AdvanSix Resins And Chemicals Business To Be Spun Off By Honeywell By Early 2017

It may sound like an alien planet, but Honeywell(HON) shareholders should prepare to see AdvanSix in their portfolios early next year. On the heels of a rebuffed and withdrawn offer for United Technologies(UTX), Honeywell has decided to slim down, announcing that it will spin off its Resin and Chemicals by early-2017. The new company which will be named AdvanSix, will have $1.3 billion in annual sales and will be an

independent, global, leading manufacturer of Nylon 6, a polymer resin used to produce engineered plastics, fibers, filaments, and films that, in turn, are used in end products such as automotive and electronic components, carpets, sports apparel, fishing nets, and food and industrial packaging. AdvanSix also produces Sulf-N^®ammonium sulfate fertilizers and chemical intermediates, including phenol, acetone, and Nadone^® cyclohexanone, and is the largest single-site producer of caprolactam.

Erin Kane, who is currently Vice President and General Manager of the Resins and Chemicals business will become President and Chief Executive Officer of AdvanSix. The company expects the spinoff will be tax-free to shareholders. Wasting no time, the company has already filed its form 10.

The company’s sales, profit and profitability have been declining, with the company earning just $68 million last year.

AdvanSix ProForma Financials

Sales had a particularly sharp decline last year. The company has not yet disclosed how much debt AdvanSix will have, but that would be an area to look out for in future filings.

A little more on the company, from the Form 10:

We are a leading manufacturer of Nylon 6, a polymer resin which is a synthetic material used by our customers to produce engineered plastics, fibers, filaments and films that, in turn, are used in such end-products as automotive and electronic components, carpets, sports apparel, fishing nets and food and industrial packaging. As a result of our backward integration and the configuration of our manufacturing facilities, we also sell the following other products, all of which are produced as part of the Nylon 6 resin manufacturing process:

• Caprolactam. Caprolactam is the key chemical compound used in the production of Nylon 6 resin. In recent years, approximately 50% of the caprolactam we have produced at our facility in Hopewell, Virginia has been shipped to our facility in Chesterfield, Virginia to manufacture Nylon 6 resin. We market and sell the caprolactam that is not consumed internally in Nylon 6 resin production to customers who manufacture polymer resins or use caprolactam to produce nylon fibers, films and other nylon products. Our Hopewell manufacturing facility is the world’s largest single-site producer of caprolactam as of December 31, 2015.

• Ammonium sulfate fertilizer. Ammonium sulfate fertilizer is a co-product of the caprolactam manufacturing process. Because of our Hopewell facility’s size and scale, we are the world’s largest single-site producer of ammonium sulfate fertilizer as of December 31, 2015. We market and sell ammonium sulfate fertilizer primarily to North American and South American resellers and customers who use the product to grow high-quality crops.

• Acetone and other intermediate chemicals. We manufacture, market and sell a number of other chemical co-products that are derived from the chemical processes within our integrated supply chain. Most significant is acetone which is used by our customers in the production of adhesives, paints, coatings, solvents, herbicides and other engineered plastic resins. Other intermediate chemicals that we manufacture, market and sell include phenol, alpha-methylstyrene (“AMS”), cyclohexanone, methyl ethyl ketoxime (“MEKO”), cyclohexanol, sulfuric acid, ammonia and carbon dioxide.

As shown on the following chart, our integrated manufacturing process uses three significant purchased raw materials: cumene, sulfur and natural gas.

Our integrated manufacturing process, scale and the quantity and range of our co-products make us one of the most efficient manufacturers in our industry. We consistently focus on and invest in improving production yields from our various manufacturing processes to build on our leading cost position. Our global logistics infrastructure supports our commercial mission by ensuring a reliable intraplant supply chain and consistent and timely delivery to our customers while maximizing our distribution resources and our operating efficiency. In addition, we strive to understand the product applications and end-markets into which our products are sold, which helps us upgrade the quality, chemical properties or packaging of our products in ways to attract price premiums and greater demand.

All of our manufacturing plants and operations are located in the United States. We serve approximately 500 customers globally located in more than 40 countries. For the years ended December 31, 2015, 2014 and 2013, we had sales of $1,301.5 million, $1,751.8 million and $1,724.7 million and net income of $68.1 million, $85.8 million and $121.8 million, respectively. For the years ended December 31, 2015, 2014 and 2013, our sales to customers located outside the United States were $356.5 million, $492.2 million and $523.6 million, respectively.

The following charts illustrate the breakdown of our sales by product category and by region, measured by the destination of each sale:

Disclosure: The author holds no shares in any stock mentioned

•	Caprolactam. Caprolactam is the key chemical compound used in the production of Nylon 6 resin. In recent years, approximately 50% of the caprolactam we have produced at our facility in Hopewell, Virginia has been shipped to our facility in Chesterfield, Virginia to manufacture Nylon 6 resin. We market and sell the caprolactam that is not consumed internally in Nylon 6 resin production to customers who manufacture polymer resins or use caprolactam to produce nylon fibers, films and other nylon products. Our Hopewell manufacturing facility is the world’s largest single-site producer of caprolactam as of December 31, 2015.
•	Ammonium sulfate fertilizer. Ammonium sulfate fertilizer is a co-product of the caprolactam manufacturing process. Because of our Hopewell facility’s size and scale, we are the world’s largest single-site producer of ammonium sulfate fertilizer as of December 31, 2015. We market and sell ammonium sulfate fertilizer primarily to North American and South American resellers and customers who use the product to grow high-quality crops.
•	Acetone and other intermediate chemicals. We manufacture, market and sell a number of other chemical co-products that are derived from the chemical processes within our integrated supply chain. Most significant is acetone which is used by our customers in the production of adhesives, paints, coatings, solvents, herbicides and other engineered plastic resins. Other intermediate chemicals that we manufacture, market and sell include phenol, alpha-methylstyrene (“AMS”), cyclohexanone, methyl ethyl ketoxime (“MEKO”), cyclohexanol, sulfuric acid, ammonia and carbon dioxide.

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