ADVANSIX INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)
The following discussion and analysis of the Company's financial condition and results of operations, which we refer to as our "MD&A," should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto contained in this Form 10-Q, as well as the MD&A section included in our Annual Report on Form 10-K for the year ended
December 31, 2021filed with the Securities and Exchange Commission("SEC") on February 18, 2022(the "2021 Form 10-K"). Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors that can affect our performance in both the near- and long-term, including those incorporated by reference in Item 1A of Part II of this Form 10-Q as such factors may be revised or supplemented in subsequent filings with the SEC, as well as those discussed in the section entitled "Note Regarding Forward-Looking Statements" below.
Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this MD&A 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 (the "Exchange Act"). When used in this Form 10-Q, words such as "expect," "anticipate," "estimate," "outlook," "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should," and "believe," and other variations or similar terminology and expressions identify forward-looking statements. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and difficult to predict, which may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: general economic and financial conditions in the
U.S.and globally, including the impact of the coronavirus (COVID-19) pandemic and any resurgences; the potential effects of inflationary pressures, labor market shortages and supply chain issues; instability or volatility in financial markets or other unfavorable economic or business conditions caused by geopolitical concerns, including as a result of the conflict between Russiaand Ukraine; the scope, shape and pace of recovery of the pandemic; the severity and transmissibility of newly identified strains of COVID-19; governmental, business and individuals' actions in response to the pandemic, including our business continuity and cash optimization plans that have been, and may in the future be, implemented; the impact of social and economic restrictions and other containment measures taken to combat virus transmission; the effect on our customers' demand for our products and our suppliers' ability to manufacture and deliver our raw materials, including implications of reduced refinery utilization in the U.S.; our ability to sell and provide our goods and services, including as a result of travel and other COVID-19-related restrictions; the ability of our customers to pay for our products; any closures of our and our customers' offices and facilities; risks associated with increased phishing, compromised business emails and other cybersecurity attacks and disruptions to our technology infrastructure; risks associated with employees working remotely or operating with a reduced workforce; risks associated with our indebtedness including compliance with financial and restrictive covenants, and our ability to access capital on reasonable terms, at a reasonable cost, or at all, due to economic conditions; the impact of scheduled turnarounds and significant unplanned downtime and interruptions of production or logistics operations as a result of mechanical issues or other unanticipated events such as fires, severe weather conditions, natural disasters, pandemics and geopolitical conflicts and related events; price fluctuations, cost increases and supply of raw materials; our operations and growth projects requiring substantial capital; growth rates and cyclicality of the industries we serve including global changes in supply and demand; failure to develop and commercialize new products or technologies; loss of significant customer relationships; adverse trade and tax policies; extensive environmental, health and safety laws that apply to our operations; hazards associated with chemical manufacturing, storage and transportation; litigation associated with chemical manufacturing and our business operations generally; inability to acquire and integrate businesses, assets, products or technologies; protection of our intellectual property and proprietary information; prolonged work stoppages as a result of labor difficulties or otherwise; cybersecurity, data privacy incidents and disruptions to our technology infrastructure; failure to maintain effective internal controls; our ability to declare and pay quarterly cash dividends and the amounts and timing of any future dividends; our ability to repurchase our common stock and the amount and timing of any future repurchases; disruptions in supply chain, transportation and logistics; potential for uncertainty regarding qualification for tax treatment of our spin-off; fluctuations in our stock price; and changes in laws or regulations applicable to our business. Forward-looking statements are not guarantees of future performance and actual results could differ materially from those contemplated by the forward-looking statements as a result of a number of risks, uncertainties and other factors including those noted above and those detailed in Item 1A of Part I and elsewhere in our 2021 Form 10-K, and subsequent reports filed with the SEC. All subsequent written or oral forward-looking statements attributable 17 -------------------------------------------------------------------------------- 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. Business Overview AdvanSixplays a critical role in global supply chains, innovating and delivering essential products for our customers in a wide variety of end markets and applications that touch people's lives, such as building and construction, fertilizers, agrochemicals, plastics, solvents, packaging, paints, coatings, adhesives and electronics. Our reliable and sustainable supply of quality products emerges from the integrated value chain of our five U.S.-based manufacturing facilities. AdvanSixstrives to deliver best-in-class customer experiences and differentiated products in the industries of nylon solutions, chemical intermediates and plant nutrients, guided by our core values of Safety, Integrity, Accountability and Respect. Our four key product lines are as follows: •Nylon - We sell our Nylon 6 resin globally, primarily under the Aegis® brand name. Nylon 6 is a polymer resin which is a synthetic material used by our customers to produce fibers, filaments, engineered plastics and films that, in turn, are used in such end-products as carpets, automotive and electric components, sports apparel, food packaging and other industrial applications. In addition, our Nylon 6 resin is used to produce nylon films which we sell to our customers primarily under the Capran® brand name. •Caprolactam - Caprolactam is the key monomer used in the production of Nylon 6 resin. We internally polymerize caprolactam into Aegis® Nylon 6 Resins, and we also market and sell the caprolactam that is not consumed internally to customers who use it to manufacture polymer resins to produce nylon fibers, films and other nylon products. Our Hopewell, VAmanufacturing facility is one of the world's largest single-site producers of caprolactam as of March 31, 2022. •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 engineered plastic resins. Other intermediate chemicals that we manufacture, market and sell include phenol, alpha-methylstyrene ("AMS"), cyclohexanone, oximes (methyl ethyl ketoxime, acetaldehyde oxime and 2-pentanone oxime), cyclohexanol, sulfuric acid, ammonia and carbondioxide. With the acquisition of U.S. Amines Ltd.(" U.S.Amines"), we now produce alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals. •Ammonium Sulfate - Our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur, two key plant nutrients. Ammonium sulfate fertilizer is derived from the integrated operations at the Hopewellmanufacturing facility. Because of our Hopewellfacility's size, scale and technology design, we are the world's largest single-site producer of ammonium sulfate fertilizer as of March 31, 2022. We market and sell ammonium sulfate primarily to North American and South American distributors, farm cooperatives and retailers to fertilize crops. Global demand for Nylon 6 resin spans a variety of end-uses such as textiles, engineered plastics, industrial filament, food and industrial films, and carpet. The market growth typically tracks global GDP growth over the long-term but varies by end-use. 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 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. Nylon 6 resin prices track the cyclicality of caprolactam prices, although prices set above the average commodity spread are achievable when nylon resin manufacturers, like AdvanSix, formulate and produce differentiated nylon resin products. Our differentiated Nylon 6 products are typically valued at a higher level than commodity resin products.
We believe that growth in the nylon 6 end market will continue to track global GDP over the long term. Applications such as engineering plastics and packaging have the potential to grow at faster rates given certain macro trends. Additionally, one of our strategies is to continue to develop more value-added, differentiated Nylon 6 products, such as our wire and cable and co-polymer offerings, in current and new customer applications.
We also manufacture, market and sell a number of chemical intermediate products that are derived from the chemical processes within our integrated supply chain. Most significant is acetone, the price of which is influenced by its own supply and demand dynamics but can also be influenced by the underlying move in propylene input costs. We continue to invest in and grow our differentiated product offerings in high-purity applications and high-value intermediates including our newly acquired
U.S.Amines portfolio as well as our oximes-based EZ-Blox™ anti-skinning agent used in paints and Nadone® cyclohexanone, which is a solvent used in various high-value applications. 18 -------------------------------------------------------------------------------- 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. Other global factors driving ammonium sulfate fertilizer demand are general agriculture trends, including planted acres and the price of crops. Our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition to increase yields of key crops. In addition, due to its nutrient density, the typical ammonium sulfate product delivers pound for pound the most readily available sulfur and nitrogen to crops as compared to other fertilizers. We recently expanded our offering to directly supply packaged ammonium sulfate to customers, primarily in North and South America, and diversified and optimized our offerings to include spray-grade adjuvant to support crop protection and products for industrial use. We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, however, quarterly sales experience seasonality reflecting both geographical and product sales mix considerations based on the timing and length of the growing seasons in North and South America. North Americaammonium sulfate prices are typically strongest during second quarter fertilizer application, where we sell a higher mix of granular product domestically, and then typically decline seasonally with new season fill in the third quarter, where we generally drive a higher mix of standard grade product sales into export markets. 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 as several of our intermediate products are key feedstock materials for other products in our integrated manufacturing chain. While our integration, scale and range of product offerings make us one of the most efficient manufacturers in our industry, these attributes also expose us to increased risk associated with material disruptions at any one of our production facilities or logistics operations which could impact the overall manufacturing supply chain. Further, although we believe that our sources of supply for our raw materials, including cumene, natural gas and sulfur, are generally robust, it is difficult to predict the impact that shortages, increased costs and related supply chain logistics considerations may have in the future. In order to mitigate the risk of unplanned interruptions, we schedule planned plant turnarounds each year to conduct routine and major maintenance across our facilities. We also utilize maintenance excellence and mechanical integrity programs, targeted buffer inventory of intermediate chemicals necessary for our manufacturing process, and co-producer swap arrangements, which are intended to mitigate the extent of any production losses as a result of planned and unplanned downtime; however, the mitigation of all or part of any such production impact cannot be assured.
Since early 2020, the novel coronavirus (COVID-19) has continued to spread, with confirmed cases worldwide, and with certain jurisdictions experiencing resurgences, including as a result of variant strains. The pandemic and related containment measures, such as travel bans and restrictions, shelter in place orders and business shutdowns, have had a substantial impact on businesses around the world and on global, regional and national economies, including disruptions to supply chains, volatility in demand, production and sales across most industries, volatility within global financial markets, inflationary pressures in commodity pricing and an increasingly dynamic workforce environment. The continuously evolving nature of this pandemic and the pace and shape of a full recovery may continue to have an impact on
the United Statesand global economies. As previously disclosed, the Company experienced a material impact on its second quarter 2020 results of operations associated with lower demand, particularly in nylon, caprolactam and phenol, and a decrease in overall sales volume related to global markets and the economic impact of COVID-19. Starting in the second half of 2020, and through the first quarter of 2022, demand improved to pre-COVID-19 levels with states, regions and countries in various phases of re-opening and continued administration of vaccines for COVID-19. The Company will continue to monitor developments and execute our operational and safety mitigation plans as previously disclosed.
As the situation surrounding COVID-19 remains fluid and unpredictable, the Company cannot reasonably estimate with certainty the future impact that COVID-19 may have on the Company’s results of operations, financial condition and liquidity. .
February 2022, the Company acquired U.S.Amines, a leading North American producer of alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals for an estimated purchase price of approximately 19 -------------------------------------------------------------------------------- $98 million, net of cash acquired. U.S.Amines employs approximately 50 people in the United Statesat manufacturing facilities in Bucks, ALand Portsmouth, VA. This acquisition enhances the Company's value chain through internal supply of products and raw materials. The acquisition also provides a unique platform in the agrochemicals space as well as a number of opportunities to support further penetration into high-value applications including electronics, pharmaceuticals and water treatment. U.S.Amines has a complementary business model with long-tenured customer relationships and formula pricing mechanisms with a business that is adjacent to both our ammonium sulfate adjuvant and solvent businesses.
As announced on
As announced on
February 18, 2022, the Board declared a quarterly cash dividend of $0.125per share on the Company's common stock, payable on March 15, 2022to stockholders of record as of the close of business on March 1, 2022. Results of Operations (Dollars in thousands, unless otherwise noted) Sales Three Months Ended March 31, 2022 2021 Sales $ 479,073 $ 376,383
% change over prior year period 27.3%
The change in sales compared to the prior year period is attributable to the following: Three Months Ended March 31, 2022 Volume (4.0)% Price 29.4% Acquisition 1.9% 27.3% Sales increased in the three months ended
March 31, 2022compared to the prior year period by $102.7 million(approximately 27%) due primarily to (i) net favorable market-based pricing (approximately 26%) reflecting strength in our ammonium sulfate and nylon product lines, (ii) favorable raw material pass-through pricing (approximately 3%) as a result of net cost increases in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) acquisitions (approximately 2%), partially offset by decreased sales volume (approximately 4%) driven primarily by higher sales in the first quarter of 2021 through a reduction of finished goods inventory in the prior year period to meet customer demand recovery. Costs of Goods Sold Three Months Ended March 31, 2022 2021 Costs of goods sold $ 375,646 $ 317,899
% change over prior year period 18.2% Gross margin percentage
21.6% 15.5% Costs of goods sold increased in the three months ended
March 31, 2022compared to the prior year period by $57.7 million(approximately 18%) due primarily to (i) increased prices of raw materials, particularly natural gas and sulfur (approximately 18%), (ii) an increase in plant spend (approximately 2%) and (iii) the impact of the U.S.Amines acquisition (approximately 2%), partially offset by decreased sales volumes as discussed above (approximately 2%) and the favorable impact of a prior year non-cash LIFO reserve adjustment (approximately 2%). 20 -------------------------------------------------------------------------------- Gross margin percentage increased by approximately 6% in the three months ended March 31, 2022compared to the prior year period due primarily to the net impact of (i) formula-based pass-through pricing and increased market pricing (approximately 7%) and (ii) the favorable impact of a prior year non-cash LIFO reserve adjustment (approximately 1%), partially offset by (i) higher plant spend (approximately 1%) and (ii) lower sales volume (approximately 1%).
Selling, general and administrative expenses
Three Months Ended
March 31, 20222021
Selling, general and administrative expenses
Percentage of sales
4.4% 5.1% Selling, general and administrative expenses increased by
$1.9 millionin the three months ended March 31, 2022compared to the prior year period due primarily to increased functional support costs as compared to the prior year. Income Tax Expense Three Months Ended March 31, 2022 2021 Income tax expense $ 19,184 $ 9,271Effective tax rate 23.3% 24.8% The Company filed a Federal net operating loss (NOL) carryback claim under the CARES Act in July 2020which generated a refund of previously paid taxes in the amount of $12.3 million. The refund was received in the first quarter of 2021. The Company's effective tax rate for the three months ended March 31, 2022and 2021 was higher compared to the U.S.federal statutory rate, due primarily to state taxes and executive compensation deduction limitations, partially offset by tax credits and the deduction for foreign-derived intangible income. The Company's effective tax rate for the three months ended March 31, 2022was slightly lower than the prior year period due primarily to a decrease in expected executive compensation deduction limitations and an increase in the expected tax benefit from the deduction for foreign-derived intangible income in 2022 compared to 2021.
We are subject to income taxes in
the United Statesand to a lesser extent several foreign jurisdictions. Changes to income tax laws and regulations, or the interpretation of such laws, in any of the jurisdictions in which we operate could increase our effective tax rate and reduce our cash flows from operating activities. The current US administration has released various draft tax reform proposals that, if enacted, would generally increase U.S.federal income taxes on corporations. These proposals, if implemented, could have an unfavorable effect on our business, results of operations and financial condition. As such, we continue to monitor these legislative proposals to evaluate the impact on our business. Net Income Three Months Ended March 31, 2022 2021 Net income $ 63,073 $ 28,131
Due to the factors described above, net profit was
(in thousands of dollars, unless otherwise indicated)
The following tables set forth the non-GAAP financial measures of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Earnings Per Share. Adjusted EBITDA is defined as Net income before Interest, Income taxes, Depreciation and amortization, Non-cash stock-based compensation, Non-recurring, unusual or extraordinary expenses, Non-cash amortization from acquisitions and One-time merger and acquisition costs. Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by Sales. The following tables may also present each of these measures as further adjusted. 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 management believes do not reflect 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
U.S.GAAP. Non-GAAP financial measures should be read only in conjunction with the comparable U.S.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 Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin to their most directly comparable U.S.GAAP financial measure: Three Months Ended March 31, 2022 2021 Net income $ 63,073 $ 28,131Non-cash stock-based compensation 3,374
Non-recurring, unusual or extraordinary expenses -
Non-cash amortization from acquisitions 201
One-time M&A costs 277
Income tax benefit relating to reconciling items (556)
Adjusted Net Income (non-GAAP) 66,369
Interest expense, net 563
Income tax expense - adjusted 19,740
Depreciation and amortization - adjusted 16,491 16,060 Adjusted EBITDA (non-GAAP) 103,163 57,585 Sales
$ 479,073 $ 376,383Adjusted EBITDA Margin* (non-GAAP) 21.5%
* Adjusted EBITDA margin is defined as Adjusted EBITDA divided by sales
The following is a reconciliation between the non-GAAP financial measures of Adjusted Earnings Per Share to its most directly comparable
U.S.GAAP financial measure: 22
Three Months Ended March 31, 2022 2021 Net Income
$ 63,073 $ 28,131Adjusted Net Income (non-GAAP) 66,369 30,302 Weighted-average number of common shares outstanding - basic 28,199,871 28,093,764
Dilutive Effect of Equity Awards and Other Equity-Based Assets
1,171,180 647,302 Weighted-average number of common shares outstanding - diluted 29,371,051 28,741,066 EPS - Basic
$ 2.24 $ 1.00EPS - Diluted $ 2.15 $ 0.98Adjusted EPS - Basic (non-GAAP) $ 2.35 $ 1.08Adjusted EPS - Diluted (non-GAAP) $
Liquidity and Capital Resources (Dollars in thousands, unless otherwise noted)
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 short-term operating objectives as well as our longer-term strategic plans, subject to the risks and uncertainties outlined below, in our "Note Regarding Forward-Looking Statements" above, and in the risk factors previously disclosed in our 2021 Form 10-K. Our principal source of liquidity is our cash flow generated from operating activities, which is expected to provide us with the ability to meet the majority of our short-term funding requirements. Our cash flows are affected by capital requirements and production volume, which may be materially impacted by unanticipated events such as unplanned downtime, material disruptions at our production facilities as well as the prices of our raw materials and general economic and industry trends, as well as customer demand, which in the second quarter of 2020, was materially impacted by the circumstances surrounding COVID-19. The Company applies a proactive and disciplined approach to working capital management to optimize cash flow and to enable capital allocation options in support of the Company's strategy. We utilize supply chain financing and trade receivables discount arrangements with third-party financial institutions which optimize terms and conditions related to accounts receivable and accounts payable in order to enhance liquidity and enable us to efficiently manage our working capital needs. Although we continue to optimize supply chain financing and trade receivable programs in the ordinary course, our utilization of these arrangements, both prior to and during the COVID-19 pandemic, has not had a material impact on our liquidity. In addition, we monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on the 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, dividends and liquidity reflecting disciplined capital deployment. 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. We believe that our future cash from operations, together with cash on hand and our access to credit and capital markets, will provide adequate resources to fund our expected operating and financing needs and obligations. 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, both of which are subject to the risk factors previously disclosed in our 2021 Form 10-K, as well as general economic, financial, competitive, regulatory and other factors that are beyond our control. As of the end of the first quarter of 2022, the Company had approximately
$19.3 millionof cash on hand with approximately $279 millionof additional capacity available under the revolving credit facility. The Company's Consolidated Leverage Ratio financial covenant of its credit facility allows it to net up to $75 millionof cash with debt. Capital expenditures are expected to be approximately $95 millionto $105 millionin 2022 compared to $57 millionin 2021, reflecting the timing of maintenance and HSE spend. 23 -------------------------------------------------------------------------------- The Company filed a Federal net operating loss (NOL) carryback claim under the CARES Act in July 2020which generated a refund of previously paid taxes in the amount of $12.3 millionreceived in the first quarter of 2021. Additionally, the Company deferred approximately $6.5 millionof social security taxes in 2020 under the CARES Act of which 50% was paid on January 3, 2022and the remainder is due by January 3, 2023. We assumed from Honeywell all HSE liabilities and compliance obligations related to the past and future operations of our current business, as well as all HSE liabilities associated with our three current manufacturing locations and the other locations used in our current operations including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past. Honeywell retained all HSE liabilities related to former business locations or the operation of our former businesses. Although we have ongoing environmental remedial obligations at certain of our facilities, in the past three years, the associated remediation costs have not been material, and we do not expect our known remediation costs to have a material adverse effect on our consolidated financial position and results of operations.
We anticipate that our primary cash requirements for the remainder of 2022 will be to fund costs associated with ongoing operations, capital expenditures and amounts related to other contractual obligations.
The Company made no cash contributions to the defined benefit pension plan of during the three months ended
March 31, 2022. The Company currently plans to make pension plan contributions during 2022 sufficient to satisfy funding requirements under the AdvanSix Retirement Earnings Plan in an aggregate amount of approximately $5 millionto $15 million. We contributed $5 millionduring April 2022and anticipate making additional contributions in future periods sufficient to satisfy pension funding requirements. On May 4, 2018, the Company announced that its Board of Directors (the "Board") authorized a share repurchase program of up to $75 millionof the Company's common stock. On February 22, 2019, the Company announced that the Board authorized a share repurchase program of up to an additional $75 millionof the Company's common stock, which was in addition to the remaining capacity available under the May 2018share repurchase program. Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act. The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The repurchase program has no expiration date and may be modified, suspended or discontinued at any time. During the first quarter of 2022, the Company repurchased 181,536 shares of common stock, including 57,968 shares to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $7.0 millionat a weighted average market price of $38.61per share. As of March 31, 2022, the Company had repurchased 3,797,012 shares of common stock, including 583,682 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $109.4 millionat a weighted average market price of $28.81per share. As of March 31, 2022, $54.8 millionremained available for share repurchases under the current authorization. During the period from April 1, 2022through April 29, 2022, no additional shares were repurchased under the currently authorized repurchase program. As of March 31, 2022, the Company did not have any off-balance sheet arrangements as described in Instruction 8 to Item 303(b) of Regulation S-K and did not have any material changes in the commitments or contractual obligations detailed in the Company's 2021 Form 10-K (see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Liquidity and Capital Resources - Liquidity"). The Company has not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
As announced on
As announced on
February 18, 2022, the Board declared a quarterly cash dividend of $0.125per share on the Company's common stock, payable on March 15, 2022to stockholders of record as of the close of business on March 1, 2022. As announced on September 28, 2021, the Board declared a quarterly cash dividend of $0.125per share on the Company's common stock, payable on November 23, 2021to stockholders of record as of the close of business on November 9, 2021.
Dividends paid to ordinary shareholders were approximately
24 -------------------------------------------------------------------------------- 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 terms of our indebtedness, the preferential rights of any preferred stock that may be outstanding, legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant.
September 30, 2016, the Company as the borrower, entered into a Credit Agreement with Bank of America, as administrative agent (the "Original Credit Agreement"), which was amended on February 21, 2018pursuant to Amendment No. 1 to the Original Credit Agreement (the "First Amended and Restated Credit Agreement"), and further amended on February 19, 2020pursuant to, Amendment No. 2 to the First Amended and Restated Credit Agreement (after giving effect to the Second Amendment, the "Second Amended and Restated Credit Agreement"). The Second Amended and Restated Credit Agreement had a five-year term with a scheduled maturity date of February 21, 2023. On October 27, 2021, the Company completed a refinancing of the Second Amended and Restated Credit Agreement by entering into a new Credit Agreement (the "Credit Agreement"), among the Company, the lenders party thereto, the swing line lenders party thereto, the letter of credit issuers party thereto and Truist Bank, as administrative agent, which provides for a new senior secured revolving credit facility in an aggregate principal amount of $500 million(the "Revolving Credit Facility"). As of October 27, 2021, the Company borrowed $150 millionunder the Revolving Credit Facility. Borrowings under the Revolving Credit Facility will be subject to customary borrowing conditions. The Revolving Credit Facility has a scheduled maturity date of October 27, 2026. The Credit Agreement permits the Company to utilize up to $40 millionof the Revolving Credit Facility for the issuance of letters of credit and up to $40 millionfor swing line loans. The Company has the option to establish a new class of 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 millionplus (y) an amount such that the Company's Consolidated First Lien Secured Leverage Ratio (as defined in the Credit Agreement) would not be greater than 2.75 to 1.00, in each case, to the extent that any one or more lenders, whether or not currently party to the Credit Agreement, commits to be a lender for such amount or any portion thereof. Borrowings under the Credit Agreement bear interest at a rate equal to either the sum of a base rate plus a margin ranging from 0.25% to 1.25% or the sum of a Eurodollar rate plus a margin ranging from 1.25% to 2.25%, with either such margin varying according to the Company's Consolidated Leverage Ratio (as defined in the 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 0.15% to 0.35% per annum depending on the Company's Consolidated Leverage Ratio. As of October 27, 2021, the applicable margin under the Credit Agreement was 0.375% for base rate loans and 1.375% for Eurodollar loans and the applicable commitment fee rate was 0.175% per annum. The Revolving Credit Facility also contains certain administrative provisions regarding alternative rates of interest for LIBOR, as applicable.
Substantially all of the tangible and intangible assets of the Company and its national subsidiaries are pledged to secure the obligations under the credit agreement.
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) 4.00 to 1.00 or less for the fiscal quarter ending
December 31, 2021, through and including the fiscal quarter ending September 30, 2023and (ii) 3.75 to 1.00 or less for 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 Revolving Credit Facility. We were in compliance with all of our covenants at March 31, 2022and through the date of the filing of this Quarterly Report on Form 10-Q. The situation surrounding COVID-19 remains fluid and unpredictable, and the potential for a material impact on the Company increases if social and economic restrictions are reinstituted or if related economic impacts such as supply chain issues, labor market volatility and inflationary pressures persist. For this reason, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company's results of operations, financial position, and liquidity. For 25 -------------------------------------------------------------------------------- further information regarding risk and the impact COVID-19 could have on our business, financial condition, results of operations and liquidity, including our ability to comply with financial covenants in our credit facility and our access to, and cost of, capital, see "Risk Factors" in Item 1A of Part I of the 2021 Form 10-K. As of December 31, 2021, we had a balance of $135 millionunder the Revolving Credit Facility. During the three months ended March 31, 2022, we borrowed an incremental net amount of $85 millionto bring the balance under the Revolving Credit Facility to $220 millionas of March 31, 2022. As of March 31, 2022, $279 millionwas available for use out of the total of $500 millionunder the Revolving Credit Facility. We expect that Cash provided by operating activities will fund future interest payments on the Company's outstanding indebtedness. Cash Flow Summary Three Months Ended March 31, 2022 2021 Cash provided by (used for): Operating activities $ 49,162 $ 57,090Investing activities (119,904) (23,931) Financing activities 74,948 (29,641)
Net change in cash and cash equivalents
Cash provided by operating activities decreased by
$7.9 millionfor the three months ended March 31, 2022versus the prior year period due primarily to a $43.9 millionunfavorable cash impact from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) year-over-year with a $38.6 millionunfavorable cash impact from working capital for the three months ended March 31, 2022compared to a $5.2 millionfavorable cash impact in the prior year period, which included a $12.3 millioncash tax refund, and a $12.6 millionunfavorable cash impact from Accrued liabilities driven by the timing of payments. This was partially offset by a $34.9 millionincrease in net income and $17.9 millionfavorable cash impact from income taxes. Cash used for investing activities increased by $96.0 millionfor the three months ended March 31, 2022versus the prior year period due primarily to cash paid for the acquisition of U.S.Amines for approximately $98.6 millioncompared to cash paid of approximately $9.5 millionfor the acquisition of Commonwealth Industrial Services, and increased cash payments for capital expenditures of approximately $6.8 millionreflecting timing of project execution. Cash provided by financing activities increased by $104.6 millionfor the three months ended March 31, 2022versus the prior year period due primarily to net borrowings of $85.0 millionfor the three months ended March 31, 2022compared to net repayments of $29.0 millionduring the prior year period partially offset by payments for share repurchases of $6.6 millionand cash paid for dividends of approximately $3.5 millionas described above. Capital Expenditures (Dollars in thousands, unless otherwise noted) Our operations are capital intensive, requiring ongoing investments that have consisted, and are expected to continue to consist, primarily of capital expenditures required to maintain and improve equipment reliability, expand production output, further improve mix, yield and cost position, and comply with environmental and safety regulations.
The following table summarizes current and expansion capital expenditures:
Three months completed
March 31, 2022Capital expenditures in Accounts payable at December 31, 2021$
Purchases of property, plant and equipment
Less: Capital expenditures in Accounts payable at
March 31, 2022
Cash paid for capital expenditures $ 21,019 26
-------------------------------------------------------------------------------- For 2022, we expect our total capital expenditures to be approximately
$95 millionto $105 millioncompared to $57 millionin 2021, reflecting the timing of maintenance and HSE spend. Capital expenditures are deployed for various ongoing investments and initiatives to improve reliability, yield and quality, expand production capacity and comply with HSE regulations.
Significant Accounting Policies and Estimates
The preparation of our Condensed Consolidated Financial Statements in accordance with
U.S.GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider these accounting policies to be critical to the understanding of our Condensed Consolidated Financial Statements. For a full description of our critical accounting policies, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our 2021 Form 10- K. Whilethere have been no material changes to our critical accounting policies, or the methodologies or assumptions we apply under them, we continue to monitor such methodologies and assumptions.
Recent accounting pronouncements
See “Note 2. Recent Accounting Pronouncements” to the condensed consolidated financial statements included in Part I. Item 1 of this Form 10-Q.
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