Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2022
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 1-16091
________________________________________________
AVIENT CORPORATION
(Exact name of registrant as specified in its charter)
________________________________________________
Ohio
34-1730488
(State or other jurisdiction
(I.R.S. Employer Identification No.)
of incorporation or organization)
Avient Center
33587 Walker Road
44012
Avon Lake, Ohio
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (440) 930-1000
Former name, former address and former fiscal year, if changed since last report: Not Applicable
_______________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Shares, par value $.01 per share
AVNT
New York Stock Exchange
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 every Interactive Data File required to be submitted 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 such files). ☒Yes☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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 Exchange Act). ☐ Yes ☒ No
The number of the registrant’s outstanding common shares, par value $.01 per share, as of September 30, 2022 was 90,943,531.
AVIENT CORPORATION
PART I — FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
Avient Corporation
Condensed Consolidated Statements of Income (Unaudited)
(In millions, except per share data)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Sales
$
823.3
$
818.0
$
2,606.5
$
2,508.5
Cost of sales
627.9
602.4
1,895.8
1,781.2
Gross margin
195.4
215.6
710.7
727.3
Selling and administrative expense
154.8
162.8
467.8
497.7
Operating income
40.6
52.8
242.9
229.6
Interest expense, net
(37.3)
(19.0)
(70.4)
(57.8)
Other (expense) income, net
(32.3)
1.6
(31.3)
4.3
(Loss) income from continuing operations before income taxes
(29.0)
35.4
141.2
176.1
Income tax benefit (expense)
1.2
(2.0)
(41.5)
(32.1)
Net (loss) income from continuing operations
(27.8)
33.4
99.7
144.0
Income from discontinued operations, net of income taxes
17.1
19.2
58.8
57.7
Net (loss) income
$
(10.7)
$
52.6
$
158.5
$
201.7
Net loss (income) attributable to noncontrolling interests
0.4
0.3
0.1
(0.7)
Net (loss) income attributable to Avient common shareholders
$
(10.3)
$
52.9
$
158.6
$
201.0
(Loss) earnings per share attributable to Avient common shareholders - Basic
Continuing operations
$
(0.30)
$
0.37
$
1.09
$
1.57
Discontinued operations
0.19
0.21
0.65
0.63
Total
$
(0.11)
$
0.58
$
1.74
$
2.20
(Loss) earnings per share attributable to Avient common shareholders - Diluted
Continuing operations
$
(0.30)
$
0.37
$
1.08
$
1.56
Discontinued operations
0.19
0.20
0.64
0.62
Total
$
(0.11)
$
0.57
$
1.72
$
2.18
Weighted-average shares used to compute earnings per common share:
Basic
90.9
91.4
91.3
91.3
Dilutive impact of share-based compensation
—
0.8
0.7
0.8
Diluted
90.9
92.2
92.0
92.1
Anti-dilutive shares not included in diluted common shares outstanding
1.0
—
0.3
—
Cash dividends declared per share of common stock
$
0.2375
$
0.2125
$
0.7125
$
0.6375
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
1 AVIENT CORPORATION
Avient Corporation
Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Net (loss) income
$
(10.7)
$
52.6
$
158.5
$
201.7
Other comprehensive (loss) income, net of tax:
Translation adjustments and related hedging instruments
(61.1)
(29.4)
(120.4)
(70.9)
Cash flow hedges
0.2
0.7
2.3
2.2
Total other comprehensive loss
(60.9)
(28.7)
(118.1)
(68.7)
Total comprehensive (loss) income
(71.6)
23.9
40.4
133.0
Comprehensive loss (income) attributable to noncontrolling interests
0.4
0.3
0.1
(0.7)
Comprehensive (loss) income attributable to Avient common shareholders
$
(71.2)
$
24.2
$
40.5
$
132.3
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
2 AVIENT CORPORATION
Avient Corporation
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited) September 30, 2022
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
$
544.4
$
601.2
Accounts receivable, net
504.6
439.9
Inventories, net
441.5
305.8
Current assets held for sale
367.8
360.2
Other current assets
130.0
119.9
Total current assets
1,988.3
1,827.0
Property, net
965.4
672.3
Goodwill
1,491.0
1,284.8
Intangible assets, net
1,525.7
925.2
Operating lease assets, net
56.0
58.2
Non-current assets held for sale
—
22.0
Other non-current assets
280.7
207.7
Total assets
$
6,307.1
$
4,997.2
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term and current portion of long-term debt
$
613.9
$
8.6
Accounts payable
448.7
429.5
Current operating lease obligations
18.1
21.1
Current liabilities held for sale
170.3
141.3
Accrued expenses and other current liabilities
304.6
340.2
Total current liabilities
1,555.6
940.7
Non-current liabilities:
Long-term debt
2,502.9
1,850.3
Pension and other post-retirement benefits
91.6
99.9
Deferred income taxes
210.4
100.6
Non-current operating lease obligations
35.7
37.3
Non-current liabilities held for sale
—
13.1
Other non-current liabilities
174.8
164.8
Total non-current liabilities
3,015.4
2,266.0
SHAREHOLDERS' EQUITY
Avient shareholders’ equity
1,720.4
1,774.7
Noncontrolling interest
15.7
15.8
Total equity
1,736.1
1,790.5
Total liabilities and equity
$
6,307.1
$
4,997.2
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
3 AVIENT CORPORATION
Avient Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
Nine Months Ended September 30,
2022
2021
Operating Activities
Net income
$
158.5
$
201.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
110.3
105.8
Accelerated depreciation
4.0
1.9
Share-based compensation expense
9.5
8.4
Changes in assets and liabilities, net of the effect of acquisitions:
Increase in accounts receivable
(66.5)
(199.7)
Increase in inventories
(12.5)
(156.2)
Increase in accounts payable
43.5
95.3
Decrease in pension and other post-retirement benefits
(15.8)
(14.2)
(Decrease) increase in accrued expenses and other assets and liabilities, net
(7.1)
67.0
Net cash provided by operating activities
223.9
110.0
Investing activities
Capital expenditures
(55.1)
(62.7)
Business acquisitions, net of cash acquired
(1,426.1)
(47.6)
Settlement of foreign exchange derivatives
93.3
—
Net cash proceeds used by other assets
—
(2.0)
Net cash used by investing activities
(1,387.9)
(112.3)
Financing activities
Debt proceeds
1,300.0
—
Purchase of common shares for treasury
(36.4)
(4.2)
Cash dividends paid
(65.2)
(58.2)
Repayment of long-term debt
(6.8)
(16.5)
Payments of withholding tax on share awards
(4.2)
(9.1)
Debt financing costs
(49.3)
—
Other financing activities
—
(3.5)
Net cash provided (used) by financing activities
1,138.1
(91.5)
Effect of exchange rate changes on cash
(30.9)
(10.5)
Decrease in cash and cash equivalents
(56.8)
(104.3)
Cash and cash equivalents at beginning of year
601.2
649.5
Cash and cash equivalents at end of period
$
544.4
$
545.2
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
4 AVIENT CORPORATION
Avient Corporation
Consolidated Statements of Shareholders' Equity (Unaudited)
(In millions)
Common Shares
Shareholders’ Equity
Common Shares
Common Shares Held in Treasury
Common Shares
Additional Paid-in Capital
Retained Earnings
Common Shares Held in Treasury
Accumulated Other Comprehensive (Loss) Income
Total Avient shareholders' equity
Non-controlling Interests
Total equity
Balance at January 1, 2022
122.2
(30.6)
$
1.2
$
1,511.8
$
1,208.0
$
(900.7)
$
(45.6)
$
1,774.7
$
15.8
$
1,790.5
Net income
—
—
—
—
84.2
—
—
84.2
0.3
84.5
Other comprehensive loss
—
—
—
—
—
—
(7.9)
(7.9)
—
(7.9)
Cash dividends declared
—
—
—
—
(21.7)
—
—
(21.7)
—
(21.7)
Repurchase of common shares
—
(0.3)
—
—
—
(15.8)
—
(15.8)
—
(15.8)
Share-based compensation and exercise of awards
—
0.1
—
(2.2)
—
1.9
—
(0.3)
—
(0.3)
Balance at March 31, 2022
122.2
(30.8)
$
1.2
$
1,509.6
$
1,270.5
$
(914.6)
$
(53.5)
$
1,813.2
$
16.1
$
1,829.3
Net income
—
—
—
—
84.7
—
—
84.7
—
84.7
Other comprehensive loss
—
—
—
—
—
—
(49.3)
(49.3)
—
(49.3)
Cash dividends declared
—
—
—
—
(21.7)
—
—
(21.7)
—
(21.7)
Repurchase of common shares
—
(0.5)
—
—
—
(20.6)
—
(20.6)
—
(20.6)
Share-based compensation and exercise of awards
—
—
—
3.4
—
—
—
3.4
—
3.4
Balance at June 30, 2022
122.2
(31.3)
$
1.2
$
1,513.0
$
1,333.5
$
(935.2)
$
(102.8)
$
1,809.7
$
16.1
$
1,825.8
Net loss
—
—
—
—
(10.3)
—
—
(10.3)
(0.4)
(10.7)
Other comprehensive loss
—
—
—
—
—
—
(60.9)
(60.9)
—
(60.9)
Cash dividends declared
—
—
—
—
(21.6)
—
—
(21.6)
—
(21.6)
Share-based compensation and exercise of awards
—
—
—
3.4
—
0.1
—
3.5
—
3.5
Balance at September 30, 2022
122.2
(31.3)
1.2
$
1,516.4
$
1,301.6
$
(935.1)
$
(163.7)
$
1,720.4
$
15.7
$
1,736.1
5 AVIENT CORPORATION
Common Shares
Shareholders’ Equity
Common Shares
Common Shares Held in Treasury
Common Shares
Additional Paid-in Capital
Retained Earnings
Common Shares Held in Treasury
Accumulated Other Comprehensive (Loss) Income
Total Avient shareholders' equity
Non-controlling Interests
Total equity
Balance at January 1, 2021
122.2
(30.8)
$
1.2
$
1,513.3
$
1,057.4
$
(901.2)
$
26.4
$
1,697.1
$
14.6
$
1,711.7
Net income
—
—
—
—
79.3
—
—
79.3
0.4
79.7
Other comprehensive loss
—
—
—
—
—
—
(50.2)
(50.2)
—
(50.2)
Cash dividends declared
—
—
—
—
(19.5)
—
—
(19.5)
—
(19.5)
Repurchase of common shares
—
(0.1)
—
—
—
(4.2)
—
(4.2)
—
(4.2)
Share-based compensation and exercise of awards
—
0.1
—
2.9
—
1.6
—
4.5
—
4.5
Balance at March 31, 2021
122.2
(30.8)
$
1.2
$
1,516.2
$
1,117.2
$
(903.8)
$
(23.8)
$
1,707.0
$
15.0
$
1,722.0
Net income
—
—
—
—
68.8
—
—
68.8
0.6
69.4
Other comprehensive income
—
—
—
—
—
—
10.2
10.2
—
10.2
Noncontrolling interest activity
—
—
—
—
—
—
—
—
2.6
2.6
Cash dividends declared
—
—
—
—
(19.4)
—
—
(19.4)
—
(19.4)
Share-based compensation and exercise of awards
—
—
—
1.0
—
0.6
—
1.6
—
1.6
Other
—
—
$
—
—
—
—
—
—
—
—
Balance at June 30, 2021
122.2
(30.8)
$
1.2
$
1,517.2
$
1,166.6
$
(903.2)
$
(13.6)
$
1,768.2
$
18.2
$
1,786.4
Net income
—
—
—
—
52.9
—
—
52.9
(0.3)
52.6
Other comprehensive loss
—
—
—
—
—
—
(28.7)
(28.7)
—
(28.7)
Noncontrolling interest activity
—
—
—
—
—
—
—
—
(1.3)
(1.3)
Cash dividends declared
—
—
—
—
(19.6)
—
—
(19.6)
—
(19.6)
Share-based compensation and exercise of awards
—
0.1
—
(3.2)
—
1.6
—
(1.6)
—
(1.6)
Other
—
—
—
(2.4)
—
—
—
(2.4)
—
(2.4)
Balance at September 30, 2021
122.2
(30.7)
$
1.2
$
1,511.6
$
1,199.9
$
(901.6)
$
(42.3)
$
1,768.8
$
16.6
$
1,785.4
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
6 AVIENT CORPORATION
Avient Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 — BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Form 10-Q instructions and in the opinion of management contain all adjustments, including those that are normal, recurring and necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. These interim financial statements should be read in conjunction with the financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2021 of Avient Corporation. When used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “Avient” and the “Company” mean Avient Corporation and its consolidated subsidiaries.
Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be attained in subsequent periods or for the year ending December 31, 2022. Historical information has been retrospectively adjusted to reflect the classification of discontinued operations. Discontinued operations are further discussed in Note 3, Discontinued Operations.
Accounting Standards Not Yet Adopted
Accounting Standards Update (ASU) 2020-04, Reference Rate Reform (ASU 2020-04), provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as LIBOR. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rates expected to be discontinued. The amendments in ASU 2020-04 are effective through December 31, 2022. The Company is currently evaluating the impact of adopting this standard and does not expect any material impact to our consolidated financial statements and disclosures.
Note 2 — BUSINESS COMBINATIONS
On September 1, 2022, the Company completed the acquisition of the DSM Protective Materials business, including the Dyneema® brand, the World's Strongest Fiber™. The Dyneema® brand ultra-light specialty fiber is stronger than steel and is used in demanding applications such as ballistic personal protection, marine and sustainable infrastructure, renewable energy, industrial protection and outdoor sports. The acquired business is collectively referred to as Avient Protective Materials and APM, and the acquisition is referred to as the APM Acquisition. The APM Acquisition enhances Avient's material offerings of composites and engineered fibers.
Total consideration paid by the Company to complete the APM Acquisition was $1.4 billion, net of cash acquired. Avient (i) incurred $575.0 million of borrowings under a new Senior Secured Term Loan due 2029 and (ii) issued $725.0 million aggregate principal of 7.125% Senior Notes due 2030 to finance a portion of the APM Acquisition. For additional details relating to the financing, refer to Note 8, Financing Arrangements.
The APM Acquisition is being accounted for under the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 805. As of September 30, 2022, the purchase accounting for the APM Acquisition is preliminary and purchase price allocation adjustments will be made throughout the end of the Company's measurement period, which is not to exceed one year from the acquisition date. During the measurement period, we will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from the preliminary estimates.
7 AVIENT CORPORATION
The preliminary purchase price allocation is as follows:
(in millions)
September 1, 2022
Cash and cash equivalents
$
50.7
Accounts receivable
52.2
Inventories
136.2
Other current assets
2.0
Property
361.9
Intangible assets
Indefinite-lived trade names
254.9
Customer relationships
198.7
Patents, technology, and other
275.1
Goodwill
277.1
Other non-current assets
12.3
Accounts payable
32.2
Current operating lease obligations
1.2
Accrued expenses and other current liabilities
11.7
Deferred tax liability
86.1
Non-current operating lease obligations
5.0
Other non-current liabilities
8.1
Total purchase price consideration
$
1,476.8
Definite-lived intangible assets that have been acquired have a preliminary useful life range of 16 to 20 years. Goodwill of $277.1 million resulting from the acquisition was recorded to the Specialty Engineered Materials segment. The goodwill recognized is primarily attributable to intangible assets that do not qualify for separate recognition and the deferred tax impact of applying purchase accounting. We expect a portion of goodwill to be deductible for tax purposes.
The amount of sales and loss from continuing operations before income taxes of APM since the acquisition date included in the Condensed Consolidated Statements of Income as of September 30, 2022 were $32.3 million and $7.0 million, respectively. The loss from continuing operations before income taxes includes $10.6 million of expense related to inventory step-up from the preliminary purchase price allocation, which is recorded in Cost of sales. Had the APM Acquisition occurred on January 1, 2021, sales and income from continuing operations before income taxes on a pro forma basis would have been as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
Sales
$884.0
$912.1
$2,863.1
$2,810.1
(Loss) income from continuing operations before income taxes
(9.8)
21.0
146.8
72.4
The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the historical results with pro forma adjustments that assume the APM Acquisition occurred on January 1, 2021. These unaudited pro forma results do not represent financial results realized, nor are they intended to be a projection of future results.
8 AVIENT CORPORATION
Pro forma income from continuing operations before income taxes during the nine months ended September 30, 2021 includes expense related to inventory step-up from the preliminary purchase price allocation. The pro forma income from continuing operations before income taxes gives further effect to intangible amortization from the preliminary purchase price allocation and increased interest expense resulting from borrowings under the Senior Secured Term Loan due 2029 and the issuance of the 7.125% Senior Notes due 2030 to fund the APM Acquisition.
Costs incurred in connection with the APM Acquisition were $8.1 million and $12.7 million in the three and nine months ended September 30, 2022, respectively. These fees were charged to Selling and Administrative expense on the Condensed Consolidated Statements of Income.
On July 1, 2021, the Company completed its acquisition of Magna Colours Ltd. (Magna Colours), a market leader in sustainable, water-based inks technology for the textile screen printing industry, for the purchase price of $47.6 million, net of cash acquired. The results of the Magna Colours business are reported in the Color, Additives and Inks segment. The purchase price allocation is complete and resulted in intangible assets of $27.5 million and goodwill of $22.0 million, partially offset by net liabilities assumed. Goodwill is not deductible for tax purposes. The intangible assets that have been acquired are being amortized over a period of 10 to 20 years.
Note 3 — DISCONTINUED OPERATIONS
On August 11, 2022, Avient entered into a definitive asset purchase agreement (the "Purchase Agreement") with an affiliate of H.I.G. Capital, (the "Purchaser"), to sell its Distribution business. Pursuant to the terms of the Purchase Agreement, the Purchaser has agreed to acquire the Company's Distribution business for $950.0 million in cash, subject to a customary working capital adjustment.
Avient has classified its Distribution business assets and liabilities as held-for-sale for all periods presented in the accompanying Condensed Consolidated Balance Sheets and has classified its operating results as discontinued operations in the accompanying Condensed Consolidated Statements of Income for all periods presented. Previously, the Distribution business was a separate reportable segment.
The following table summarizes the major line items constituting pretax income of discontinued operations associated with the Distribution business segment for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2022
2021
2022
2021
Sales
$
398.6
$
401.8
$
1,211.6
$
1,108.9
Cost of sales
355.4
362.0
1,085.9
989.6
Selling and administrative expense
18.2
13.9
44.9
41.6
Other (expense) income
(0.9)
(0.2)
(1.0)
(0.3)
Income before income taxes
24.1
25.7
79.8
77.4
Income tax expense
(7.0)
(6.5)
(21.0)
(19.7)
Income from discontinued operations, net of taxes
$
17.1
19.2
58.8
57.7
The effective tax rate for discontinued operations was 28.9% and 25.3% for the three months ended September 30, 2022 and 2021, respectively, and 26.3% and 25.5% for the nine months ended September 30, 2022 and 2021, respectively. The tax rate is above the US federal rate of 21% primarily due to state and local taxes along with the impacts of global intangible low-taxed income (GILTI) tax.
9 AVIENT CORPORATION
The following table summarizes the major classes of assets and liabilities of the Distribution business that were classified as held for sale in the consolidated balance sheets as of September 30, 2022 and December 31, 2021:
(In millions)
September 30, 2022
December 31, 2021
Assets held-for-sale:
Accounts receivable, net
$
211.9
$
202.4
Inventories, net
132.4
155.3
Property, net
3.5
3.9
Goodwill
1.6
1.6
Other assets
18.4
19.0
Total assets held-for-sale
$
367.8
$
382.2
Liabilities held-for-sale:
Accounts payable
$
145.3
$
124.4
Other liabilities
25.0
30.0
Total liabilities held-for-sale
$
170.3
$
154.4
September 30, 2022
December 31, 2021
Assets held-for-sale:
Current
$
367.8
$
360.2
Non-current
$
—
$
22.0
Liabilities held-for-sale:
Current
$
170.3
$
141.3
Non-current
$
—
$
13.1
As of September 30, 2022, the Distribution business met the held for sale criteria, and the sale is expected to be completed in the fourth quarter of 2022. As a result, all assets and liabilities are reflected as current.
10 AVIENT CORPORATION
Note 4 — GOODWILL AND INTANGIBLE ASSETS
Goodwill as of September 30, 2022 and December 31, 2021 and changes in the carrying amount of goodwill by segment were as follows:
(In millions)
Specialty Engineered Materials
Color, Additives and Inks
Total
Balance at December 31, 2021
$
236.3
$
1,048.5
$
1,284.8
Acquisition of businesses
277.1
—
277.1
Currency translation
(13.1)
(57.8)
(70.9)
Balance at September 30, 2022
$
500.3
$
990.7
$
1,491.0
Indefinite and finite-lived intangible assets consisted of the following:
As of September 30, 2022
(In millions)
Acquisition Cost
Accumulated Amortization
Currency Translation
Net
Customer relationships
$
705.9
$
(156.0)
$
(25.4)
$
524.5
Patents, technology and other
841.8
(158.2)
(42.1)
641.5
Indefinite-lived trade names
368.0
—
(8.3)
359.7
Total
$
1,915.7
$
(314.2)
$
(75.8)
$
1,525.7
As of December 31, 2021
(In millions)
Acquisition Cost
Accumulated Amortization
Currency Translation
Net
Customer relationships
$
507.2
$
(135.4)
$
6.0
$
377.8
Patents, technology and other
566.7
(134.3)
1.8
434.2
Indefinite-lived trade names
113.2
—
—
113.2
Total
$
1,187.1
$
(269.7)
$
7.8
$
925.2
Note 5 — INVENTORIES, NET
Components of Inventories, net are as follows:
(In millions)
As of September 30, 2022
As of December 31, 2021
Finished products
$
197.8
$
90.0
Work in process
25.6
21.2
Raw materials and supplies
218.1
194.6
Inventories, net
$
441.5
$
305.8
Note 6 — PROPERTY, NET
Components of Property, net are as follows:
(In millions)
As of September 30, 2022
As of December 31, 2021
Land and land improvements
$
80.9
$
91.5
Buildings
382.2
348.1
Machinery and equipment
1,272.8
965.4
Property, gross
1,735.9
1,405.0
Less accumulated depreciation
(770.5)
(732.7)
Property, net
$
965.4
$
672.3
11 AVIENT CORPORATION
Note 7 — INCOME TAXES
During the three months ended September 30, 2022, the effective tax rate benefit from continuing operations of 4.1% was below the U.S. federal statutory rate of 21.0%. The tax rate benefit relates to a pretax loss as well as state income tax benefits, prior year favorable U.S. return-to-provision adjustments and the U.S. research and development tax credit. These favorable items were partially offset by foreign withholding tax liabilities accrued associated with the future repatriation of certain foreign earnings, global intangible low-taxed income (GILTI) tax, certain non-deductible expenses and an increase in valuation allowances.
During the nine months ended September 30, 2022, the Company’s effective tax rate from continuing operations of 29.4% was above the U.S. federal statutory rate of 21.0% primarily due to foreign withholding tax liabilities accrued associated with the future repatriation of certain foreign earnings, GILTI tax, certain non-deductible expenses and an increase in valuation allowances. These unfavorable items were partially offset by prior year favorable U.S. return-to-provision adjustments and the U.S. research and development tax credit.
During the three and nine months ended September 30, 2021, the Company's effective tax rates from continuing operations of 5.7% and 18.2%, respectively, were below the U.S. federal statutory rate of 21.0% primarily due to higher U.S. foreign-derived intangible income (FDII) tax benefits, favorable prior year U.S. return-to-provision adjustments and U.S. research and development tax credit. These favorable items were partially offset by foreign withholding tax liabilities accrued associated with the repatriation of certain foreign earnings and GILTI tax.
Note 8 — FINANCING ARRANGEMENTS
Debt consists of the following instruments:
As of September 30, 2022 (in millions)
Principal Amount
Unamortized discount and debt issuance cost
Net Debt
Weighted average interest rate
Senior secured revolving credit facility due 2026
$
—
$
—
$
—
—
%
Senior secured term loan due 2026
606.6
4.9
601.7
2.95
%
Senior secured term loan due 2029
575.0
28.2
546.8
5.51
%
5.25% senior notes due 2023
600.0
0.5
599.5
5.25
%
5.75% senior notes due 2025
650.0
5.4
644.6
5.75
%
7.125% senior notes due 2030
725.0
10.6
714.4
7.125
%
Other Debt
9.8
—
9.8
Total Debt
3,166.4
49.6
3,116.8
Less short-term and current portion of long-term debt
614.4
0.5
613.9
Total long-term debt, net of current portion
$
2,552.0
$
49.1
$
2,502.9
As of December 31, 2021 (in millions)
Principal Amount
Unamortized discount and debt issuance cost
Net Debt
Weighted average interest rate
Senior secured revolving credit facility due 2026
$
—
$
—
$
—
—
%
Senior secured term loan due 2026
611.5
6.2
605.3
1.85
%
5.25% senior notes due 2023
600.0
1.4
598.6
5.25
%
5.75% senior notes due 2025
650.0
6.8
643.2
5.75
%
Other Debt
11.8
—
11.8
Total Debt
1,873.3
14.4
1,858.9
Less short-term and current portion of long-term debt
8.6
—
8.6
Total long-term debt, net of current portion
$
1,864.7
$
14.4
$
1,850.3
On August 10, 2022, the Company entered into an indenture with U.S. Bank Trust Company, National Association, as trustee, relating to the issuance by the Company of $725 million aggregate principal amount of 7.125% Senior Notes due 2030 (the 2030 Notes). The 2030 Notes were sold on August 10, 2022 in a private offering. The 2030 Notes bear interest at a rate of 7.125% per annum. Interest on the 2030 Notes is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2023. The 2030 Notes will mature on August 1, 2030. The 2030 Notes are senior unsecured obligations of the Company.
12 AVIENT CORPORATION
On August 29, 2022, the Company entered into the Amendment Agreement No. 7 (the Term Loan Amendment) relating to the Credit Agreement, dated as of November 12, 2015, by and among Avient, Citibank, N.A., as administrative agent, and the lenders party thereto, with Citibank, N.A., as administrative agent, and the other agents and lenders named therein. Pursuant to the Term Loan Amendment, Avient, among other things, incurred a new tranche of Senior Secured Term Loan due 2029 (the 2029 Term Loan) in an aggregate principal amount equal to $575 million. The 2029 Term Loan was fully drawn on August 29, 2022. The interest rates per annum applicable to both the 2029 Term Loan and the existing term loan under the Credit Agreement will be either (i) Adjusted Term SOFR (as defined in the Term Loan Amendment) plus 3.25% or (ii) a Base Rate (as defined in the Term Loan Amendment) plus 2.25%. The other terms and conditions that apply to the 2029 Term Loan are substantially the same as the terms and conditions that applied to the existing term loan under the Credit Agreement immediately prior to the Term Loan Amendment.
The Company used the net proceeds from the issuance of the 2030 Notes and the borrowings under the 2029 Term Loan to finance a portion of the consideration for the APM Acquisition.
As of September 30, 2022, we had no borrowings outstanding under our senior secured revolving credit, which had remaining availability of $485.1 million.
The agreements governing our senior secured revolving credit facility, our senior secured term loans, and the indentures and credit agreements governing other debt contain a number of customary financial and restrictive covenants that, among other things, limit our ability to: consummate asset sales, incur additional debt or liens, consolidate or merge with any entity or transfer or sell all or substantially all of our assets, pay dividends or make certain other restricted payments, make investments, enter into transactions with affiliates, create dividend or other payment restrictions with respect to subsidiaries, make capital investments and alter the business we conduct. As of September 30, 2022, we were in compliance with all covenants.
The estimated fair value of Avient’s debt instruments at September 30, 2022 and December 31, 2021 was $3,032.1 million and $1,917.7 million, respectively. The fair value of Avient’s debt instruments was estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities and represent Level 2 measurements within the fair value hierarchy.
Note 9 — SEGMENT INFORMATION
Avient has two reportable segments: (1) Color, Additives and Inks and (2) Specialty Engineered Materials. Previously, Avient had three reportable segments; however, as a result of the agreement to divest our Distribution business, we have removed Distribution as a separate reportable segment and its results are presented as a discontinued operation. Historical information has been retrospectively adjusted to reflect these changes. Refer to Note 3, Discontinued Operations for additional information. Operating income is the primary measure that is reported to our chief operating decision maker (CODM) for purposes of allocating resources to the segments and assessing their performance. Operating income at the segment level does not include: corporate general and administrative expenses that are not allocated to segments; intersegment sales and profit eliminations; charges related to specific strategic initiatives such as the consolidation of operations; restructuring activities, including employee separation costs resulting from personnel reduction programs, plant closure and phase-in costs; executive separation agreements; share-based compensation costs; asset impairments; environmental remediation costs, along with related gains from insurance recoveries, and other liabilities for facilities no longer owned or closed in prior years; gains and losses on the divestiture of joint ventures and equity investments; actuarial gains and losses associated with our pension and other post-retirement benefit plans; and certain other items that are not included in the measure of segment profit or loss that is reported to and reviewed by our CODM. These costs are included in Corporate and eliminations.
13 AVIENT CORPORATION
Segment information for the three and nine months ended September 30, 2022 and 2021 is as follows:
Three Months Ended September 30, 2022
Three Months Ended September 30, 2021
(In millions)
Sales
Operating Income
Sales
Operating Income
Color, Additives and Inks
$
565.6
$
68.6
$
586.6
$
66.8
Specialty Engineered Materials
258.2
31.4
231.7
30.0
Corporate and eliminations
(0.5)
(59.4)
(0.3)
(44.0)
Total
$
823.3
$
40.6
$
818.0
$
52.8
Nine Months Ended September 30, 2022
Nine Months Ended September 30, 2021
(In millions)
Sales
Operating Income
Sales
Operating Income
Color, Additives and Inks
$
1,864.2
$
256.7
$
1,820.3
$
241.9
Specialty Engineered Materials
743.6
104.9
685.3
98.4
Corporate and eliminations
(1.3)
(118.7)
2.9
(110.7)
Total
$
2,606.5
$
242.9
$
2,508.5
$
229.6
Total Assets
(In millions)
As of September 30, 2022
As of December 31, 2021
Color, Additives and Inks
$
2,718.5
$
2,965.2
Specialty Engineered Materials
2,317.3
771.0
Corporate and eliminations
903.5
878.8
Assets held for sale
$
367.8
$
382.2
Total assets
$
6,307.1
$
4,997.2
Note 10 — COMMITMENTS AND CONTINGENCIES
We have been notified by federal and state environmental agencies and by private parties that we may be a potentially responsible party (PRP) in connection with the environmental investigation and remediation of certain sites. While government agencies frequently assert that PRPs are jointly and severally liable at these sites, in our experience, the interim and final allocations of liability costs are generally made based on the relative contribution of waste. We may also initiate corrective and preventive environmental projects of our own to support safe and lawful activities at our operations. We believe that compliance with current governmental regulations at all levels will not have a material adverse effect on our financial position, results of operations or cash flows.
In September 2007, the United States District Court for the Western District of Kentucky (Court) in the case of Westlake Vinyls, Inc. v. Goodrich Corporation, et al., held that Avient must pay the remediation costs at the former Goodrich Corporation Calvert City facility (now largely owned and operated by Westlake Vinyls, Inc. (Westlake Vinyls)), together with certain defense costs of Goodrich Corporation. The rulings also provided that Avient can seek indemnification for contamination attributable to Westlake Vinyls.
Following the rulings, the parties to the litigation agreed to settle all claims regarding past environmental costs incurred at the site. The settlement agreement provides a mechanism to pursue allocation of future remediation costs at the Calvert City site to Westlake Vinyls. We will adjust our accrual, in the future, consistent with any such future allocation of costs.Additionally, we continue to pursue available insurance coverage related to this matter and recognize gains as we receive reimbursement.
The environmental obligation at the site arose as a result of an agreement between The B.F. Goodrich Company (n/k/a Goodrich Corporation) and our predecessor, The Geon Company, at the time of the initial public offering in 1993. Under the agreement, The Geon Company agreed to indemnify Goodrich Corporation for certain environmental costs at the site. Neither Avient nor The Geon Company ever operated the facility.
14 AVIENT CORPORATION
Since 2009, Avient, along with respondents Westlake Vinyls, and Goodrich Corporation, has worked with the United States Environmental Protection Agency (USEPA) to address contamination at the site. The USEPA issued its Record of Decision (ROD) in September 2018, selecting a remedy consistent with our accrual assumptions. In April 2019, the respondents signed an Administrative Settlement Agreement and Order on Consent with the USEPA to conduct the remedial design actions at the site. In February 2020, the respondents signed the agreed Consent Decree and remedial action Work Plan, which received Federal Court approval in January 2021. Our current reserve totals $120.9 million for this matter.
During the three and nine months ended September 30, 2022, Avient recognized $18.8 million and $23.8 million of expense, respectively, related to environmental remediation costs, compared to $9.4 million and $22.4 million recognized during the three and nine months ended September 30, 2021, respectively.
During the three and nine months ended September 30, 2022, Avient received $0.1 million and $8.3 million, respectively, of insurance recoveries for previously incurred environmental costs. During the nine months ended September 30, 2021, Avient received $4.5 million of insurance recoveries. These expenses and insurance recoveries are included within Cost of sales within our Condensed Consolidated Statements of Income.
Our Condensed Consolidated Balance Sheets include accruals totaling $131.6 million and $124.5 million as of September 30, 2022 andDecember 31, 2021, respectively, based on our estimates of probable future environmental expenditures relating to previously contaminated sites. These undiscounted amounts are included in Accrued expenses and other current liabilities and Other non-current liabilities on the accompanying Condensed Consolidated Balance Sheets. The accruals represent our best estimate of probable future costs that we can reasonably estimate, based upon currently available information and technology and our view of the most likely remedy. Depending upon the results of future testing, completion and results of remedial investigation and feasibility studies, the ultimate remediation alternatives undertaken, changes in regulations, technology development, new information, newly discovered conditions and other factors, it is reasonably possible that we could incur additional costs in excess of the amount accrued at September 30, 2022. However, such additional costs, if any, cannot be currently estimated.
Avient is subject to a broad range of claims, administrative and legal proceedings such as lawsuits that relate to contractual allegations, tax audits, product claims, personal injuries, and employment related matters. Although it is not possible to predict with certainty the outcome or cost of these matters, the Company believes our current reserves are appropriate and these matters will not have a material adverse effect on the condensed consolidated financial statements.
Note 11 — DERIVATIVES AND HEDGING
We are exposed to market risks, such as changes in foreign currency exchange rates and interest rates. To manage the volatility related to these exposures we may enter into various derivative transactions. We formally assess, designate and document, as a hedge of an underlying exposure, the qualifying derivative instrument that will be accounted for as an accounting hedge at inception. Additionally, we assess both at inception and at least quarterly thereafter, whether the financial instruments used in the hedging transaction are effective at offsetting changes in either the fair values or cash flows of the underlying exposures. In accordance with ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12), that ongoing assessment will be done qualitatively for highly effective relationships.
Net Investment Hedge
As a means of mitigating the impact of currency fluctuations on our euro investments in foreign entities, we have executed cross currency swaps, in which we pay fixed-rate interest in euros and receive fixed-rate interest in U.S. dollars related to our future obligations to exchange euros for U.S. dollars.
We currently hold cross currency swaps with a combined notional amount of €1,467.2 million, maturing in May 2025 and €900.0 million maturing in August 2027. We received cash proceeds of $62.8 million and $132.1 million related to the settlement of prior cross-currency swap positions during the three and nine months ended September 30, 2022, respectively.
These cross currency swaps effectively convert a portion of our U.S. dollar denominated fixed-rate debt to euro denominated fixed-rate debt. Included in Interest expense, net within the Condensed Consolidated Statements of Income are gains of $8.0 million and $20.6 million for the three and nine months ended September 30, 2022, respectively, compared to gains of $3.8 million and $10.8 million for the three and nine months ended September 30, 2021, respectively.
15 AVIENT CORPORATION
We designated the cross currency swaps as net investment hedges of our net investment in our European operations under ASU 2017-12 and applied the spot method to these hedges. The changes in fair value of the derivative instruments that are designated and qualify as hedges of net investments in foreign operations are recognized within Accumulated Other Comprehensive Income (AOCI) to offset the changes in the values of the net investment being hedged. For the three and nine months ended September 30, 2022, gains of $98.2 million and $150.2 million were recognized within translation adjustments in AOCI, net of tax, respectively, compared to a loss of $7.1 million and a gain of $24.8 million, net of tax, for the three and nine months ended September 30, 2021, respectively.
Derivatives Designated as Cash Flow Hedging Instruments
In August 2018, we entered into two interest rate swaps with a combined notional amount of $150.0 million to manage the variability of cash flows in the interest rate payments associated with our existing LIBOR-based interest payments, effectively converting $150.0 million of our floating rate debt to a fixed rate. We began to receive floating rate interest payments based upon one-month U.S. dollar LIBOR and in return are obligated to pay interest at a fixed rate of 2.732% until November 2022. We have designated these interest rate swap contracts as cash flow hedges pursuant to ASC Topic 815, Derivatives and Hedging. The net interest payments accrued each month for these highly effective hedges are reflected in net income as adjustments of interest expense and the remaining change in the fair value of the derivatives is recorded as a component of AOCI. The amount of expense recognized within Interest expense, net in our Condensed Consolidated Statements of Income was $0.1 million and $1.7 million for the three and nine months ended September 30, 2022, respectively, compared to $1.0 million and $3.0 million for the three and nine months ended September 30, 2021, respectively. For the three and nine months ended September 30, 2022, gains of $0.2 million and $2.3 million, net of tax, respectively, were recognized in AOCI, compared to gains of $0.7 million and $2.2 million for the three and nine months ended September 30, 2021, respectively.
Derivatives Not Designated for Hedge Accounting
On April 20, 2022, we executed forward starting cross currency swaps, pursuant to which we will pay fixed-rate interest in euros and receive fixed-rate interest in U.S. dollars with a combined notional amount of €900.0 million, as a means of mitigating the impact of currency fluctuations on our future euro investments in foreign entities related to the APM Acquisition. Additionally, we entered into foreign currency forward contracts with an aggregate notional amount of €350 million, to mitigate the impact of currency fluctuations on the euro-denominated purchase price for the APM Acquisition. In conjunction with the closing of the APM Acquisition, we completed the initial exchange of U.S. dollars for euros as part of the cross-currency swaps and designated these instruments as a net investment hedge against the acquired euro net assets of APM. Changes in the fair value of the cross-currency swaps prior to designation as a net investment hedge and foreign exchange forward contracts were recorded in earnings directly. Beginning September 1, 2022, changes in the fair value of these instruments are recognized in AOCI and offset the changes in our euro net assets. The amount of expense recognized within Other income, net in our Condensed Consolidated Statements of Income was $38.2 million and $37.3 million for the three and nine months ended September 30, 2022, which resulted in a $38.8 million cash payment during the three months ended September 30, 2022.
All of our derivative assets and liabilities measured at fair value are classified as Level 2 within the fair value hierarchy. We determine the fair value of our derivatives based on valuation methods, which project future cash flows and discount the future amounts present value using market based observable inputs, including interest rate curves and foreign currency rates.
The fair value of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets is as follows:
(In millions)
Balance Sheet Location
As of
September 30, 2022
As of December 31, 2021
Assets
Interest Rate Swaps (Cash Flow Hedge)
Other current assets
$
0.1
$
—
Cross Currency Swaps (Net Investment Hedge)
Other non-current assets
103.3
31.7
Liabilities
Interest Rate Swaps (Cash Flow Hedge)
Other current liabilities
$
—
$
3.1
16 AVIENT CORPORATION
Note 12 — SUBSEQUENT EVENTS
Divestiture of Distribution Business
As previously announced, on August 11, 2022, the Company entered into the Purchase Agreement with the Purchaser, an affiliate of H.I.G. Capital. Pursuant to the terms of the Purchase Agreement, the Purchaser agreed to acquire the Company’s Distribution business for $950.0 million in cash, subject to a customary working capital adjustment. On November 1, 2022, the Company completed the sale of its Distribution business to the Purchaser pursuant to the terms of the Purchase Agreement.
Debt Repayment
The after-tax proceeds from the sale of the Distribution business are being used to redeem the entire outstanding $600.0 million aggregate principal amount of its 5.25% Senior Notes due March 15, 2023. The notes are being redeemed at a redemption price equal to 101.0% of the principal amount of the notes plus accrued and unpaid interest to the redemption date.
Additionally, the Company is using $150.0 million of the Distribution business after-tax proceeds to repay a portion of its senior secured term loans.
17 AVIENT CORPORATION
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Business
We are a premier provider of specialized and sustainable material solutions that transform customer challenges into opportunities, bringing new products to life for a better world. Our products include specialty engineered materials, advanced composites, ultra light weight and highly engineered fibers, and color and additive systems. Headquartered in Avon Lake, Ohio, we have employees at sales, manufacturing and distribution facilities across the globe. We provide value to our customers through our ability to link our knowledge of polymers and formulation technology with our manufacturing and supply chain capabilities to provide value-added solutions to designers, assemblers and processors of plastics. When used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “Avient” and the “Company” mean Avient Corporation and its consolidated subsidiaries.
Highlights and Executive Summary
A summary of Avient’s sales, operating income, net (loss) income and net (loss) income attributable to Avient common shareholders follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2022
2021
2022
2021
Sales
$
823.3
$
818.0
$
2,606.5
$
2,508.5
Operating income
40.6
52.8
242.9
229.6
Net (loss) income from continuing operations
(27.8)
33.4
99.7
144.0
Income from discontinued operations, net of income taxes
17.1
19.2
58.8
57.7
Net (loss) income
$
(10.7)
$
52.6
$
158.5
$
201.7
Net (loss) income attributable to Avient common shareholders
$
(10.3)
$
52.9
$
158.6
$
201.0
Trends and Developments
APM Acquisition
On September 1, 2022, the Company completed the acquisition of the DSM Protective Materials business, including the Dyneema® brand, the World's Strongest Fiber™. The ultra-light specialty fiber is 15 times stronger than steel and is used in demanding applications such as ballistic personal protection, marine and sustainable infrastructure, renewable energy, industrial protection and outdoor sports. The acquired business is collectively referred to as Avient Protective Materials and APM. The APM Acquisition will enhance Avient's material offerings of composites and engineered fibers.
Total consideration paid by the Company to complete the APM Acquisition was $1.4 billion, net of cash acquired. Avient incurred (i) $575.0 million of borrowings under the 2029 Term Loan and (ii) $725.0 million aggregate principal of the 2030 Notes to fund the Acquisition. For additional details relating to the financing, refer to Note 8, Financing Arrangements.
Distribution business sale
On August 11, 2022, Avient entered into a definitive asset purchase agreement (the "Purchase Agreement") with an affiliate of H.I.G. Capital (the "Purchaser"), to sell its Distribution business. Pursuant to the terms of the Purchase Agreement, the Purchaser has agreed to acquire the Company's Distribution business for $950.0 million in cash, subject to a customary working capital adjustment. The Distribution business is now classified as a discontinued operation within the Condensed Consolidated Statements of Income.
Magna Colours Acquisition
On July 1, 2021, the Company completed its acquisition of Magna Colours, a market leader in sustainable, water-based inks technology for the textile screen printing industry, for the purchase price of $47.6 million, net of cash acquired. The results of the Magna Colours business are reported in the Color, Additives and Inks segment. The preliminary purchase price allocation resulted in intangible assets of $27.5 million and goodwill of $22.0 million, partially offset by net liabilities assumed. Goodwill is not deductible for tax purposes. The intangible assets that have been acquired are being amortized over a period of 10 to 20 years.
18 AVIENT CORPORATION
COVID-19
We have continued to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it has impacted our employees, customers, supply chain and distribution network. Although we are unable to predict the ultimate impact of the COVID-19 outbreak at this time, the pandemic has in the past adversely affected, and could in the future adversely affect our business. The extent to which our operations may continue to be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact.
Results of Operations —The three and nine months ended September 30, 2022 compared to three and nine months ended September 30, 2021:
Three Months Ended September 30,
Variances — Favorable (Unfavorable)
Nine Months Ended September 30,
Variances — Favorable (Unfavorable)
(Dollars in millions, except per share data)
2022
2021
Change
% Change
2022
2021
Change
% Change
Sales
$
823.3
$
818.0
$
5.3
0.6
%
$
2,606.5
$
2,508.5
$
98.0
3.9
%
Cost of sales
627.9
602.4
(25.5)
(4.2)
%
1,895.8
1,781.2
(114.6)
(6.4)
%
Gross margin
195.4
215.6
(20.2)
(9.4)
%
710.7
727.3
(16.6)
(2.3)
%
Selling and administrative expense
154.8
162.8
8.0
4.9
%
467.8
497.7
29.9
6.0
%
Operating income
40.6
52.8
(12.2)
(23.1)
%
242.9
229.6
13.3
5.8
%
Interest expense, net
(37.3)
(19.0)
(18.3)
(96.3)
%
(70.4)
(57.8)
(12.6)
(21.8)
%
Other (expense) income, net
(32.3)
1.6
(33.9)
nm
(31.3)
4.3
(35.6)
nm
(Loss) Income from continuing operations before income taxes
(29.0)
35.4
(64.4)
(181.9)
%
141.2
176.1
(34.9)
(19.8)
%
Income tax benefit (expense)
1.2
(2.0)
3.2
160.0
%
(41.5)
(32.1)
(9.4)
(29.3)
%
Net (loss) income from continuing operations
(27.8)
33.4
(61.2)
(183.2)
%
99.7
144.0
(44.3)
(30.8)
%
Income from discontinued operations, net of income taxes
17.1
19.2
(2.1)
nm
58.8
57.7
1.1
nm
Net (loss) income
(10.7)
52.6
(63.3)
(120.3)
%
158.5
201.7
(43.2)
(21.4)
%
Net loss (income) attributable to noncontrolling interests
0.4
0.3
0.1
nm
0.1
(0.7)
0.8
nm
Net (loss) income attributable to Avient common shareholders
$
(10.3)
$
52.9
$
(63.2)
(119.5)
%
$
158.6
$
201.0
$
(42.4)
(21.1)
%
(Loss) Earnings per share attributable to Avient common shareholders - Basic
Continuing operations
$
(0.30)
$
0.37
$
1.09
$
1.57
Discontinued operations
0.19
0.21
0.65
0.63
Total
$
(0.11)
$
0.58
$
1.74
$
2.20
(Loss) earnings per share attributable to Avient common shareholders - Diluted
Continuing operations
$
(0.30)
$
0.37
$
1.08
$
1.56
Discontinued operations
0.19
0.20
0.64
0.62
Total
$
(0.11)
$
0.57
$
1.72
$
2.18
nm - not meaningful
Sales
Sales increased $5.3 million or 0.6% in the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The acquisition of APM increased sales by 3.9%, while foreign exchange negatively impacted sales 7.1%. The remaining increase was primarily a result of price increases associated with raw material inflation, which more than offset lower global demand.
19 AVIENT CORPORATION
Sales increased $98.0 million or 3.9% in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The acquisition of APM increased sales 1.6% while foreign exchange negatively impacted sales 5.3%. The remaining increase was primarily a result of price increases associated with raw material inflation, which more than offset lower demand.
Cost of sales
As a percent of sales, cost of sales increased from 73.6% to 76.3% in the three months ended September 30, 2021 to September 30, 2022, primarily as a result of raw material inflation, acquisition related costs and higher environmental remediation costs. Cost of sales as a percent of sales increased from 71.0% to 72.7% in the nine months ended September 30, 2021 to September 30, 2022, primarily as a result of raw material inflation and acquisition related costs.
Selling and administrative expense
Selling and administrative expense decreased $8.0 million and $29.9 million during the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021, as the impact from the APM Acquisition of $7.1 million was more than offset by weaker foreign exchange and lower compensation cost.
Interest expense, net
Interest expense, net increased $18.3 million and $12.6 million in the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021 related to the 2030 Notes and 2029 Term Loan issued in the third quarter along with the $10.0 million of committed financing costs incurred in the third quarter 2022 associated with the APM Acquisition.
Income taxes
During the three months ended September 30, 2022, the effective tax rate benefit from continuing operations of 4.1% was below the U.S. federal statutory rate of 21.0%. The tax rate benefit relates to a pretax loss as well as state income tax benefits, prior year favorable U.S. return-to-provision adjustments and the U.S. research and development tax credit. These favorable items were partially offset by foreign withholding tax liabilities accrued associated with the future repatriation of certain foreign earnings, global intangible low-taxed income (GILTI) tax, certain non-deductible expenses and an increase in valuation allowances.
During the nine months ended September 30, 2022, the Company’s effective tax rate from continuing operations of 29.4% was above the U.S. federal statutory rate of 21.0% primarily due to foreign withholding tax liabilities accrued associated with the future repatriation of certain foreign earnings, GILTI tax, certain non-deductible expenses and an increase in valuation allowances. These unfavorable items were partially offset by prior year favorable U.S. return-to-provision adjustments and the U.S. research and development tax credit.
During the three and nine months ended September 30, 2021, the Company's effective tax rates from continuing operations of 5.7% and 18.2%, respectively, were below the U.S. federal statutory rate of 21.0% primarily due to higher U.S. foreign-derived intangible income (FDII) tax benefits, favorable prior year U.S. return-to-provision adjustments and U.S. research and development tax credit. These favorable items were partially offset by foreign withholding tax liabilities accrued associated with the repatriation of certain foreign earnings and GILTI tax.
SEGMENT INFORMATION
Avient has two reportable segments: (1) Color, Additives and Inks; and (2) Specialty Engineered Materials. As a result of the agreement to divest the Distribution business segment, we have removed Distribution as a separate reportable segment and its results are presented as discontinued operation. Historical information has been retrospecitvely adjusted to reflect these changes. Discontinued operations are further discussed in Note 3, Discontinued Operations, to the accompanying condensed consolidated financial statements.
20 AVIENT CORPORATION
Operating income is the primary measure that is reported to our chief operating decision maker (CODM) for purposes of allocating resources to the segments and assessing their performance. Operating income at the segment level does not include: corporate general and administrative expenses that are not allocated to segments; intersegment sales and profit eliminations; charges related to specific strategic initiatives such as the consolidation of operations; restructuring activities, including employee separation costs resulting from personnel reduction programs, plant closure and phase-in costs; executive separation agreements; share-based compensation costs; asset impairments; environmental remediation costs, along with related gains from insurance recoveries, and other liabilities for facilities no longer owned or closed in prior years; gains and losses on the divestiture of joint ventures and equity investments; actuarial gains and losses associated with our pension and other post-retirement benefit plans; and certain other items that are not included in the measure of segment profit or loss that is reported to and reviewed by our CODM. These costs are included in Corporate and eliminations.
Sales and Operating Income — The three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021:
Three Months Ended September 30,
Variances — Favorable (Unfavorable)
Nine Months Ended September 30,
Variances — Favorable (Unfavorable)
(Dollars in millions)
2022
2021
Change
% Change
2022
2021
Change
% Change
Sales:
Color, Additives and Inks
$
565.6
$
586.6
$
(21.0)
(3.6)
%
$
1,864.2
$
1,820.3
$
43.9
2.4
%
Specialty Engineered Materials
258.2
231.7
26.5
11.4
%
743.6
685.3
58.3
8.5
%
Corporate and eliminations
(0.5)
(0.3)
(0.2)
(66.7)
%
(1.3)
2.9
(4.2)
144.8
%
Total Sales
$
823.3
$
818.0
$
5.3
0.6
%
$
2,606.5
$
2,508.5
$
98.0
3.9
%
Operating income:
Color, Additives and Inks
$
68.6
$
66.8
$
1.8
2.7
%
$
256.7
$
241.9
$
14.8
6.1
%
Specialty Engineered Materials
31.4
30.0
1.4
4.7
%
104.9
98.4
6.5
6.6
%
Corporate and eliminations
(59.4)
(44.0)
(15.4)
(35.0)
%
(118.7)
(110.7)
(8.0)
(7.2)
%
Total Operating Income
$
40.6
$
52.8
$
(12.2)
(23.1)
%
$
242.9
$
229.6
$
13.3
5.8
%
Operating income as a percentage of sales:
Color, Additives and Inks
12.1
%
11.4
%
0.7
% points
13.8
%
13.3
%
0.5
% points
Specialty Engineered Materials
12.2
%
12.9
%
(0.7)
% points
14.1
%
14.4
%
(0.3)
% points
Total
4.9
%
6.5
%
(1.6)
% points
9.3
%
9.2
%
0.1
% points
Color, Additives and Inks
Sales decreased $21.0 million or 3.6% in the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Foreign exchange negatively impacted sales 7.7%, while price increases associated with raw material inflation more than offset lower global demand.
Sales increased by $43.9 million or 2.4% in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. Foreign exchange negatively impacted sales by 5.6%, while price increases associated with raw material inflation, along with the acquisition of Magna Colours, more than offset lower demand.
Operating income increased $1.8 million and $14.8 million in the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021, respectively. Operating income increased as a result of the aforementioned pricing combined with benefits from lower selling and administrative expenses and synergies from acquisitions. These benefits were partially offset by inflation, negative impacts of foreign exchange and lower demand, which began to accelerate towards the end of the third quarter.
Specialty Engineered Materials
Sales increased $26.5 million or 11.4% in the three months ended September 30, 2022 compared to the three months ended September 30, 2021. The acquisition of APM increased sales by 13.9%, while foreign exchange negatively impacted sales 5.6%. The remaining increase was a result of price increases associated with raw material inflation, which more than offset lower global demand.
21 AVIENT CORPORATION
Sales increased $58.3 million or 8.5% in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The acquisition of APM increased sales 4.7%, while foreign exchange negatively impacted sales 4.4%. The remaining increase was primarily a result of price increases associated with raw material inflation, which more than offset lower global demand.
Operating income increased $1.4 million and $6.5 million in the three and nine months ended September 30, 2022 as compared to the three and nine months ended September 30, 2021. Operating income increased as a result of the aforementioned pricing combined with the acquisition of APM and lower selling and administrative expense. These benefits were partially offset by inflation, negative impacts of foreign exchange and lower demand which began to accelerate towards the end of the third quarter.
Corporate and Eliminations
Costs increased $15.4 million or 35% in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 due to higher environmental remediation costs of $9.4 million, and higher acquisition costs of $13.2 million, partially offset by lower incentive costs. Costs increased $8.0 million or 7% in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 due to higher acquisition costs of $15.1 million, partially offset by lower incentive costs.
Liquidity and Capital Resources
Our objective is to finance our business through operating cash flow and an appropriate mix of debt and equity. By laddering the maturity structure, we avoid concentrations of debt maturities, reducing liquidity risk. We may from time to time seek to retire or purchase our outstanding debt with cash and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. We may also seek to repurchase our outstanding common shares. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved have been and may continue to be material.
The following table summarizes our liquidity as of September 30, 2022 and December 31, 2021:
(In millions)
As of September 30, 2022
As of December 31, 2021
Cash and cash equivalents
$
544.4
$
601.2
Revolving credit availability
485.1
485.5
Liquidity
$
1,029.5
$
1,086.7
As of September 30, 2022, approximately 50% of the Company’s cash and cash equivalents resided outside the United States.
Expected sources of cash needed to satisfy cash requirements for the remainder of 2022 include our cash on hand, proceeds from the sale of the Distribution business, cash from operations and available liquidity under our revolving credit facility, if needed. Expected uses of cash for the remainder of 2022 include the repayment of debt, interest payments, cash taxes, dividend payments, share repurchases, environmental remediation costs, and capital expenditures.
Cash Flows
The following describes the significant components of cash flows from operating, investing and financing activities for the nine months ended September 30, 2022 and 2021.
Operating Activities — In the nine months ended September 30, 2022, net cash provided by operating activities was $223.9 million as compared to $110.0 million for the nine months ended September 30, 2021, driven primarily by lower working capital, partially offset by costs incurred associated with the APM Acquisition.
Investing Activities — Net cash used by investing activities during the nine months ended September 30, 2022 of $1,387.9 million reflects the acquisition of APM of $1,426.1 million, capital expenditures of $55.1 million, offset by the settlement of cross-currency swaps of $93.3 million.
Net cash used by investing activities during the nine months ended September 30, 2021 of $112.3 million primarily reflects capital expenditures and the acquisition of Magna Colours.
22 AVIENT CORPORATION
Financing Activities — Net cash provided by financing activities for the nine months ended September 30, 2022 of $1,138.1 million primarily reflects $1,300.0 million of debt proceeds, $65.2 million of dividends paid, debt financing costs of $49.3 million, repayment of debt of $6.8 million, repurchases of our outstanding common shares of $36.4 million, and the payment of withholding tax on share awards of $4.2 million.
Net cash used by financing activities for the nine months ended September 30, 2021 of $91.5 million reflects repayment of long-term debt of $16.5 million, $58.2 million of dividends paid, repurchases of our outstanding common shares of $4.2 million, and the payment of withholding tax on share awards of $9.1 million.
Debt
As of September 30, 2022, our principal amount of debt totaled $3,166.4 million. Aggregate maturities of the principal amount of debt for the current year, next four years and thereafter, are as follows:
(In millions)
2022
$
3.2
2023
614.3
2024
14.3
2025
664.4
2026
12.6
Thereafter
1,857.6
Aggregate maturities
$
3,166.4
On August 10, 2022, the Company entered into an indenture with U.S. Bank Trust Company, National Association, as trustee, relating to the issuance by the Company of $725 million aggregate principal amount of 2030 Notes. The 2030 Notes were sold on August 10, 2022 in a private offering. The 2030 Notes bear interest at a rate of 7.125% per annum. Interest on the 2030 Notes is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2023. The 2030 Notes will mature on August 1, 2030. The 2030 Notes are senior unsecured obligations of the Company.
On August 29, 2022, the Company entered into the Term Loan Amendment relating to the Credit Agreement, with Citibank, N.A., as administrative agent, and the other agents and lenders named therein. Pursuant to the Term Loan Amendment, Avient, among other things, incurred the 2029 Term Loan in an aggregate principal amount equal to $575 million. The 2029 Term Loan was fully drawn on August 29, 2022. The interest rates per annum applicable to both the 2029 Term Loan and the existing term loan under the Credit Agreement will be either (i) Adjusted Term SOFR (as defined in the Term Loan Amendment) plus 3.25% or (ii) a Base Rate (as defined in the Term Loan Amendment) plus 2.25%. The other terms and conditions, including the maturity date, that apply to the 2029 Term Loan are substantially the same as the terms and conditions that applied to the existing term loan under the Credit Agreement immediately prior to the Term Loan Amendment.
The Company used the net proceeds from the issuance of the 2030 Notes and the borrowings under the 2029 Term Loan to finance a portion of the consideration for the APM Acquisition.
As of September 30, 2022, we were in compliance with all financial and restrictive covenants pertaining to our debt. For additional information regarding our debt, please see Note 8, Financing Arrangements to the accompanying condensed consolidated financial statements.
Derivatives and Hedging
We are exposed to market risks, such as changes in foreign currency exchange rates and interest rates. To manage the volatility related to these exposures we may enter into various derivative transactions. For additional information regarding our derivative instruments, please see Note 11, Derivatives and Hedging to the accompanying condensed consolidated financial statements.
Material Cash Requirements
We have future obligations under various contracts relating to debt and interest payments, derivative instruments, operating leases, pension and post-retirement benefit plans and purchase obligations. During the nine months ended September 30, 2022, we incurred the 2029 Term Loan in an aggregate principal amount equal to $575 million (which was fully drawn on August 29, 2022) and issued $725 million aggregate principal amount of the 2030 Notes. These obligations are in addition to those as reported in our Annual Report on Form 10-K for the year ended December 31, 2021.
23 AVIENT CORPORATION
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
In this Quarterly Report on Form 10-Q, statements that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance. They are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "will," “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial condition, performance and/or sales. In particular, these include statements relating to future actions; prospective changes in raw material costs, product pricing or product demand; future performance; estimated capital expenditures; results of current and anticipated market conditions and market strategies; sales efforts; expenses; the outcome of contingencies such as legal proceedings and environmental liabilities; and financial results. Factors that could cause actual results to differ materially from those implied by these forward-looking statements include, but are not limited to:
•disruptions, uncertainty or volatility in the credit markets that could adversely impact the availability of credit already arranged and the availability and cost of credit in the future;
•the effect on foreign operations of currency fluctuations, tariffs and other political, economic and regulatory risks;
•the current and potential future impact of the COVID-19 pandemic on our business, results of operations, financial position or cash flows, including without limitation, any supply chain and logistics issues;
•changes in laws and regulations regarding plastics in jurisdictions where we conduct business;
•fluctuations in raw material prices, quality and supply, and in energy prices and supply;
•production outages or material costs associated with scheduled or unscheduled maintenance programs;
•unanticipated developments that could occur with respect to contingencies such as litigation and environmental matters;
•an inability to raise or sustain prices for products or services;
•our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends;
•information systems failures and cyberattacks;
•amounts for cash and non-cash charges related to restructuring plans that may differ from original estimates, including because of timing changes associated with the underlying actions;
•our ability to achieve the strategic and other objectives relating to APM;
•other factors affecting our business beyond our control, including without limitation, changes in the general economy, changes in interest rates, changes in the rate of inflation and any recessionary conditions;
•other factors described in our Annual Report on Form 10-K for the year ended December 31, 2021 under Item 1A, “Risk Factors.”
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. You are advised, however, to consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K filed with the Securities and Exchange Commission. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to exposures to market risk as reported in our Annual Report on Form 10-K for the year ended December 31, 2021.
24 AVIENT CORPORATION
ITEM 4.CONTROLS AND PROCEDURES
Disclosure controls and procedures
Avient’s management, under the supervision of and with the participation of its Chief Executive Officer and its Chief Financial Officer, has evaluated the effectiveness of the design and operation of Avient’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report. Based upon this evaluation, Avient’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report, its disclosure controls and procedures were effective.
The Company completed the APM Acquisition on September 1, 2022 and has not yet included APM in its assessment of the effectiveness of its internal control over financial reporting. The Company is currently integrating APM into its operations, compliance programs and internal control processes. Accordingly, pursuant to the SEC's general guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment in the year of acquisition, the scope of our assessment of the effectiveness of our disclosure controls and procedures does not include APM. APM constituted approximately 26% of the Company's total assets as of September 30, 2022, and approximately 1% of the Company's net sales for the nine months ended September 30, 2022.
Changes in internal control over financial reporting
There were no changes in Avient’s internal control over financial reporting during the quarter ended September 30, 2022 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
Information regarding certain legal proceedings can be found in Note 10, Commitments and Contingencies to the accompanying condensed consolidated financial statements and is incorporated by reference herein.
ITEM 1A.RISK FACTORS
We face a number of risks that could adversely affect our business, results of operations, financial position or cash flows. A discussion of our risk factors can be found in Item 1A, Risk factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and our subsequent Quarterly Reports on Form 10-Q for the periods ended March 31, 2022 and June 30, 2022. During the third quarter ended September 30, 2022, there were no material changes to our previously disclosed risk factors.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below sets forth information regarding the repurchase of shares of our common shares during the period indicated.
Period
Total Number of Shares Purchased
Weighted Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Program
Maximum Number of Shares that May Yet be Purchased Under the Program (1)
July 1 to July 31
—
$
—
—
4,957,472
August 1 to August 31
—
—
—
4,957,472
September 1 to September 30
—
—
—
4,957,472
Total
—
$
—
—
(1) Our Board of Directors approved a common share repurchase program authorizing Avient to purchase its common shares in August 2008, which share repurchase authorization has been subsequently increased from time to time. On December 9, 2020, we announced that we would increase our share buyback by an additional 5 million shares. As of September 30, 2022, approximately 5.0 million shares remained available for purchase under these authorizations, which have no expiration. Purchases of common shares may be made by open market purchases or privately negotiated transactions and may be made pursuant to Rule 10b5-1 plans and accelerated share repurchases.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
†
Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request.
**
Filed herewith.
26 AVIENT CORPORATION
SIGNATURES
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.
November 2, 2022
AVIENT CORPORATION
/s/ Jamie A. Beggs
Jamie A. Beggs Senior Vice President and Chief Financial Officer
