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, color and additive systems and polymer distribution. We are also a highly specialized developer and manufacturer of performance enhancing additives, liquid colorants, and fluoropolymer and silicone colorants. Headquartered inAvon 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" meanAvient Corporation , formerly known asPolyOne Corporation , and its consolidated subsidiaries.
Highlights and Executive Summary
A summary of
Three Months Ended
March 31,
(In millions) 2022 2021
Sales $ 1,293.8 $ 1,162.3
Operating income 128.6 120.4
Net income $ 84.5 $ 79.7
Net income attributable to
Trends and Developments 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. While we concluded there were no indicators of impairment as ofMarch 31, 2022 , any significant sustained adverse change in financial results or macroeconomic conditions could result in future impairments of long-lived assets. 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.
Acquiring Magna Colors
OnJuly 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. Dyneema Acquisition OnApril 19, 2022 , we entered into a signing protocol (the Signing Protocol) with Koninklijke DSM N.V., a public limited liability company incorporated under the laws ofthe Netherlands (DSM). Pursuant to the terms of the Signing Protocol, after completion of the consultation process with the relevant Dutch works council,Avient and DSM will enter into a Sale and Purchase Agreement (the Purchase Agreement) pursuant to which we will, among other things, acquire from DSM (a) all of the equity ofDSM Protective Materials International B.V. , a private limited liability company organized under the laws ofthe Netherlands ,DSM Protective Materials B.V ., a private limited liability company organized under the laws ofthe Netherlands , andDSM Protective Materials LLC , aDelaware limited liability company, and (b) certain other assets related to DSM's protective materials business (including the 13AVIENT CORPORATION --------------------------------------------------------------------------------
Dyneema© Trademark) (these equity and assets together, the Dyneema Business) (such as the acquisition of the Dyneema Business, the Dyneema Acquisition).
Pursuant to the terms of the Purchase Agreement, we have agreed to acquire the Dyneema Business for an aggregate purchase price of €1.38 billion, subject to certain customary adjustments for a European "locked box" transaction (the Purchase Price). Certain Purchase Price payments are Euro-denominated and are subject to change based on fluctuations in the Euro-USD exchange rate. In addition to the consultation process with the Dutch works council, the closing of the Dyneema Acquisition will be subject to the satisfaction or waiver of customary and other conditions, including the receipt of required regulatory approvals.
Along with our intention to acquire the Dyneema business, we plan to explore a potential sale of our distribution business.
Results of Operations - The three months endedMarch 31, 2022 compared to three months endedMarch 31, 2021 : Three Months Ended March 31, Variances - Favorable (Unfavorable) % (Dollars in millions, except per share data) 2022 2021 Change Change Sales$ 1,293.8 $ 1,162.3 $ 131.5 11.3 % Cost of sales 1,000.1 859.9 (140.2) (16.3) % Gross margin 293.7 302.4 (8.7) (2.9) % Selling and administrative expense 165.1 182.0 16.9 9.3 % Operating income 128.6 120.4 8.2 6.8 % Interest expense, net (16.9) (19.3) 2.4 12.4 % Other (expense) income, net (0.6) 1.5 (2.1) nm Income before income taxes 111.1 102.6 8.5 8.3 % Income tax expense (26.6) (22.9) (3.7) (16.2) % Net income 84.5 79.7 4.8 6.0 % Net income attributable to noncontrolling interests (0.3) (0.4) 0.1 nm Net income attributable to Avient common shareholders $ 84.2$ 79.3 $ 4.9 6.2 %
Earnings per share attributable to
$
0.92
Earnings (loss) per share attributable toAvient common shareholders - Diluted $ 0.91$ 0.86 nm - not meaningful Sales Sales increased$131.5 million in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 as a result of price increases associated with raw material inflation, growth in the healthcare and consumer end market and certain composite applications. These increases offset demand conditions inChina as a result of the recent COVID lockdowns and inEurope as a result of the ongoing war inUkraine , as well as weaker foreign exchange rates primarily from the Euro.
Cost of sales
As a percentage of sales, cost of sales increased from 74.0% to 77.3% in the three months ended
Selling and administrative expenses
Selling and administrative expenses decreased
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Interest expense, net
Interest expense, net decreased$2.4 million in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 due to additional cross currency swaps entered into in 2021 (See Note 11, Derivatives and Hedging for details). Income taxes During the three months endedMarch 31, 2022 , the Company's effective tax rate was 23.9% versus 22.3% for the three months endedMarch 31, 2021 . The income tax rate increase is primarily due to the higher tax effects of state income taxes, GILTI tax and less of a favorable foreign tax rate differential.
SEGMENT INFORMATION
Avient has three reportable segments: (1) Color, Additives and Inks; (2) Specialty Engineered Materials; and (3) Distribution. 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 – Three Months Ended
Variances - Favorable
Three Months Ended March 31, (Unfavorable)
(Dollars in millions) 2022 2021 Change % Change
Sales:
Color, Additives and Inks $ 649.5 $ 609.3 $ 40.2 6.6 %
Specialty Engineered Materials 244.7 216.5 28.2 13.0 %
Distribution 432.9 362.7 70.2 19.4 %
Corporate and eliminations (33.3) (26.2) (7.1) (27.1) %
Total Sales $ 1,293.8 $ 1,162.3 $ 131.5 11.3 %
Operating income:
Color, Additives and Inks $ 94.5 $ 88.8 $ 5.7 6.4 %
Specialty Engineered Materials 39.7 34.2 5.5 16.1 %
Distribution 24.2 24.0 0.2 0.8 %
Corporate and eliminations (29.8) (26.6) (3.2) (12.0) %
Total Operating Income $ 128.6 $ 120.4 $ 8.2 6.8 %
Operating income as a percentage of sales:
Color, Additives and Inks 14.5 % 14.6 % (0.1) % points
Specialty Engineered Materials 16.2 % 15.8 % 0.4 % points
Distribution 5.6 % 6.6 % (1.0) % points
Total 9.9 % 10.4 % (0.5) % points
15 AVIENT CORPORATION
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Colour, additives and inks
Sales increased$40.2 million in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 due to higher selling prices across all regions and end markets. Demand conditions in theAmericas remained strong, particularly in healthcare, which was offset by slowdowns inChina as a result of the recent COVID lockdowns and inEurope as a result of the ongoing war inUkraine . Operating income increased$5.7 million in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 due to aforementioned price increases associated with raw material inflation, lower selling, general, and administrative expenses driven by synergies from prior acquisitions and lower incentives. These benefits were partially offset by weaker foreign exchange rates, wage inflation, higher supply chain costs, and demand conditions inChina andEurope .
Specialty engineered materials
Sales increased$28.2 million in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 due to higher selling prices across all regions and end markets. Gains in the healthcare end market and growth in certain composite applications more than offset lower demand inChina and transportation applications. Operating income increased$5.5 million in the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 due to aforementioned sales increases. These benefits were partially offset by wage inflation and higher supply chain costs. Distribution
Sales increased
Operating income in the three months endedMarch 31, 2022 was flat compared to the three months endedMarch 31, 2021 as margins were slightly compressed from higher cost inventory. Corporate and Eliminations Costs increased$3.2 million , or 12%, in the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 due to higher environmental remediation costs and lower insurance recoveries on previously incurred environmental costs.
Cash 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 ofMarch 31, 2022 andDecember 31, 2021 : (In millions) As of March 31, 2022 As of December 31, 2021 Cash and cash equivalents $ 562.6 $ 601.2 Revolving credit availability 464.4 485.5 Liquidity $ 1,027.0 $ 1,086.7
From
In connection with the Dyneema Acquisition, onApril 19, 2022 , we entered into a Commitment Letter withMorgan Stanley Senior Funding, Inc. and J.P. Morgan (the Commitment Parties), pursuant to which the Commitment Parties will commit to providing us with a$640.0 million senior secured term loan facility and a$900.0 million senior unsecured bridge loan (the Bridge Facility) for purposes of funding the Dyneema Acquisition. The commitment is subject to various conditions, including the execution of definitive documentation and other customary closing conditions. We currently intend to issue new senior unsecured notes in lieu of borrowing under the Bridge Facility. 16AVIENT CORPORATION -------------------------------------------------------------------------------- Expected sources of cash needed to satisfy cash requirements for the remainder of 2022 outside of the Dyneema Acquisition include our cash on hand, cash from operations and available liquidity under our revolving credit facility, if needed. Outside of the Dyneema Acquisition, expected uses of cash for the remainder of 2022 include interest payments, cash taxes, dividend payments, share repurchases, environmental remediation costs, capital expenditures, and debt repayment. Cash Flows The following describes the significant components of cash flows from operating, investing and financing activities for the three months endedMarch 31, 2022 and 2021. Operating Activities - In the three months endedMarch 31, 2022 , net cash provided by operating activities was$18.9 million as compared to$3.6 million for the three months endedMarch 31, 2021 , driven by increased earnings in 2022 and lower comparative investment in working capital.
Investing activities – Net cash used by investing activities during the three months ended
Net cash used by investing activities during the three months ended
Financing Activities - Net cash used by financing activities for the three months endedMarch 31, 2022 of$43.8 million primarily reflects$21.7 million of dividends paid, repayment of debt of$2.4 million , repurchases of our outstanding common shares of$15.8 million , and the payment of withholding tax on share awards of$3.9 million . Net cash provided by financing activities for the three months endedMarch 31, 2021 of$29.1 million primarily reflects$19.5 million of dividends paid, repurchases of our outstanding common shares of$4.2 million , and the payment of withholding tax on share awards of$3.1 million .
Debt
As ofMarch 31, 2022 , our principal amount of debt totaled$1,870.8 million . Aggregate maturities of the principal amount of debt for the current year, next four years and thereafter, are as follows: (In millions) 2022$ 6.0 2023 608.6 2024 8.6 2025 658.7 2026 6.9 Thereafter 582.0 Aggregate maturities$ 1,870.8 As ofMarch 31, 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 and Note 12, Subsequent Events to the accompanying condensed consolidated financial statements.
Material cash needs
We have future obligations under various contracts relating to debt and interest payments, operating leases, pension and post-retirement benefit plans and purchase obligations. During the three months endedMarch 31, 2022 , there were no material changes to these obligations as reported in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . 17AVIENT CORPORATION --------------------------------------------------------------------------------
CAUTION ABOUT 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 credit markets which 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 fluctuations in currencies, prices 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 condition or cash flows, including without limitation any supply chain issues and logistics;
• changes in polymer consumption growth rates and plastics laws and regulations in the jurisdictions where we operate;
•fluctuations in the prices, quality and supply of raw materials, and in the prices and supply of energy;
•production stoppages or material costs associated with scheduled or unscheduled maintenance programs;
• unforeseen developments that may arise with respect to contingencies such as litigation and environmental matters;
• our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends;
•failures of information systems 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;
•any material adverse change in the Dyneema business;
•our ability to achieve the strategic and other objectives relating to the Dyneema Acquisition, including any expected synergies, and the possible sale of the Distribution business segment; and
• other factors described in our annual report on Form 10-K for the year ended
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 theSecurities 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.
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