) standard plant assets, such as boilers and railcars, with
useful lives ranging from 15 to 30 years and (3) major process equipment that can be used for long durations with effective
preventative maintenance and repair, such as cooling towers, compressors, tanks and turbines with useful lives ranging from
5 to 40 years. Recognition of the fair value of obligations associated with the retirement of tangible long-lived assets is
required when there is a legal obligation to incur such costs. Upon initial recognition of a liability, the cost is capitalized as
part of the related long-lived asset and depreciated over the corresponding asset’s useful life.
Repairs and maintenance, including planned major maintenance, are expensed as incurred. Those costs which materially
add to the value of the asset or prolong its useful life are capitalized and the assets replaced are retired. Expense for the
years ended December 31, 2017, 2016 and 2015 was $60.9 million, $70.8 million and $56.2 million, respectively.
Long-Lived Assets – The Business evaluates the recoverability of the carrying amount of long-lived assets (including
property, plant and equipment and intangible assets with determinable lives) whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable. The Business evaluates events or changes in
circumstances based on several factors including operating results, business plans and forecasts, general and industry
trends, and economic projections and anticipated cash flows. An impairment is assessed when the undiscounted expected
future cash flows derived from an asset are less than its carrying amount. Impairment losses are measured as the amount
by which the carrying value of an asset exceeds its fair value and are recognized in the Consolidated Statements of Operations.
The Business also evaluates the estimated useful lives of long-lived assets if circumstances warrant and revises such
estimates based on current events.
Goodwill – The Business had goodwill of $15,005 as of December 31, 2017 and 2016. Goodwill is subject to impairment
testing annually as of March 31, or whenever events or changes in circumstances indicate that the carrying amount may not
be fully recoverable. The Company first assesses qualitative factors as described in Accounting Standards Codification Topic
350 (“ASC 350”) to determine whether it is necessary to perform the quantitative goodwill impairment test discussed in ASC
350. The Company completed its annual goodwill impairment test as of March 31, 2017 and, based on the results of the
Company's assessment of qualitative factors, it was determined that it was not necessary to perform the quantitative goodwill
impairment test as prescribed by ASC 350.
Sales Recognition – Sales are recognized when persuasive evidence of an arrangement exists, product delivery has
occurred, pricing is fixed or determinable, and collection is reasonably assured. AdvanSix is a ship and bill operation
recognizing revenue generally when title transfers primarily at FOB shipping point. For domestic sales, title transfers at point
of shipment. For international sales, title generally transfers at international border or from the port of departure to the
customer’s location. Outbound shipping costs are incurred by the Company and included as freight expense in costs of goods
sold in the Consolidated Statements of Operations.
49
Environmental – AdvanSix accrues costs related to environmental matters when it is probable that we have incurred a
liability related to a contaminated site and the amount can be reasonably estimated.
Deferred Income and Customer Advances – AdvanSix has an annual pre-buy program for ammonium sulfate that is
classified as deferred income and customer advances in the Consolidated Balance Sheets. Customers pay cash in advance
to reserve capacity for ammonium sulfate to guarantee product availability during peak planting season. The Business
recognizes a customer advance when cash is received for the advanced buy. Revenue is then recognized and the customer
advance is relieved upon title transfer of ammonium sulfate.
Trade Receivables and Allowance for Doubtful Accounts – Trade accounts receivables are recorded at the invoiced
amount as a result of transactions with customers. AdvanSix maintains allowances for doubtful accounts for estimated losses
based on a customer’s inability to make required payments. AdvanSix estimates anticipated losses from doubtful accounts
based on days past due, as measured from the contractual due date and historical collection history and incorporates changes
in economic conditions that may not be reflected in historical trends such as customers in bankruptcy, liquidation or
reorganization. Receivables are written-off against the allowance for doubtful accounts when they are determined
uncollectible. Such determination includes analysis and consideration of the particular conditions of the account, including
time intervals since last collection, customer performance against agreed upon payment plans, success of outside collection
agencies activity, solvency of customer and any bankruptcy proceedings.
Research and Development – AdvanSix conducts research and development (“R&D”) activities, which consist primarily of
the development of new products and product applications consisting primarily of labor costs and depreciation and
maintenance costs. R&D costs are charged to expense as incurred. Such costs are included in costs of goods sold and were
$12,913, $13,762, and $12,807 for the years ended December 31, 2017, 2016 and 2015, respectively.
Stock-Based Compensation Plans – The principal awards issued under our stock-based compensation plans, which are
described in Note 15 Stock-Based Compensation Plans, are non-qualified stock options, performance share units and
restricted stock units. The cost for such awards is measured at the grant date based on the fair value of the award. The value
of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods
(generally the vesting period of the equity award) and is included in selling, general and administrative expenses. Forfeitures
are estimated at the time of grant to recognize expense for those awards that are expected to vest and are based on our
historical forfeiture rates.
Pension Benefits – We have a defined benefit plan covering certain employees primarily in the U.S. The benefits are accrued
over the employees’ service periods. We use actuarial methods and assumptions in the valuation of defined benefit obligations
and the determination of net periodic pension income or expense. Differences between actual and expected results or changes
in the value of defined benefit obligations and fair value of plan assets, if any, are not recognized in earnings as they occur
but rather systematically over subsequent periods when net actuarial gains or losses are in excess of 10% of the greater of
the fair value of plan assets or the plan’s projected benefit obligation.
Foreign Currency Translation – Assets and liabilities of subsidiaries operating outside the United States with a functional
currency other than U.S. dollars are translated into U.S. dollars using year-end exchange rates. Sales, costs and expenses
are translated at the average exchange rates in effect during the year. Foreign currency translation gains and losses are
included as a component of Accumulated other comprehensive income (loss) in our Consolidated Balance Sheets.
Income Taxes – We account for income taxes pursuant to the asset and liability method which requires us to recognize
current tax liabilities or receivables for the amount of taxes we estimate are payable or refundable for the current year and
deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between
the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits
of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period
enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not
be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and
the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.
We adopted the provisions of Accounting Standards Codification Topic 740 (“ASC 740”) related to the accounting for
uncertainty in income taxes recognized in an enterprise’s consolidated financial statements. ASC 740 prescribes a
comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns.
50
The benefit of tax positions taken or expected to be taken in our income tax returns are recognized in the financial statements
if such positions are more likely than not of being sustained upon examination by taxing authorities. Differences between tax
positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation
are referred to as “unrecognized benefits”. A liability is recognized (or amount of net operating loss carryover or amount of
tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation
to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740. Interest
costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable. Our policy is to
classify tax related interest and penalties, if any, as a component of income tax expense. No interest or penalties were
recorded during the years ended December 31, 2017 and 2016. As of December 31, 2017 and December 31, 2016, no
liability for unrecognized tax benefits was required to be reported. We do not expect any significant changes in our
unrecognized tax benefits in the next year.
Prior to the Spin-Off, income taxes as presented are calculated on a separate tax return basis modified to apply the benefits-
for-loss approach and may not be reflective of the results that would have occurred if tax returns were filed on a stand-alone
basis. In applying the benefits-for-loss methodology, the tax provision was computed as if the Business filed tax returns on
a separate tax return basis independent of other Honeywell businesses with an adjustment to reflect a tax benefit for losses
generated by the Business but utilized by other Honeywell businesses in a combined tax filing. Given that the taxpaying
entities in which the Business operates were retained by Honeywell subsequent to the Spin-Off, all tax payables and attributes,
such as tax credit and tax loss carryforwards, associated with these entities was also retained by Honeywell whether or not
such attribute was generated in whole or in part by the Business. As a result, the taxes payable and attributes that relate to
the Business’s operations were recorded and settled through intercompany accounts with Honeywell since they are
attributable to the taxable entity to be retained by Honeywell. Accordingly, a tax attribute, such a tax loss, generated by the
Business but utilized by Honeywell, reduced the intercompany payable to Honeywell and be recorded as a current tax benefit
in the calculation of the tax provision.
We believe applying the separate tax return method modified to apply the benefits-for-loss approach was more appropriate
than carrying the tax attribute forward since the attribute no longer exists, nor was the attribute included in the assets and
liabilities of the Business subsequent to the Spin-Off. Furthermore, the amount of the attributes that were generated by the
Business but utilized by Honeywell were not material to the overall financial statements.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of US
GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Act. SAB 118
provides guidance for registrants under three scenarios where the measurement of certain tax items is either complete, can
be reasonably estimated or cannot be reasonably estimated. The Company has evaluated the 2017 Act and based upon
the information available has determined the impacts can be reasonably estimated. The impacts of those items have been
reflected in our Consolidated Financial Statements as of December 31, 2017. The impacts of those changes are disclosed
in “Note 4. Income Taxes”.
Earnings Per Share – Basic earnings per share is based on the weighted average number of common shares outstanding.
Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential
common shares outstanding. On October 1, 2016, the date of consummation of the Spin-Off, 30,482,966 shares of the
Company’s common stock were distributed to Honeywell stockholders of record as of September 16, 2016 who held their
shares through the Distribution Date. Basic and diluted EPS for all periods prior to the Spin-Off reflect the number of distributed
shares, or 30,482,966 shares. For 2016, the distributed shares were treated as issued and outstanding from January 1, 2016
for purposes of calculating historical basic earnings per share.
Use of Estimates – The preparation of the Consolidated Financial Statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements
and related disclosures in the accompanying Notes. Actual results could differ from those estimates. Estimates and
assumptions are periodically reviewed and the effects of changes are reflected in the Consolidated Financial Statements in
the period they are determined to be necessary.
Reclassifications – Certain prior period amounts have been reclassified for consistency with the current period presentation.
Recent Accounting Pronouncements – We consider the applicability and impact of all recent accounting standards updates
(“ASU’s”). ASU’s not listed below were assessed and determined to be either not applicable or are expected to have minimal
impact on the Consolidated Financial Statements.
51
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of US
GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Act. SAB 118
provides guidance for registrants under three scenarios where the measurement of certain tax items is either complete, can
be reasonably estimated or cannot be reasonably estimated. The Company has evaluated the 2017 Act and based upon
the information available has determined the impacts can be reasonably estimated. The impacts of those items have been
reflected in our Consolidated Financial Statements as of December 31, 2017. The impacts of those changes are disclosed
in “Note 4. Income Taxes”.
In March 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-07, Compensation - Retirement Benefits
(Topic 715), in order to improve the presentation of net periodic pension and postretirement costs. The amendment requires
that an employer report the service cost component in the same line item or items as other compensation costs arising from
services rendered by the pertinent employees during the period. The other components of net benefit cost including interest
cost, actual return on plan assets, gains or loss, amortization of prior service cost or credit, and amortization of the transition
asset or obligation are required to be presented in the income statement separately from the service cost component and
outside a subtotal of income from operations, if one is presented. The amendments in this ASU also allow only the service
cost component to be eligible for capitalization when applicable. The amendments in this update related to income statement
activity should be applied retrospectively whereas balance sheet activity should be applied prospectively. For public business
entities, the effective date for ASU 2017-07 is annual periods beginning after December 15, 2017, including interim periods
within those annual periods. We expect to adopt this guidance effective January 1, 2018 and no impact, other than expense
classification, on the Company’s consolidated financial position and results of operations is expected upon adoption.
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 adopt ASU 2017-04 early beginning in
January 2017 and there was no impact on the Company’s consolidated financial position and results of operations upon
adoption.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business,
which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including
acquisitions, disposals, goodwill, and consolidation. The new guidance requires an entity to first evaluate whether substantially
all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable
assets. If this threshold is met, the set of transferred assets and activities is not a business. If the threshold is not met, the
entity evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive
process that together significantly contribute to the ability to create outputs. For public business entities, the effective date
for ASU 2017-01 was annual periods beginning after December 15, 2017, including interim periods within those periods. The
Company elected to adopt ASU 2017-01 early beginning in January 2017 and there was no impact on the Company’s
consolidated financial position and results of operations upon adoption.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments which clarifies how entities should classify certain cash receipts and cash payments on the statement
of cash flows. The amended guidance addresses eight specific cash flow issues, including debt prepayment or extinguishment
costs, and clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects
of more than one class of cash flows. The amended guidance will be effective for interim and annual periods beginning after
December 15, 2017; entities will be required to apply the guidance retrospectively and provide the relevant disclosures in
ASC 250, in the first interim and annual periods in which they adopt the guidance. The Company plans to adopt this standard
effective January 1, 2018 and no impact, other than cash flow classification, on the Company’s consolidated financial position
and results of operations is expected 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.
The leasing standard is applicable for most entities starting in 2019. Public business entities are required to apply the leasing
52
standard for annual reporting periods (including interim periods therein) beginning after December 15, 2018. Earlier application
is permitted for all entities as of February 25, 2016, the issuance of the final standard. The new standard should be applied
under a modified retrospective approach. We are continuing to evaluate the impact of the new standard on our Consolidated
Financial Statements and related disclosures. Although we have not yet completed our assessment, adoption of this standard
will substantially increase the Company's assets and liabilities due to the recognition of right-of-use assets and associated
lease liabilities for all leases in the 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 in "Note 8 - Lease Commitments." The Company plans to adopt
this standard effective January 1, 2019.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which replaces the
existing accounting standards for revenue recognition with a single comprehensive five-step model eliminating industry-
specific accounting rules. The core principle is to recognize revenue upon the transfer of goods or services to customers at
an amount that reflects the consideration expected to be received. The guidance provides a five-step analysis of transactions
to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs,
consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized
before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the
nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The
effective date was deferred for one year to the interim and annual periods beginning on or after December 15, 2017. Early
adoption is permitted as of the original effective date – interim and annual periods beginning on or after December 15, 2016.
The Company elected to use the retrospective method of transition. During 2017, the Company assessed its revenue streams
covered by ASU 2014-09 by reviewing and documenting customer contracts and related transaction support to determine
the impact on revenue recognition under the new standard. The Company updated its revenue recognition policies, assessed
the design of internal controls and evaluated the expanded disclosure requirements. The Company will adopt this standard
effective January 1, 2018 and does not expect any impact upon adoption. Based on the results of the assessment performed
to date, the Company has concluded that revenue recognition from the Company's products and other revenue streams is
expected to remain unchanged from the Company's current revenue recognition model.
Note 3. Related Party Transactions with Honeywell
The Consolidated Financial Statements have been prepared on a stand-alone basis and are derived in part from the
Consolidated Financial Statements and accounting records of Honeywell.
Prior to consummation of the Spin-Off, Honeywell provided certain services, such as legal, accounting, information technology,
human resources and other infrastructure support, on behalf of the Business. The cost of these services were allocated to
the Business on a direct usage basis when identifiable, with the remainder allocated on the basis of revenues, headcount
or other relevant measures. When not specifically identifiable, legal and accounting costs were allocated on the basis of
revenues, information technology and human resources were allocated on the basis of headcount and other infrastructure
support was allocated on the basis of revenue.
During the nine months ended September 30, 2016 and the year ended December 31, 2015, AdvanSix was allocated $31,877
and $49,292, respectively, of general corporate expenses incurred by Honeywell for certain services, such as legal,
accounting, information technology, human resources, other infrastructure support and shared facilities, on behalf of the
Business. These expenses have been reflected within Costs of goods sold and Selling, general and administrative expenses
in the Consolidated Statements of Operations.
Sales to Honeywell during the nine months ended September 30, 2016 and the year ended were $5,955 and $9,071,
respectively. Of these sales, during the nine months ended September 30, 2016 and the year ended December 31, 2015,
$5,682 and $7,736, respectively, were sold to Honeywell at zero margin. Costs of goods sold to Honeywell during the nine
months ended September 30, 2016 and the year ended December 31, 2015 were $5,842 and $288, respectively.
Purchases from Honeywell during the nine months ended September 30, 2016 and the year ended December 31, 2015 were
$3,299 and $4,694, respectively. The total net effect of the settlement of these intercompany transactions, prior to the Spin-
off, is reflected in the Consolidated Statements of Cash Flows as a financing activity and in the Consolidated Balance Sheets
as Invested equity.
While we were owned by Honeywell, a centralized approach to cash management and financing of operations was used.
Prior to consummation of the Spin-Off, the Business’s cash was transferred to Honeywell daily and Honeywell funded the
53
Business’s operating and investing activities as needed. Net transfers to and from Honeywell are included within Invested
equity on the Consolidated Balance Sheets. The components of the net transfers to and from Honeywell as of December 31,
2016 and 2015 are as follows:
Cash pooling and general financing activities
Distribution to Honeywell in connection with the Spin-Off
Net contribution of assets and liabilities upon Spin-Off
Sales to Honeywell
Purchases from Honeywell
Corporate allocations
Income tax expense
Net decrease in invested equity
2016
2015
$
(73,534) $
(84,312)
(269,347)
(22,938)
(5,955)
3,299
31,877
36,712
(299,886) $
$
—
—
(9,071)
4,694
49,292
36,461
(2,936)
Subsequent to the Spin-Off on October 1, 2016, Honeywell is no longer considered a related party.
Note 4. Income Taxes
Income (loss) before taxes
U.S
Non-U.S
Income taxes
Income tax expense (benefit) consists of:
Current Provision:
Federal
State
Non-U.S
Deferred Provision:
Federal
State
Non-U.S
2017
2016
2015
144,499 $
55,189 $
103,115
133
(1,414)
(2,878)
144,632 $
53,775 $
100,237
Years Ended December 31,
2017
2016
2015
3,682 $
6,875 $
1,743
22
1,290
(71)
23,023
4,241
(716)
5,447 $
8,094 $
26,548
(6,824) $
(700)
10
(7,514)
(2,067) $
10,908 $
638
(12)
11,534
19,628 $
8,372
1,527
14
9,913
36,461
$
$
$
$
$
$
54
The U.S. federal statutory income tax rate is reconciled to the effective income tax rate as follows:
U.S. federal statutory income tax rate
2017 Act
U.S. state income taxes
U.S. state income tax rate change
Manufacturing incentives
Tax rate differential on non-U.S. earnings
Other, net
Years Ended December 31,
2017
2016
2015
35.0 %
(36.9)%
2.6 %
(1.7)%
(0.3)%
— %
(0.1)%
(1.4)%
35.0 %
— %
2.3 %
— %
(1.8)%
0.8 %
0.2 %
36.5 %
35.0 %
— %
3.7 %
— %
(2.6)%
0.3 %
—
36.4 %
On December 22, 2017 the U.S. government enacted significant changes to federal tax law following the passage of the Tax
Cuts and Jobs Act (the “2017 Act”). The 2017 Act significantly changes the U.S. corporate tax system. The Company has
reasonably estimated the accounting for the effects of the 2017 Act during the year ended December 31, 2017. Our financial
statements for the year ended December 31, 2017 reflect certain effects of the 2017 Act including a reduction in the corporate
tax rate to 21% from 35% and changes made to executive compensation rules. As a result of these changes to tax laws and
tax rates under the 2017 Act, the Company incurred a reduction in income tax expense of $53,424 primarily related to the
reduction in the federal corporate tax rate to 21% during the year ended December 31, 2017.
Given the significant changes resulting from and complexities associated with the 2017 Act, the financial impacts for the
fourth-quarter and full-year 2017 are provisional and subject to further analysis, interpretation and clarification of the 2017
Act, which could result in changes to these estimates during 2018. The Company will reflect any adjustments to provisional
amounts within one year from the enactment date of the 2017 Act, if applicable.
The Company’s effective income tax rate for 2017 was lower compared to the U.S. Federal statutory rate of 35% due primarily
to the enactment of the 2017 Act and the related remeasurement of deferred tax assets and liabilities. The Company also
intends to make certain state tax apportionment elections in 2017 which results in a state income tax rate change that is
expected to lower the Company’s overall state tax liability dependent upon the Company achieving minimum employment
thresholds in tax years 2017 to 2019.
The Company’s effective income tax rates for 2016 and 2015 were higher compared to the U.S. Federal statutory rate of
35% due primarily to state taxes and, to a lesser extent, losses incurred in foreign jurisdictions with rates lower than the U.S.
Federal statutory rate, partially offset by the federal tax credit for research activities and the U.S. manufacturing incentive
credits.
During the third and fourth quarters of 2017, the Company adjusted its deferred tax assets and liabilities to account for
changes to the September 30, 2016 deferred tax balances related to the separation from Honeywell. The changes were
attributable to the completion of Honeywell’s 2016 income tax return and related return to provision adjustment. The
adjustment resulted in a $12.5 million decrease in Deferred income taxes and an increase in Additional paid in capital.
For 2017, 2016 and 2015, there were no unrecognized tax benefits recorded by the Company. Although there are no
unrecognized income tax benefits, when applicable, the Company’s policy is to report interest expense related to unrecognized
income tax benefits in the income tax provision.
55
Deferred tax assets (liabilities)
The tax effects of temporary differences which give rise to future income tax benefits and expenses are as follows:
Deferred tax assets:
Net Operating Loss
Accruals and Reserves
Inventory
Pension Obligation
Equity Compensation
Other
Total gross deferred tax assets
Less: Valuation Allowance
Total deferred tax assets
Deferred tax liabilities:
Property, plant & equipment
Intangibles
Inventory
Other
Total deferred tax liabilities
Net deferred taxes
December 31,
2017
2016
$
74 $
12,560
1,917
—
7,251
1,052
—
10,294
—
10,294 $
6,772
215
13,086
513
28
33,174
—
33,174
(91,985) $
(2,487)
(145,712)
(1,262)
(6,461)
(1,637)
—
(400)
$
$
(102,570)
(147,374)
$
(92,276) $
(114,200)
The net deferred taxes are primarily related to U.S. operations. As of December 31, 2017, the Company anticipates utilizing
its entire federal net operating loss (“NOL”) carryforward from the prior year. The Company has a foreign NOL carryforward
of $173 and $213, respectively, at December 31, 2017 and 2016 which is not subject to expiration. We also have remaining
state NOL carryforwards of $462 in two jurisdictions at December 31, 2017 and $14,248 at December 31, 2016 most materially
in Virginia. The state NOL carryforwards begin to expire in 2037. There were no material tax credit carryforwards at
December 31, 2017 or 2016. We believe that the foreign and state NOL carryforwards and other deferred tax assets are
more likely than not to be realized and we have not recorded a valuation allowance against the deferred tax assets.
As of December 31, 2017 and 2016, there were no undistributed earnings of the Business’ non-U.S. subsidiary and, as such,
we have not provided a deferred tax liability for undistributed earnings.
Note 5. Accounts and Other Receivables – Net
Accounts receivables
Other
Less – allowance for doubtful accounts
Total accounts and other receivables – net
December 31,
2017
2016
$
$
188,477 $
8,936
197,413
(1,410)
196,003 $
119,475
15,407
134,882
(3,211)
131,671
56
The roll-forward of allowance for doubtful accounts are summarized in the table below:
Balance at
Beginning of
Year
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deductions
Balance at
End of Year
Year ended December 31, 2017
Year ended December 31, 2016
Year ended December 31, 2015
$
3,211 $
2,875
484
725 $
334
2,477
(34) $
74
—
(2,492) $
(72)
(86)
1,410
3,211
2,875
Note 6. Inventories
Raw materials
Work in progress
Finished goods
Spares and other
Reduction to LIFO cost basis
Total inventories
December 31,
2017
2016
$
48,502 $
50,511
35,430
23,091
157,534
(28,326)
68,900
47,759
19,069
23,129
158,857
(29,879)
$
129,208 $
128,978
In the third quarter of 2017, the Company recognized the effects of an interim reduction of inventory levels which
we did not expect to reinstate by year-end 2017 resulting in a pre-tax charge of approximately $4.4 million to
income. Due to the timing of raw material purchases and fulfillment of customer orders in the fourth quarter of
2017, the third quarter charge was reversed because of higher than anticipated inventory levels at December 31,
2017. As a result, there were no reductions of LIFO inventories for the year ended December 31, 2017.
Note 7. Property, Plant, Equipment – Net
Land and improvements
Machinery and equipment
Buildings and improvements
Construction in progress
Less – accumulated depreciation
Total property, plant, equipment – net
December 31,
2017
2016
$
6,396 $
6,396
1,165,304
1,116,758
165,612
75,322
155,749
67,829
1,412,634
(800,022)
612,612 $
1,346,732
(771,357)
575,375
$
Capitalized interest was $3,637, $2,725 and $2,870 for the years ended December 31, 2017, 2016 and 2015, respectively.
Depreciation expense was $46,428, $39,304 and $35,703 for the years ended December 31, 2017, 2016 and 2015,
respectively.
Note 8. Lease Commitments
The Company has entered into agreements to lease transportation equipment, storage facilities, office space, dock access
and other equipment. The operating leases have initial terms of up to 20 years with some containing renewal options subject
to customary conditions.
57
Future minimum lease payments under operating leases having an initial or remaining non-cancellable lease terms in excess
of one year are as follows:
2018
2019
2020
2021
2022
Thereafter
Total
December 31,
32,661
$
21,002
12,488
11,780
10,628
38,213
126,772
$
Rent expense was $19,912, $19,357 and $15,984 for the years ended December 31, 2017, 2016 and 2015, respectively.
Note 9. Long-term Debt and Credit Agreement
The Company’s debt at December 31, 2017 consisted of the following:
Total term loan outstanding
Amounts outstanding under the Revolving Credit Facility
Total outstanding indebtedness
Less: amounts due within one year
Total long term debt due after one year
$
$
265,214
—
265,214
16,875
248,339
At December 31, 2017, the Company assessed the amount recorded under the Term Loan (defined below) and the Revolving
Credit Facility (defined below) and determined that such amounts approximated fair value. The fair values of the debt are
based on quoted inactive market prices and are therefore classified as Level 2 within the valuation hierarchy.
Scheduled principal repayments under the Term Loan subsequent to December 31, 2017 are as follows:
2018
2019
2020
2021
Total
Credit Agreement
$
$
16,875
27,000
27,000
195,750
266,625
On September 30, 2016, in connection with the consummation of the Spin-Off, the Company as the borrower, entered into
a Credit Agreement with Bank of America, as administrative agent (the “Credit Agreement”). The Credit Agreement consists
of a $270.0 million term loan (the “Term Loan”) and a $155.0 million revolving loan facility (the “Revolving Credit Facility”).
The Revolving Credit Facility includes a $25.0 million letter-of-credit sub-facility and a $20.0 million Swing-Line Loan sub-
facility, issuances against which reduce the available capacity for borrowing. As of December 31, 2017, $266.6 million of the
Term Loan was outstanding and there was $1.3 million of credit capacity utilized by letters of credit against which no funds
have been drawn. There were no outstanding borrowings against the Revolving Credit Facility including the Swing-Line Loan
sub-facility. The unutilized portion of the Revolving Credit Facility is subject to an annual commitment fee of 0.25% to 0.40%
depending on the Company’s consolidated leverage ratio. The Term Loan and the Revolving Credit Facility both have a
scheduled maturity date of September 30, 2021. The interest rates on borrowings under the facilities are based on, at the
option of the Company, either: (a) the London Interbank Offered Rate (“LIBOR”), plus a margin of 2.25% to 3.00% depending
on the Company’s consolidated leverage ratio, or (b) the higher of (i) the Federal Funds Rate plus 0.5%, (ii) Bank of America’s
“prime rate”, and (iii) LIBOR plus 1.0%, plus a margin of 1.25% to 2.00% depending on the Company’s consolidated leverage
ratio.
The proceeds of the Term Loan, net of adjustments for certain working capital and other items, were used to fund a cash
distribution to Honeywell in connection with the Spin-Off. Amounts available under the Revolving Credit Facility may be used
for working capital, general corporate purposes, and other uses, all as more fully set forth in the Credit Agreement.
58
The Company incurred approximately $1.9 million in debt issuance costs related to the Term Loan and $1.0 million in costs
related to the Revolving Credit Facility. The debt issuance costs associated with the Term Loan were recorded as a reduction
of the principal balance of the debt, and the Revolving Credit Facility costs were capitalized in Other assets. All issuance
costs are being amortized through interest expense for the duration of each respective debt facility. The accretion in interest
expense during the year ended December 31, 2017 was $0.6 million. At December 31, 2017, there was $1.4 million of
unamortized deferred issuance costs netted against the Term-Loan.
The obligations under the Credit Agreement are secured by liens on substantially all of the assets of AdvanSix Inc.
The Credit Agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other
things, pay cash dividends, incur debt or liens, redeem or repurchase stock of the Company, enter into transactions with
affiliates, make investments, make capital expenditures, merge or consolidate with others or dispose of assets. The Credit
Agreement also contains financial covenants that require the Company to maintain a Consolidated Interest Coverage Ratio
(as defined in the Credit Agreement) of not less than 3:00 to 1:00 and to maintain a Consolidated Leverage Ratio of (i) 3:00
to 1:00 or less for the fiscal quarter ending September 30, 2016, through and including the fiscal quarter ending March 31,
2018, (ii) 2:75 to 1:00 or less for the fiscal quarter ending June 30, 2018, through and including the fiscal quarter ending
March 31, 2019, and (iii) 2:50 to 1:00 or less for the fiscal quarter ending June 30, 2019, and each fiscal quarter thereafter
(subject to the Company’s option to elect a consolidated leverage ratio increase in connection with certain acquisitions). If
the Company does not comply with the covenants in the Credit Agreement, the lenders may, subject to customary cure rights,
require the immediate payment of all amounts outstanding under the Credit Agreement.
The Company had approximately $2.3 million of bilateral letter of credit agreements outstanding at December 31, 2017.
In February 2018, the Company entered into an amendment of the Credit Agreement. For a discussion of the amendment
to the Credit Agreement, please refer to Note 18. "Subsequent Events."
Note 10. Postretirement Benefit Obligations
Defined Contribution Benefit Plan
On January 1, 2017, the Company established a defined contribution plan which covers all eligible U.S. employees. Our plan
allows eligible employees to contribute a portion of their cash compensation to the plan on a tax-deferred basis to save for
their future retirement needs. The Company matches 50% of the first 8% of contributions for employees covered by a collective
bargaining agreement and matches 75% of the first 8% of the employee’s contribution election for all other employees. The
plan’s matching contributions vest after three years of service with the Company. The Company may also provide an additional
discretionary retirement savings contribution which is at the sole discretion of the Company. The Company made contributions
to the defined contribution plan of $5,379 for the year ended December 31, 2017.
Defined Benefit Pension Plan
Prior to the Spin-Off certain of our employees participated in a defined benefit pension plan (the “Shared Plan”) sponsored
by Honeywell which includes participants of other Honeywell subsidiaries and operations. We accounted for our participation
in the Shared Plan as a multi-employer benefit plan. Accordingly, we did not record an asset or liability to recognize the
funded status of the Shared Plan. The related pension expense was allocated based on annual service cost of active
participants and reported within Costs of goods sold and Selling, general and administrative expenses in the Statements of
Operations. The pension expense related to our participation in the Shared Plan for the nine months ended September 30,
2016 and year ended December 31, 2015 was $5,151 and $10,215, respectively.
As of the date of separation from Honeywell, these employees’ entitlement to benefits in Honeywell’s plans was frozen and
they will accrue no further benefits in Honeywell’s plans. Honeywell retained the liability for benefits payable to eligible
employees, which are based on age, years of service and average pay upon retirement.
Upon consummation of the Spin-Off, AdvanSix employees who were participants in a Honeywell defined benefit pension
plan became participants in the AdvanSix defined benefit pension plan (“AdvanSix Retirement Earnings Plan”). The AdvanSix
Retirement Earnings Plan has the same benefit formula as the Honeywell defined benefit pension plan. Moreover, vesting
service, benefit accrual service and compensation credited under the Honeywell defined benefit pension plan apply to the
determination of pension benefits under the AdvanSix Retirement Earnings Plan. Benefits earned under the AdvanSix
Retirement Earnings Plan shall be reduced by the value of benefits accrued under the Honeywell plans.
59
The following tables summarize the balance sheet impact, including the benefit obligations, assets and funded status
associated with the AdvanSix Retirement Earnings Plan.
Change in benefit obligation:
Benefit obligation at January 1, 2017
Service Cost
Interest Cost
Actuarial losses (gains)
Benefits Paid
Benefit obligation at December 31, 2017
Change in plan assets:
Fair value of plan assets at January 1, 2017
Actual return on plan assets
Benefits paid
Company contributions during 2017
Fair value of plan assets at December 31, 2017
Funded status of plan
Amounts recognized in Balance Sheet consists of:
Accrued pension liabilities-current (1)
Accrued pension liabilities-noncurrent (2)
Total pension liabilities recognized
(1)
Included in accrued liabilities on Balance Sheet
(2)
Included in postretirement benefit obligations on Balance Sheet
$
$
$
$
$
$
33,887
7,629
1,333
8,190
(21)
51,018
—
592
(21)
16,750
17,321
33,697
301
33,396
33,697
Pension amount recognized in accumulated other comprehensive loss (income) associated with the Company's pension
plan at December 31, 2017 are as follows:
Transition obligation
Prior service cost
Net actuarial loss
Pension amounts recognized in other comprehensive loss (income)
$
$
—
—
4,743
4,743
The components of net periodic benefit cost and other amounts recognized in other comprehensive income for our pension
plan include the following components:
Years ended December 31,
2016
2015
2017
Net periodic pension cost (benefit)
Service cost
Interest cost
Expected return on plan assets
Recognition of actuarial losses
Net periodic Pension Cost
Other changes in benefits obligations recognized in other
comprehensive loss (income)
Actuarial losses (gains)
Total recognized in other comprehensive income
Total net periodic pension cost (benefit) recognized in Other
comprehensive income
60
$
7,629 $
1,333
(302)
—
8,660
1,796 $
315
—
—
2,111
7,902
7,902
(3,159)
(3,159)
$
16,562 $
(1,048) $
—
—
—
—
—
—
—
—
The estimated actuarial gain that will be amortized from accumulated other comprehensive income (loss) into net periodic
benefit cost in 2017 is expected to be nil.
Significant actuarial assumptions used in determining the benefit obligations and net periodic benefit cost for our pension
plan were as follows:
Key actuarial assumptions used to determine benefit obligations at December 31,
Effective discount rate for benefit obligation
Expected annual rate of compensation increase
Key actuarial assumptions used to determine the net periodic benefit cost for the years
ended December 31,
Effective discount rate for service cost
Effective discount rate for interest cost
Expected long-term rate of return
Expected annual rate of compensation increase
2017
3.9%
2.8%
2017
4.5%
4.0%
5.8%
2.8%
2016
4.5%
2.8%
2016
3.7%
3.6%
5.8%
3.8%
The discount rate for our pension plan reflects the current rate at which the associated liabilities could be settled at the
measurement date of December 31, 2017. To determine discount rates for our pension plan, we use a modeling process
that involves matching the expected cash outflows of our benefit plan to a yield curve constructed from a portfolio of high
quality, fixed-income debt instruments. We use the single weighted-average yield of this hypothetical portfolio as a discount
rate benchmark.
The long-term expected rate of return on funded assets is developed by using forward-looking long-term return assumptions
for each asset class. Management incorporates the expected future investment returns on current and planned asset
allocations using information from external investment consultants as well as management judgment. A single rate is then
calculated as the weighted average of the target asset allocation percentages and the long-term return assumption for each
asset class.
The accumulated benefit obligation for our pension plan was $31.2 million and $31.2 million as of December 31, 2017 and
December 31, 2016, respectively.
Benefit payments, including amounts to be paid from Company assets, and reflecting expected future service, as appropriate,
are expected to be paid during the following years:
2018
2019
2020
2021
2022
2023–2027
$
302
492
702
964
1,159
9,444
Our general funding policy for our pension plan is to contribute amounts at least sufficient to satisfy regulatory funding
standards. We plan to make estimated payments through such time as the plan is fully funded. The Company made pension
plan contributions during 2017 sufficient to satisfy pension funding requirements under the AdvanSix Retirement Earnings
Plan in the aggregate amount of approximately $16.8 million. The Company made pension plan contributions of $2.2 million
in the first quarter of 2017, $1.6 million in the second quarter of 2017, $11.0 million in the third quarter of 2017 and $2.0
million in the fourth quarter of 2017. To date, Company made a $2.0 million contribution in January 2018. The Company
plans to make pension plan contributions during 2018 sufficient to satisfy pension funding requirements aggregating
approximately $8 to $10 million as well as additional contributions in future years sufficient to satisfy pension funding
requirements in those periods. There were no pension plan contributions in 2016 and 2015.
Pension Plan Contributions
Years ended December 31,
2016
2015
2017
$
16,750
—
—
61
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.
The target asset allocation % for the Company's pension plan assets is summarized as follows:
Cash and cash equivalents
US and non-US equity securities
Fixed income / real estate / other securities
Total Pension Assets
December 31, 2017
2%
65%
33%
100%
Fixed income and other securities include investment grade securities covering the Treasury, agency, asset-backed,
mortgage-backed and credit sectors of the U.S. Bond Market, as well as listed real estate companies and real estate investment
trusts located in both developed and emerging markets.
Fair Value Measurements
Investments valued using NAV per share
Emerging Markets Region Equities
International Region Equities
United States Equities
United States Bonds
Real Estate
Cash Fund
Total Pension Plan Assets at Fair Value
Fair Value at December 31,
2017
2016
2015
$
1,090 $
— $
3,215
7,273
4,723
872
148
17,321 $
$
—
—
—
—
—
— $
—
—
—
—
—
—
The pension plan assets are invested in collective investment trust funds as shown above. These investments are measured
at fair value using the net asset value per share practical expedient and have not been classified in the fair value hierarchy.
Note 11. Financial Instruments and Fair Value Measures
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. 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 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 Company. The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with
any single customer. The Company has one major customer that accounts for approximately 33% and 16% of trade accounts
receivable – net at December 31, 2017 and 2016, respectively.
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 through the use of long-term, formula-
based price contracts with our suppliers and formula-based price agreements with customers. We also enter into forward
commodity contracts with third parties designated as hedges of anticipated purchases of natural gas. 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 December 31, 2017 and 2016, we had no contracts
with notional amounts related to natural gas forward commodity agreements.
62
Fair Value of Financial Instruments – The FASB’s accounting guidance defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
(exit price). The FASB’s guidance classifies the inputs used to measure fair value into the following hierarchy:
Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or Inputs other
than quoted prices that are observable for the asset or liability
Level 3
Unobservable inputs for the asset or liability
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.
The carrying value of accounts receivables and payables contained in the Consolidated Balance Sheets approximates fair
value.
Note 12. Commitments and Contingencies
Litigation
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,
including matters relating to commercial transactions. 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 Business 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 Balance Sheets, 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.
Unconditional Purchase Obligations:
In the normal course of business, the Company makes commitments to purchase goods with various vendors in the normal
course of business which are consistent with our expected requirements and primarily relate to cumene, oleum, sulfur and
natural gas as well as a long term agreement for loading, unloading and the handling of a portion of our ammonium sulfate
export volumes.
Future minimum payments for these unconditional purchase obligations as of December 31, 2017 are as follows (dollars in
thousands):
Year
2018
2019
2020
2021
2022
Thereafter
Amount
83,793
46,798
37,705
37,525
17,668
90,940
314,429
$
$
63
Note 13. Changes in Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) are as follows:
Currency
Translation
Adjustment
Postretirement
Benefit
Obligations
Adjustment
Changes in
Fair Value of
Effective Cash
Flow Hedges
Accumulated
Other
Comprehensive
Income (loss)
Balance at December 31, 2014
$
Other comprehensive income (loss)
Amounts reclassified from accumulated other
comprehensive income (loss)
Income tax expense (benefit)
Current period change
Balance at December 31, 2015
Other comprehensive income (loss)
Amounts reclassified from accumulated other
comprehensive income (loss)
Income tax expense (benefit)
Current period change
Balance at December 31, 2016
Other comprehensive income (loss)
Amounts reclassified from accumulated other
comprehensive income (loss)
Income tax expense (benefit)
Current period change
(3,762) $
(1,390)
— $
—
(1,452) $
2,865
—
—
(1,390)
(5,152)
154
—
—
154
(4,998)
12
—
—
12
—
—
—
—
3,159
—
(1,196)
1,963
1,963
(7,902)
—
1,879
(6,023)
—
—
2,865
1,413
(1,413)
—
—
(1,413)
—
—
—
—
—
Balance at December 31, 2017
$
(4,986) $
(4,060) $
— $
(5,214)
1,475
—
—
1,475
(3,739)
1,900
—
(1,196)
704
(3,035)
(7,890)
—
1,879
(6,011)
(9,046)
Note 14. Earnings Per Share
On October 1, 2016, the date of consummation of the Spin-Off, 30,482,966 shares of the Company’s common stock were
distributed to Honeywell stockholders of record as of September 16, 2016 who held their shares through the Distribution
Date. Basic and Diluted EPS for all periods prior to the Spin-Off reflect the number of distributed shares, or 30,482,966
shares. For the 2016 year to date calculations, these shares are treated as issued and outstanding from January 1, 2016
for purposes of calculating historical basic earnings per share.
The details of the earnings per share calculations for the years ended December 31, 2017, 2016 and 2015 are as follows:
Years Ended December 31,
2016
2015
2017
Basic
Net Income
$
146,699 $
34,147 $
63,776
Weighted average common shares outstanding
30,482,966
30,482,966
30,482,966
EPS – Basic
$
4.81 $
1.12 $
2.09
64
Diluted
Net Income
Years Ended December 31,
2017
2016
2015
$
146,699 $
34,147 $
63,776
Weighted average common shares outstanding – Basic
30,482,966
30,482,966
30,482,966
Dilutive effect of unvested equity awards
608,635
20,621
—
Weighted average common shares outstanding – Diluted
31,091,601
30,503,587
30,482,966
EPS – Diluted
$
4.72 $
1.12 $
2.09
Diluted EPS is computed based upon the weighted average number of common shares outstanding for the year plus the
dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common
stock for the year.
Note 15. Stock-Based Compensation Plans
On September 8, 2016, prior to the Spin-Off, our Board adopted, and Honeywell, as our sole stockholder, approved, the
2016 Stock Incentive Plan of AdvanSix Inc. (the “Equity Plan”). Following the Spin-Off, the material terms of performance-
based compensation under the Equity Plan were approved by the Company's stockholders for tax purposes at our 2017
annual meeting of stockholders. The Equity Plan provides for the grant of stock options, stock appreciation rights, performance
awards, restricted stock units, restricted stock, other stock-based awards and non-share-based awards. The maximum
aggregate number of shares of our common stock that may be issued under all stock-based awards granted under the Equity
Plan is 3,350,000. Of those shares, only 1,750,000 may be subject, on a one-for-one basis, to awards granted under the
Equity Plan that are not stock options or stock appreciation rights (“full-value awards”). After the number of shares subject
to full-value awards exceed such limit, each share subject to future full-value awards would reduce the number of shares
available for grant under the Equity Plan by four shares, with the exception of awards to non-employee directors, which shall
not count towards such limit and shares related to such awards shall always be counted on a one-for-one basis.
Under the terms of the Equity Plan, there were 2,085,212 shares of AdvanSix common stock available for future grants of
full-value awards, of which 657,217 were available for awards other than full-value awards on a one-for-one basis, at
December 31, 2017.
Since the Spin-Off on October 1, 2016, the Company has granted the following equity awards under the Equity Plan:
• On October 3, 2016, 783,159 Restricted stock units ("RSUs") were granted to officers of AdvanSix with three-year vesting
periods.
• On October 3, 2016, 36,564 RSUs were granted to members of our Board of Directors as director compensation with
three-year vesting periods.
• On October 25, 2016, Honeywell RSU awards held by certain of our key employees who would otherwise forfeit prior
Honeywell awards as a result of the Spin-Off were issued replacement grants in the amount of 88,817 RSUs with
substantially the same vesting schedule as the forfeited awards. Compensation expense for these awards will continue
to be recognized ratably over the remaining terms of the unvested awards, which ranged from 18 to 42 months.
• On March 8, 2017, the Company granted equity awards representing 333,719 shares of common stock to Company
employees consisting of 175,026 stock options, 89,896 performance share units ("PSUs") (at target) and 68,797 RSUs.
These equity awards have a per share strike price or grant date fair value per share of $26.66 with vesting periods ranging
from 12 to 36 months.
65
• On June 1, 2017, the Company granted equity awards representing 28,856 shares of common stock to Company employees
and the Company's Board of Directors consisting of RSUs. These equity awards have a grant date fair value per share of
$29.25 with vesting periods ranging from 12 to 36 months.
Restricted Stock Units – The Company granted RSUs to key management employees and directors that generally vest
over periods ranging from 1 to 3 years. Upon vesting, the RSUs entitle the holder to receive one share of AdvanSix Inc.
common stock for each RSU at time of vesting and are payable in AdvanSix common stock upon vesting. The fair value of
all stock-settled RSUs is based upon the market price of the underlying common stock as of the grant date.
The following table summarizes information about RSU activity related to the Equity Plan:
Non-vested at October 1, 2016
Granted
Vested
Forfeited
Non-vested at December 31, 2016
Granted
Vested
Forfeited
Non-vested at December 31, 2017
Number of
Restricted
Stock Units (In
Thousands)
Weighted
Average Grant
Date Fair Value
(Per Share)
— $
908
—
—
908
98
—
(2)
1,004 $
—
16.41
—
—
16.41
27.43
—
27.73
17.46
As of December 31, 2017, there was approximately $10.0 million of total unrecognized compensation cost related to non-
vested RSUs granted under the Equity Plan which is expected to be recognized over a weighted-average period of 1.8 years.
The following table summarizes information about the income statement impact from RSUs for the years ended December
31, 2017 and 2016:
Compensation expense
Future income tax benefit recognized
Year Ended
December 31,
2017 (In
Thousands)
Year Ended
December 31,
2016 (In
Thousands)
$
$
6,141 $
755 $
1,327
513
Stock Options – The exercise price, term and other conditions applicable to each option granted under the Equity Plan are
generally determined by Compensation Committee of the Company's Board of Directors. The exercise price of stock options
is set on the grant date and may not be less than the fair market value per share of our stock on that date. The fair value is
recognized as an expense over the employee’s requisite service period (generally the vesting period of the award). Options
generally vest over periods ranging from 1 to 3 years.
The following table summarizes information about the income statement impact from stock options for the year ended
December 31, 2017. There were no stock options granted prior to 2017.
Compensation expense
Future income tax benefit recognized
Year Ended
December 31,
2017 (In
Thousands)
$
$
969
230
The fair value related to stock options granted was determined using Black-Scholes option pricing model and the weighted
average assumptions are shown in the table below:
66
Key Black-Scholes Assumptions
Risk-free interest rate
Expected term (years)
Volatility
Dividend yield
Fair value per stock option
Year Ended
December 31, 2017
2.2%
6
37.0%
—
$10.48
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Volatility
is determined based on the average volatility of peer companies with similar option terms. Expected term is determined using
a simplified approach, calculated as the mid-point between the vesting period and the contractual term of the award. The
risk-free interest rate is determined based upon the yield of an outstanding U.S. Treasury note with a term equal to the
expected term of the option granted.
The following table summarizes information about stock option activity related to the Equity Plan:
Outstanding at December 31, 2016
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2017
Exercisable at December 31, 2017
Number of
Shares (in
thousands)
Weighted
Average
Exercise Price
(per share)
— $
175
—
(3)
—
172
$
— $
—
10.48
—
10.48
—
10.48
—
Weighted
Average
Remaining
Contractual
Term (years)
—
Aggregate
Intrinsic Value
(in thousands)
9.31
$
— $
5,434
—
The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the
Company’s closing stock price on the last trading day of December 31, 2017 and the exercise price, multiplied by the number
of in-the-money options) that would have been received had all option holders exercised their in-the-money options at year-
end. The amount changes based on the fair market value of the Company’s stock.
As of December 31, 2017, there was $0.8 million of unrecognized stock-based compensation expense related to stock options
that is expected to be recognized over a weighted average period of approximately 1.6 years.
Performance Stock Units – The Company has issued PSUs to key senior management employees which, upon vesting,
convert one-for-one to AdvanSix common stock. The actual number of shares an employee receives for each PSU depends
on the Company’s performance against Earnings Per Share and Return On Investment goals over three-year performance
and vesting periods. Each grantee is granted a target level of PSUs and may earn between 0% and 200% of the target level
depending on the Company’s performance against the financial goals.
The following table summarizes information about PSU activity related to the Equity Plan:
Non-vested at December 31, 2016
Granted
Vested
Forfeited
Non-vested at December 31, 2017
67
Number of
Performance
Stock Units
(In
Thousands)
—
90
—
(1)
89
Weighted
Average Grant
Date Fair Value
(Per Share)
$
$
—
26.66
—
26.66
26.66
The fair value of the PSUs is based on the fair market value of the Company’s stock at the grant date. The number of
underlying shares to be issued will be based on actual performance achievement over the performance period. The per unit
weighted average fair value at the date of grant for PSUs granted during the year ended December 31, 2017 was $26.66.
The fair value of each PSU grant is amortized monthly into compensation expense on a straight-line basis over a vesting
period of 36 months. The accrual of compensation costs is based on our estimate of the final expected value of the award,
and is adjusted as required for the performance-based condition. The Company assumes that forfeitures will be minimal,
and estimates forfeitures at time of issuance, which results in a reduction in compensation expense. As the payout of PSUs
includes dividend equivalents, no separate dividend yield assumption is required in calculating the fair value of the PSUs.
The Company currently does not pay dividends.
As of December 31, 2017, there was approximately $1.6 million of total unrecognized compensation cost related to non-
vested PSUs granted under the Equity Plan which is expected to be recognized over a weighted-average period of 2.2 years.
The following table summarizes information about the income statement impact from PSUs for the year ended December 31,
2017. There were no PSUs granted prior to 2017.
Compensation expense
Future income tax benefit recognized
Year Ended
December 31, 2017
(In Thousands)
$
$
632
66
Certain share-based compensation expense relates to stock options and RSUs awarded to key employees of the Business
as part of Honeywell’s incentive compensation plans prior to the Spin-Off. Such share-based compensation expense was
$538 and $562 for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively.
Note 16. Geographic Areas and Major Customers – Financial Data
Years Ended December 31,
United States
International
Total
Net Sales(1)
2016
2017
2015
Long-lived Assets(2)
2016
2015
2017
$
$
1,189 $
286
1,475 $
976 $
216
1,192 $
957 $
372
1,329 $
613 $
—
613 $
575 $
—
575 $
527
1
528
(1)
(2)
International sales represent net sales made to customers outside the U.S.
Long-lived assets are comprised of property, plant and equipment – net.
In 2017, the Company's ten largest customers accounted for approximately 44% of our total sales with 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
contract. In 2017, 2016 and 2015, our sales to Shaw were 22%, 17% and 16%, respectively, of our total sales. We typically
sell to our other customers under short-term contracts with one- to two-year terms or by purchase orders.
Geographic Net Sales for the year ended December 31, 2015 have been corrected for an immaterial error.
Note 17. Unaudited Selected Quarterly Financial Data
The following tables show selected unaudited quarterly results of operations for 2017 and 2016. The quarterly data have
been prepared on the same basis as the audited annual financial statements and include all adjustments, which include only
normal recurring adjustments, necessary for the fair statement of our results of operations for these periods.
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Net Sales
Gross Profit
Net Income (Loss)
Earnings (loss) per share – basic(a)
Earnings (loss) per share – diluted(a)
Net Sales
Gross Profit
Net Income (Loss)
Earnings (loss) per share – basic(a)
Earnings (loss) per share – diluted(a)
2017
March 31,
June 30,
September
30,
December
31,
Year Ended
December
31,
$ 376,704 $ 361,441 $
366,660 $
62,587
27,293
0.90
0.88
61,922
25,766
0.85
0.83
57,031
21,274
0.70
0.68
2016
370,389 $ 1,475,194
226,180
146,699
4.81
4.72
44,640
72,366
2.37
2.31
March 31,
June 30,
September
30,
December
31,
Year Ended
December
31,
$ 299,830 $ 308,418 $
323,953 $
54,271
27,393
0.90
0.90
34,598
15,008
0.49
0.49
38,862
16,460
0.54
0.54
259,323 $ 1,191,524
107,630
(20,101)
34,147
(24,714)
1.12
(0.81)
1.12
(0.81)
(a) On October 1, 2016, the date of consummation of the Spin-Off, 30,482,966 shares of the Company’s common stock were distributed to Honeywell
stockholders of record as of September 16, 2016. Basic and Diluted EPS for all periods prior to the Spin-Off reflect the number of distributed shares, or
30,482,966 shares.
Note 18. Subsequent Events
In January 2018, as previously announced, the Company experienced a temporary production issue at its Hopewell, Virginia
facility related to the recent severe winter weather. As a result of this unplanned interruption, caprolactam and resin production
was reduced at their respective Hopewell and Chesterfield, Virginia manufacturing facilities. The Company expects to incur
an approximately $30 million unfavorable impact to pre-tax income in the first quarter of 2018, including the unfavorable
impact of fixed cost absorption, lost sales, maintenance expense and incremental raw material costs. The Company informed
its customers of this force majeure event and acted to mitigate the impact of the reduced output on its customers’ operations.
The unplanned interruption had no adverse impact on fourth quarter 2017 financial results.
On February 21, 2018 (the “Closing Date”), the Company entered into Amendment No. 1 (the “Amendment”) to the Credit
Agreement, dated as of September 30, 2016, (the “Existing Credit Agreement”), among the Company, the guarantors, the
lenders party thereto and Bank of America, N.A., as administrative agent (the Existing Credit Agreement, after giving effect
to the Amendment, the “Amended and Restated Credit Agreement”).
The credit facilities under the Existing Credit Agreement consisted of a senior secured term loan in an aggregate principal
amount of $270 million and a senior secured revolving credit facility in a principal amount of $155 million. Pursuant to the
Amendment, (i) the term loan facility under the Existing Credit Agreement was terminated and all outstanding term loans
thereunder were paid in full and (ii) the maximum aggregate principal amount of the senior secured revolving credit facility
(the “Revolving Credit Facility”) was increased to $425 million.
On the Closing Date, the Company borrowed $242 million in loans under the Revolving Credit Facility. The proceeds of such
loans were used to repay the outstanding term loan facility under the Existing Credit Agreement. The Revolving Credit Facility
under the Amended and Restated Credit Agreement has a scheduled maturity date of February 21, 2023.
The Amended and Restated Credit Agreement permits the Company to utilize up to $40 million of the Revolving Credit Facility
for the issuance of letters of credit and up to $40 million for swing line loans. The Company has the option to incur incremental
term loans and/or increase the amount of the Revolving Credit Facility in an aggregate principal amount for all such incremental
term loans and increases of the Revolving Credit Facility of up to the sum of (x) $175 million plus (y) an amount such that
the Company’s Consolidated Senior Secured Leverage Ratio (as defined in the Amended and Restated Credit Agreement)
would not be greater than 1.75 to 1.00, in each case, to the extent that any one or more lenders, whether or not currently
69
party to the Amended and Restated Credit Agreement, commits to be a lender for such amount. Borrowings under the
Amended and Restated Credit Agreement bear interest at a rate equal to either the sum of a base rate plus a margin ranging
from 0.50% to 1.50% or the sum of a Eurodollar rate plus a margin ranging from 1.50% to 2.50%, with either such margin
varying according to the Company’s Consolidated Leverage Ratio (as defined in the Amended and Restated Credit
Agreement). The Company is also required to pay a commitment fee in respect of unused commitments under the Revolving
Credit Facility, if any, at a rate ranging from 0.20% to 0.40% per annum depending on the Company’s Consolidated Leverage
Ratio. The initial margin under the Amended and Restated Credit Agreement is 0.75% for base rate loans and 1.75% for
Eurodollar rate loans and the initial commitment fee rate is 0.25% per annum. Substantially all domestic tangible and intangible
assets of the Company and its subsidiaries are pledged as collateral to secure the obligations under the Amended and
Restated Credit Agreement.
The Amended and Restated Credit Agreement contains customary covenants limiting the ability of the Company and its
subsidiaries to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock of the Company,
enter into transactions with affiliates, make investments, make capital expenditures, merge or consolidate with others or
dispose of assets. The Amended and Restated Credit Agreement also contains financial covenants that require the Company
to maintain a Consolidated Interest Coverage Ratio (as defined in the Amended and Restated Credit Agreement) of not less
than 3:00 to 1:00 and to maintain a Consolidated Leverage Ratio of (i) 3:50 to 1:00 or less for the fiscal quarter ending March
31, 2018, through and including the fiscal quarter ending December 31, 2019, (ii) 3.25 to 1:00 or less for the fiscal quarter
ending March 31, 2020, through and including the fiscal quarter ending December 31, 2020, (iii) 3:00 to 1:00 or less for the
fiscal quarter ending March 31, 2021, through and including the fiscal quarter ending December 31, 2021, and (iv) 2.75 to
1:00 or less for the fiscal quarter ending March 31, 2022 and each fiscal quarter thereafter (subject to the Company’s option
to elect a consolidated leverage ratio increase in connection with certain acquisitions). If the Company does not comply with
the covenants in the Amended and Restated Credit Agreement, the lenders may, subject to customary cure rights, require
the immediate payment of all amounts outstanding under the Revolving Credit Facility.
70
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of AdvanSix Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of AdvanSix Inc. and its subsidiaries ("the Company") as
of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control
over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained
in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.
71
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 27, 2018
We have served as the Company’s auditor since 2015.
72
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not Applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to provide reasonable assurance that information
required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC
and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives. Because there are inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud have been or will be
detected.
Our Chief Executive Officer and Chief Financial Officer, with the assistance of other members of our management, conducted
an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon such
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures
are effective at a reasonable assurance level as of December 31, 2017, the end of the period covered by this report.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, and for its assessment of the effectiveness of internal
control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of Company assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control - Integrated Framework (2013).
Based on this assessment, management determined that the Company maintained effective internal control over financial
reporting as of December 31, 2017.
PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, has audited the effectiveness
of the Company’s internal control over financial reporting as of December 31, 2017, as stated in their report, which is included
in "Item 8. Financial Statements and Supplementary Data."
73
Changes in Internal Control over Financial Reporting
The implementation of a financial consolidation system designed to facilitate the preparation of consolidated financial
statements is a change in the Company’s internal control over financial reporting that occurred during the quarter ended
December 31, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control
over financial reporting. There were no other changes to the Company’s internal control over financial reporting that occurred
during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Item 9B. Other Information
On February 22, 2018, the Company and Shaw Industries Group, Inc. entered into a Seventh Amendment and Eighth
Amendment to the Amended and Restated Caprolactam and Polymer Supply Agreement, dated as of April 1, 2013, as
previously amended by the First Amendment dated as of July 18, 2013, the Second Amendment dated as of November 15,
2013, the Third Amendment dated as of December 12, 2014, the Fourth Amendment dated as of January 13, 2016, the Fifth
Amendment dated as of March 1, 2017, and the Sixth Amendment dated as of March 1, 2017. The Seventh Amendment and
the Eighth Amendment each provide for adjusted pricing and volume terms. The foregoing description is qualified in its entirety
by reference to the full terms of each of the Seventh Amendment and Eighth Amendment, which the Company is filing as
Exhibits 10.28 and 10.29, respectively, to this Form 10-K, with certain portions omitted and filed separately with the SEC
pursuant to a request for confidential treatment.
74
Item 10. Directors and Executive Officers of the Registrant
PART III.
Information relating to the Directors of the Company, as well as information relating to compliance with Section 16(a) of the
Securities Exchange Act of 1934, as required by this Item 10, will be contained in our definitive Proxy Statement to be filed
with the SEC in connection with our 2018 annual meeting of stockholders pursuant to Regulation 14A not later than 120 days
after December 31, 2017 (the "2018 Proxy Statement"), and such information is incorporated herein by reference. Certain
other information relating to the Executive Officers of AdvanSix appears in Part I of this Annual Report on Form 10-K under
the heading Executive Officers of the Registrant.
The members of the Audit Committee of our Board of Directors are: Paul E. Huck (Chair), Darrell K. Hughes and Daniel F.
Sansone. The Board has determined that Mr. Huck has been designated as the audit committee financial expert as defined
by applicable SEC rules and that Mr. Huck, Mr. Hughes and Mr. Sansone satisfy the accounting or related financial
management expertise criteria established by the NYSE. All members of the Audit Committee are independent as that term
is defined in applicable SEC rules and NYSE listing standards.
AdvanSix’s corporate governance policies and procedures, including the Code of Business Conduct, Corporate Governance
Guidelines and Charters of the Committees of the Board of Directors are available, free of charge, on our website under the
heading Investor Relations (see Corporate Governance), or by writing to AdvanSix Inc., 300 Kimball Drive, Suite 101,
Parsippany, New Jersey 07054, c/o Corporate Secretary. AdvanSix’s Code of Business Conduct applies to all AdvanSix
directors, officers (including the Chief Executive Officer, Chief Financial Officer and Controller) and employees. Amendments
to or waivers of the Code of Business Conduct granted to any of AdvanSix’s directors or executive officers will be published
on our website within five business days of such amendment or waiver.
Item 11. Executive Compensation
Information relating to executive compensation and the Compensation Committee, as required by this Item 11, will be contained
in the 2018 Proxy Statement, and such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information relating to certain beneficial ownership of certain stockholders and management, as well as certain other
information required by this Item 12, will be contained in the 2018 Proxy Statement, and such information is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
Information relating to certain relationships and related transactions, as required by this Item 13, will be contained in the
2018 Proxy Statement, and such information is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information relating to fees paid to and services performed by PricewaterhouseCoopers LLP and our Audit Committee’s pre-
approval policies and procedures with respect to non-audit services, as required by this Item 14, will be contained in the
2018 Proxy Statement, and such information is incorporated herein by reference.
75
Item 15. Exhibits and Financial Statement Schedules
PART IV.
(a)(1) Consolidated Financial Statements
Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015
Page Number
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and
2015
Consolidated Balance Sheets at December 31, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 2017, 2016 and 2015
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and
2015
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
42
43
44
45
46
47
71
(a)(2) Financial Statement Schedules
None
(a)(3) Exhibits
See the Exhibit Index of this Annual Report on Form 10-K
Item 16. Form 10-K Summary
The Company has elected not to include a Form 10-K summary under this Item 16.
76
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Signatures
Date: February 27, 2018
ADVANSIX INC.
By:
/s/ Michael Preston
Michael Preston
Senior Vice President and Chief Financial Officer
(on behalf of the Registrant and as the Registrant’s
Principal Financial Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Erin N. Kane, Michael Preston, and John M. Quitmeyer, or any of them, his or her attorneys-in-fact, for such person in any
and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said
attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the date indicated:
/s/ Erin N. Kane
Erin N. Kane
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Michael L. Marberry
Michael L. Marberry
Independent Chairman of the Board
/s/ Paul E. Huck
Paul E. Huck
Director
/s/ Todd D. Karran
Todd D. Karran
Director
/s/ Sharon S. Spurlin
Sharon S. Spurlin
Director
/s/ Darrell K. Hughes
Darrell K. Hughes
Director
/s/ Daniel F. Sansone
Daniel F. Sansone
Director
/s/ Michael Preston
Michael Preston
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Christopher Gramm
Christopher Gramm
Vice President and Controller
(Principal Accounting Officer)
February 27, 2018
77
Exhibit No.
Description
EXHIBIT INDEX
2.1
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Separation and Distribution Agreement, dated as of September 22, 2016, between Honeywell
International Inc. and AdvanSix Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current
Report on Form 8-K filed on September 28, 2016).
Amended and Restated Certificate of Incorporation of AdvanSix Inc. (incorporated by reference to
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 3, 2016).
Amended and Restated By-laws of AdvanSix Inc. (incorporated by reference to Exhibit 3.2 to the
Company’s Current Report on Form 8-K filed on October 3, 2016).
Transition Services Agreement, dated as of September 28, 2016, between Honeywell International Inc.
and AdvanSix Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K filed on September 28, 2016).
Tax Matters Agreement, dated as of September 22, 2016, between Honeywell International Inc. and
AdvanSix Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on September 28, 2016).
Employee Matters Agreement, dated as of September 22, 2016, between Honeywell International Inc.
and AdvanSix Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form
8-K filed on September 28, 2016).
Chesterfield Site Sharing and Services Agreement, dated as of October 1, 2016, between Honeywell
International Inc. and AdvanSix Resins & Chemicals LLC (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on October 3, 2016).
Colonial Heights Site Sharing and Services Agreement, dated as of October 1, 2016, between
Honeywell International Inc. and AdvanSix Resins & Chemicals LLC (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 3, 2016).
Pottsville Site Sharing and Services Agreement, dated as of October 1, 2016, between Honeywell
International Inc. and AdvanSix Resins & Chemicals LLC (incorporated by reference to Exhibit 10.3 to
the Company’s Current Report on Form 8-K filed on October 3, 2016).
Credit Agreement, dated as of September 30, 2016, among AdvanSix Inc., each lender from time to
time party thereto, each swing line lender party thereto, each L/C issuer party thereto and Bank of
America, N.A. as the administrative agent (incorporated by reference to Exhibit 10.4 to the Company’s
Current Report on Form 8-K filed on October 3, 2016).
Amendment No. 1 to Credit Agreement, dated as of February 21, 2018, among AdvanSix Inc., the
guarantors, the lenders signatory thereto and Bank of America, N.A., as the administrative agent agent
(with annexed Amended and Restated Credit Agreement) (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on February 23, 2018).
Offer of Employment Letter between Honeywell International Inc. and Erin N. Kane, dated April 19,
2016 (incorporated by reference to Exhibit 10.9 to the Company’s Amendment No. 1 to Form 10 filed
on July 25, 2016). †
Offer of Employment Letter between Honeywell International Inc. and Michael Preston, dated May 13,
2016 (incorporated by reference to Exhibit 10.11 to the Company’s Amendment No. 1 to Form 10 filed
on July 25, 2016). †
Offer of Employment Letter between Honeywell International Inc. and John M. Quitmeyer, dated May
25, 2016 (incorporated by reference to Exhibit 10.12 to the Company’s Amendment No. 1 to Form 10
filed on July 25, 2016). †
78
Exhibit No.
Description
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
Offer of Employment Letter between Honeywell International Inc. and Jonathan Bellamy, dated May
16, 2016 (incorporated by reference to Exhibit 10.10 to the Company’s Amendment No. 1 to Form 10
filed on July 25, 2016). †
Offer of Employment Letter between AdvanSix Inc. and Christopher Gramm, dated as of August 19,
2016 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on
October 3, 2016). †
2016 Stock Incentive Plan of AdvanSix Inc. and its Affiliates (incorporated by reference to Exhibit 10.6
to the Company’s Current Report on Form 8-K filed on October 3, 2016). †
Form of Restricted Stock Unit Agreement for Non-Employee Directors under the AdvanSix Inc. 2016
Stock Incentive Plan (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on
Form 8-K filed on October 3, 2016). †
Form of Restricted Stock Unit Agreement for Executive Officers under the AdvanSix Inc. 2016 Stock
Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form
10-Q filed on May 11, 2017). †
Form of Performance Stock Unit Agreement under the AdvanSix Inc. 2016 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on
May 11, 2017). †
Form of Stock Option Award Agreement under the AdvanSix Inc. 2016 Stock Incentive Plan
(incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on
May 11, 2017). †
AdvanSix Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on September 26, 2017). †
Executive Severance Pay Plan of AdvanSix Inc. (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on November 15, 2017). †
Amended and Restated Caprolactam and Polymer Supply Agreement dated as of April 1, 2013, by and
between Honeywell Resins & Chemicals LLC and Shaw Industries Group, Inc. (incorporated by
reference to Exhibit 10.4 to Amendment No. 1 to the Registration Statement of AdvanSix Inc. on Form
10 dated and filed with the SEC on July 25, 2016). *
First Amendment to the Amended and Restated Caprolactam and Polymer Supply Agreement dated as
of July 18, 2013, by and between Honeywell Resins & Chemicals LLC and Shaw Industries Group, Inc.
(incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Registration Statement of
AdvanSix Inc. on Form 10 dated and filed with the SEC on July 25, 2016). *
Second Amendment to the Amended and Restated Caprolactam and Polymer Supply Agreement dated
as of November 15, 2013, by and between Honeywell Resins & Chemicals LLC and Shaw Industries
Group, Inc. (incorporated by reference to Exhibit 10.6 to Amendment No. 1 to the Registration
Statement of AdvanSix Inc. on Form 10 dated and filed with the SEC on July 25, 2016). *
Third Amendment to the Amended and Restated Caprolactam and Polymer Supply Agreement dated
as of December 12, 2014, by and between Honeywell Resins & Chemicals LLC and Shaw Industries
Group, Inc. (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to the Registration
Statement of AdvanSix Inc. on Form 10 dated and filed with the SEC on July 25, 2016). *
Fourth Amendment to the Amended and Restated Caprolactam and Polymer Supply Agreement dated
as of January 13, 2016, by and between Honeywell Resins & Chemicals LLC and Shaw Industries
Group, Inc. (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Registration
Statement of AdvanSix Inc. on Form 10 dated and filed with the SEC on July 25, 2016). *
Fifth 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 10.21 to the Company's Annual Report on Form 10-K dated and
filed with the SEC on March 6, 2017). *
79
Exhibit No.
Description
10.27
10.28
10.29
21.1
23.1
24
31.1
31.2
32.1
32.2
99.1
99.2
99.3
Sixth 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 dated
and filed with the SEC on March 6, 2017). *
Seventh Amendment to the Amended and Restated Caprolactam and Polymer Supply Agreement
dated as of February 22, 2018, by and between AdvanSix Resins & Chemicals LLC and Shaw
Industries Group, Inc. *
Eighth Amendment to the Amended and Restated Caprolactam and Polymer Supply Agreement dated
as of February 22, 2018, by and between AdvanSix Resins & Chemicals LLC and Shaw Industries
Group, Inc. *
List of subsidiaries of AdvanSix Inc. (incorporated by reference to Exhibit 21.1 to Amendment No. 4 to
the Registration Statement of AdvanSix Inc. on Form 10 dated and filed with the SEC on August 31,
2016 and effective as of September 8, 2016).
Consent of PricewaterhouseCoopers LLP.
Power of Attorney (included on the signature page of this Annual Report on Form 10-K).
Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Financial Officer.
Section 1350 Certification of the Company’s Principal Executive Officer. The information contained in
this Exhibit shall not be deemed filed with the SEC nor incorporated by reference in any registration
statement filed by the registrant under the Securities Act of 1933, as amended.
Section 1350 Certification of the Company’s Principal Financial Officer. The information contained in
this Exhibit shall not be deemed filed with the SEC nor incorporated by reference in any registration
statement filed by the registrant under the Securities Act of 1933, as amended.
Information Statement of AdvanSix Inc. (incorporated by reference to Exhibit 99.1 to Amendment No. 5
to the Registration Statement of AdvanSix Inc. on Form 10 dated and filed with the SEC on September
7, 2016 and effective as of September 8, 2016).
Pertinent pages from Honeywell International Inc.’s Proxy Statement, dated March 10, 2016, filed
pursuant to Rule 14a-6 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit
99.2 to the Registration Statement of AdvanSix Inc. on Form 10 dated and filed with the SEC on May
12, 2016).
Pertinent pages from the Annual Report of Honeywell International Inc. on Form 10-K for the fiscal year
ended December 31, 2015, filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (incorporated by reference to Exhibit 99.3 to the Registration Statement of AdvanSix Inc. on Form
10 dated and filed with the SEC on May 12, 2016).
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Definition Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
†
*
Indicates management contract or compensatory plan.
Confidential treatment has been granted for certain information contained in Exhibits 10.21, 10.22, 10.23, 10.24, 10,25, 10.26 and 10.27, and
the omitted portions have been filed separately with the SEC. Portions of Exhibit 10.28 and 10.29 have been omitted pursuant to a request for
confidential treatment, and the omitted portions have been filed separately with the SEC.
80
AdvanSix Inc.
300 Kimball Drive, Suite 101
Parsippany, NJ 07054
AdvanSix.com
Copyright © 2018 AdvanSix Resins & Chemicals LLC