AVIENT CORPORATION 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 ofAvient's sales, operating income, net income and net income attributable toAvient common shareholders follows: Three Months Ended Six Months Ended June 30, June 30, (In millions) 2021 2020 2021 2020 Sales$ 1,235.2 $ 609.1 $ 2,397.5 $ 1,320.6 Operating income 108.1 38.0 228.5 90.8 Net income from continuing operations 69.4 23.4 149.1 56.5 Income (loss) from discontinued operations, net of income taxes - (0.2) - (0.5) Net income$ 69.4 $ 23.2 $ 149.1 $ 56.0 Net income attributable toAvient common shareholders$ 68.8 $ 22.8 $ 148.1 $ 55.6 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. While our business was adversely affected by the COVID-19 pandemic in 2020, we have seen recovery through the second quarter of 2021. The scope and duration of the pandemic continues to be uncertain, and evolving factors such as the level and timing of vaccine distribution across the world and the extent of any resurgences of the virus or emergence of new variants will impact the stability of the economic recovery and growth. The extent to which our operations may be adversely impacted by the COVID-19 pandemic will depend largely on these future developments, which are highly uncertain and cannot be accurately predicted. For further information regarding the impact that COVID-19 could have on our business, see Part I - Item 1A. Risk Factors in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Clariant MB Acquisition OnJuly 1, 2020 , the Company completed the Clariant MB Acquisition. The Clariant MB Acquisition increased the Company's scale, product depth and geographic reach in its Color, Additives and Inks segment. Clariant MB has leading portfolios of solid and liquid masterbatches that include sustainable solutions for alternative energy, and reduced material requirements for packaging and light weighting. Total consideration paid by the Company to complete the Clariant MB Acquisition was$1.4 billion , net of cash and debt acquired. To finance the purchase of Clariant MB, the Company used$496.1 million in net proceeds from the issuance of common shares in an underwritten public offering completed inFebruary 2020 and$640.5 million in net proceeds from a senior unsecured notes offering completed inMay 2020 , and funded the balance using the net proceeds of theOctober 2019 sale of our Performance Products and Solutions business segment (PP&S). We finalized the purchase accounting for the Clariant MB Acquisition as ofJune 30, 2021 . For details related to the effects of adjustments recognized in the current reporting period, refer to Note 2, Business Combinations to the accompanying condensed consolidated financial statements. 17AVIENT CORPORATION --------------------------------------------------------------------------------
Results of Operations - The three and six months ended
Variances -
Three Months Ended June 30, Variances - Favorable (Unfavorable) Six Months Ended June 30, Favorable (Unfavorable)
(Dollars in millions, except per share % %
data) 2021 2020 Change Change 2021 2020 Change Change
Sales $ 1,235.2 $ 609.1 $ 626.1 103 % $ 2,397.5 $ 1,320.6 $ 1,076.9 82 %
Cost of sales 946.5 459.4 (487.1) (106) % 1,806.4 999.4 (807.0) (81) %
Gross margin 288.7 149.7 139.0 93 % 591.1 321.2 269.9 84 %
Selling and administrative expense 180.6 111.7 (68.9) (62) % 362.6 230.4 (132.2) (57) %
Operating income 108.1 38.0 70.1 184 % 228.5 90.8 137.7 152 %
Interest expense, net (19.5) (16.2) (3.3) (20) % (38.8) (25.6) (13.2) (52) %
Other income, net 1.2 9.5 (8.3) nm 2.7 11.1 (8.4) nm
Income from continuing operations before
income taxes 89.8 31.3 58.5 187 % 192.4 76.3 116.1 152 %
Income tax expense (20.4) (7.9) (12.5) (158) % (43.3) (19.8) (23.5) (119) %
Net income from continuing operations 69.4 23.4 46.0 197 % 149.1 56.5 92.6 164 %
Loss from discontinued operations, net
of income taxes - (0.2) 0.2 nm - (0.5) 0.5 nm
Net income 69.4 23.2 46.2 199 % 149.1 56.0 93.1 166 %
Net income attributable to
noncontrolling interests (0.6) (0.4) (0.2) nm (1.0) (0.4) (0.6) nm
Net income attributable to Avient common
shareholders $ 68.8 $ 22.8 $ 46.0 202 % $ 148.1 $ 55.6 $ 92.5 166 %
Earnings per share attributable to Avient common shareholders - Basic:
Continuing operations $ 0.75 $ 0.25 $ 1.62 $ 0.63
Discontinued operations - - - -
Total $ 0.75 $ 0.25 $ 1.62 $ 0.63
Earnings (loss) per share attributable to Avient common shareholders - Diluted:
Continuing operations $ 0.74 $ 0.25 $ 1.60 $ 0.63
Discontinued operations - - - (0.01)
Total $ 0.74 $ 0.25 $ 1.60 $ 0.62
nm - not meaningful
Sales
Sales increased $626.1 million and $1,076.9 million in the three and six months
ended June 30, 2021 compared to the three and six months ended June 30, 2020 ,
respectively, as a result of the Clariant MB Acquisition as well as demand
recovery in many end markets and price increases associated with raw material
inflation.
Cost of sales
Cost of sales increased from 75.4% as a percentage of sales in the three months
ended June 30, 2020 to 76.6% in the three months ended June 30, 2021 as a result
of rising raw material costs partially offset by improved mix. Cost of sales
decreased from 75.7% as a percentage of sales in the six months ended June 30,
2020 to 75.3% in the six months ended June 30, 2021 as a result of improved mix.
Selling and administrative expense
Selling and administrative expense increased $68.9 million and $132.2 million
during the three and six months ended June 30, 2021 compared to the three and
six months ended June 30, 2020 , respectively, driven primarily by the Clariant
MB Acquisition.
18 AVIENT CORPORATION -------------------------------------------------------------------------------- Interest expense, net Interest expense, net, increased$3.3 million and$13.2 million during the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 , respectively, due to higher interest expense related to our senior unsecured notes offering completed inMay 2020 . Income taxes During the three and six months endedJune 30, 2021 , the Company's effective tax rate was 22.6% and 22.5%, respectively, compared to 25.1% and 25.9% for the three and six months endedJune 30, 2020 , respectively. The income tax rate decrease is primarily due to a lower tax effect of GILTI tax, lower tax impact on withholding tax associated with the future repatriation of certain current year foreign earnings, lower valuation allowance expense, favorable comparable benefits of a tax rate change and favorable prior year foreign return-to-provision adjustments. Partially offsetting these favorable effects was a more favorable foreign effective tax rate in 2020 compared to 2021 and a higher impact of state income taxes in 2021. SEGMENT INFORMATIONAvient has three reportable segments: (1) Color, Additives and Inks; (2) Specialty Engineered Materials; and (3) Distribution. Operating income is the primary measure that is reported to our chief operating decision maker (CODM) for purposes of allocating resources to the segments and assessing their performance. Sales and Operating Income - The three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 : Variances - Favorable Variances - Favorable Three Months Ended June 30, (Unfavorable) Six Months Ended June 30, (Unfavorable) (Dollars in millions) 2021 2020 Change % Change 2021 2020 Change % Change
Sales:
Color, Additives and Inks$ 624.4 $ 226.8 $ 397.6 175 %$ 1,233.7 $ 483.3 $ 750.4 155 % Specialty Engineered Materials 240.6 158.8 81.8 52 % 457.1 344.1 113.0 33 % Distribution 404.4 238.8 165.6 69 % 767.1 528.3 238.8 45 % Corporate and eliminations (34.2) (15.3) (18.9) (124) % (60.4) (35.1) (25.3) (72) % Total Sales$ 1,235.2 $ 609.1 $ 626.1 103 %$ 2,397.5 $ 1,320.6 $ 1,076.9 82 % Operating income: Color, Additives and Inks $ 86.3$ 32.3 $ 54.0 167 %$ 175.1 $ 72.8 $ 102.3 141 % Specialty Engineered Materials 37.3 17.0 20.3 119 % 71.5 39.3 32.2 82 % Distribution 23.7 14.6 9.1 62 % 47.7 34.0 13.7 40 % Corporate and eliminations (39.2) (25.9) (13.3) (51) % (65.8) (55.3) (10.5) (19) % Total Operating Income$ 108.1 $ 38.0 $ 70.1 184 %$ 228.5 $ 90.8 $ 137.7 152 % Operating income as a percentage of sales: Color, Additives and Inks 13.8 % 14.2 % (0.4) % points 14.2 % 15.1 % (0.9) % points Specialty Engineered Materials 15.5 % 10.7 % 4.8 % points 15.6 % 11.4 % 4.2 % points Distribution 5.9 % 6.1 % (0.2) % points 6.2 % 6.4 % (0.2) % points Total 8.8 % 6.2 % 2.6 % points 9.5 % 6.9 % 2.6 % points Color, Additives and Inks Sales increased$397.6 million and$750.4 million in the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 , respectively. These increases were driven primarily by the Clariant MB Acquisition, as well as demand recovery in many end markets. On a pro forma basis to include Clariant MB in all periods, sales increased by$136.5 million in the three months endedJune 30, 2021 , compared to the three months endedJune 30, 2020 as a result of demand recovery in many end markets, particularly consumer, transportation, and industrial as well as price increases. On a pro forma basis to include Clariant MB in all periods, sales increased by$209.9 million , or 21%, in the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 as a result of demand recovery in many end markets, particularly consumer, transportation, and industrial, and price increases. 19AVIENT CORPORATION -------------------------------------------------------------------------------- Operating income increased$54.0 million and$102.3 million in the three and six months endedJune 30, 2021 as compared to the three and six months endedJune 30, 2020 , respectively. These increases were driven primarily by the Clariant MB Acquisition, as well as demand recovery in many end markets. On a pro forma basis to include Clariant MB in all periods, operating income increased by 57% and 48% in the three and six months endedJune 30, 2021 , compared to the three and months endedJune 30, 2020 , respectively, as a result of the sales growth discussed above and capture of integration synergies, partially offset by raw material and conversion cost inflation. Specialty Engineered Materials Sales increased$81.8 million and$113.0 million in the three and six months endedJune 30, 2021 compared to the three and six months endedJune 30, 2020 , respectively, largely driven by high demand for composite materials and recovery in many end markets. Operating income increased$20.3 million and$32.2 million in the three and six months endedJune 30, 2021 as compared to the three and six months endedJune 30, 2020 , respectively, due to the increased sales and continued growth of higher margin specialty and composite solutions. Distribution Sales increased$165.6 million and$238.8 million in the three and six months endedJune 30, 2021 , respectively, as compared to the three and six months endedJune 30, 2020 , driven by increased demand as well as inflation. Operating income increased$9.1 million and$13.7 million in the three and six months endedJune 30, 2021 as compared to the three and six months endedJune 30, 2020 largely driven by increased demand. Corporate and Eliminations Operating income increased$13.3 million , or 51%, in the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 and$10.5 million , or 19%, in the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 due to higher environmental remediation costs, partially offset by lower acquisition related and restructuring expense. 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 ofJune 30, 2021 andDecember 31, 2020 : (In millions) As of June 30, 2021 As of December 31, 2020 Cash and cash equivalents $ 616.2 $ 649.5 Revolving credit availability 351.6 279.9 Liquidity $ 967.8 $ 929.4 As ofJune 30, 2021 , approximately 80% of the Company's cash and cash equivalents resided outsidethe United States . Expected sources of cash needed to satisfy cash requirements for the remainder 2021 include our cash on hand, cash from operations and available liquidity under our revolving credit facility, if needed. Expected uses of cash for the remainder of 2021 include the acquisition ofMagna Colours Ltd. , integration costs related to the Clariant MB Acquisition, 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 six months endedJune 30, 2021 and 2020. 20AVIENT CORPORATION -------------------------------------------------------------------------------- Operating Activities - In the six months endedJune 30, 2021 , net cash provided by operating activities was$68.1 million as compared to net cash provided by operating activities of$76.0 million for the six months endedJune 30, 2020 , driven by increased working capital requirements to meet demand and no earnout liabilities paid during the six months endedJune 30, 2021 . Investing Activities - Net cash used by investing activities during the six months endedJune 30, 2021 of$44.1 million primarily reflects capital expenditures of$42.1 million . Net cash used by investing activities during the six months endedJune 30, 2020 of$9.0 million primarily reflects capital expenditures of$21.3 million , partially offset by the receipt of the working capital settlement of$7.1 million related to the PP&S divestiture, and$5.2 million cash proceeds from other assets. Financing Activities - Net cash used by financing activities for the six months endedJune 30, 2021 of$51.6 million primarily reflects$38.8 million of dividends paid, repurchases of our outstanding common shares of$4.2 million , and the payment of withholding tax on share awards of$4.2 million . Net cash provided by financing activities for the six months endedJune 30, 2020 of$1,049.8 million primarily reflects$496.1 million of net proceeds received from the issuance of common shares in an underwritten public offering that we completed inFebruary 2020 , and$640.8 million of net proceeds from the senior secured notes offering completed inMay 2020 , offset by$34.3 million of dividends paid, repurchases of our outstanding common shares of$13.6 million , and the payment of the Fiber-Line acquisition date earnout liability of$32.9 million . Debt As ofJune 30, 2021 , our principal amount of debt totaled$1,887.8 million . Aggregate maturities of the principal amount of debt for the current year, next four years and thereafter, are as follows: (In millions) 2021$ 16.0 2022 8.5 2023 608.6 2024 8.6 2025 658.7 Thereafter 587.4 Aggregate maturities$ 1,887.8 As ofJune 30, 2021 , we were in compliance with all customary 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. Contractual Obligations 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 six months endedJune 30, 2021 , there were no material changes to these obligations as reported in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 21AVIENT 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 polymer consumption growth rates and 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 achieve the anticipated financial benefit from initiatives related to acquisition and integration working capital reductions, cost reductions and employee productivity goals; •our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; •information systems failures and cyberattacks; •our ability to consummate and successfully integrate acquisitions; •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; and •other factors described in our Annual Report on Form 10-K for the year endedDecember 31, 2020 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 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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