What changed in this filing

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Item 1. Financial Statements

2020-07-31 compared with 2020-05-01 · 135 added, 79 removed, 448 unchanged (32% of the section changed)

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Sales $ 233,022 $ 345,215 $ 535,735 $ 660,110

2 unchanged sentences

Selling, general and administrative expenses 17,911 20,009 34,651 39,422

Interest expense, net 1,887 1,328 3,846 2,434

Other non-operating expense (income), net 783 124 549 622

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Net income $ 11,429 $ 15,346 $ 20,005 $ 35,520

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200,000,000 shares authorized;

31,578,393 shares issued and 27,996,115 outstanding at March 31, 2020;

31,622,910 shares issued and 28,030,271 outstanding at June 30, 2020;

31,423,898 shares issued and 27,914,777 outstanding at December 31, 2019

Preferred stock, par value $ 0.01 ;

50,000,000 shares authorized and 0 shares issued and outstanding at March 31, 2020 and December 31, 2019

Treasury stock at par ( 3,582,278 shares at March 31, 2020;

50,000,000 shares authorized and 0 shares issued and outstanding at June 30, 2020 and December 31, 2019

Treasury stock at par ( 3,592,639 shares at June 30, 2020;

3,509,121 shares at December 31, 2019)

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(Dollars in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

6 unchanged sentences

Accretion of deferred financing fees 271 214

Restructuring charges — 12,623

Changes in assets and liabilities:

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Issuance of common stock 2 16

Net cash provided by (used for) financing activities 38,470 ( 3,982 )

Net cash provided by financing activities 89,187 12,372

Net change in cash and cash equivalents 65,613 7,249

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(Dollars in thousands)

Common Stock Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Equity

Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Equity

Shares Amount

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Balance at March 31, 2020 31,578,393 316 181,158 237,742 ( 36 ) ( 11,344 ) 407,836

Common Stock Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Equity

Net Income — — — 11,429 — — 11,429

Comprehensive income

Foreign exchange translation adjustments — — — — — — —

Cash-flow Hedges — — — — — ( 73 ) ( 73 )

Pension obligation adjustments — — — — — — —

Other comprehensive income (loss), net of tax — — — — — ( 73 ) ( 73 )

Issuance of common stock 44,517 — — — — — —

Purchase of treasury stock ( 10,361 shares)

— — ( 107 ) — — — ( 107 )

Stock-based compensation — — 1,702 — — — 1,702

Balance at June 30, 2020 31,622,910 $ 316 $ 182,753 $ 249,171 $ ( 36 ) $ ( 11,417 ) $ 420,787

ADVANSIX INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Dollars in thousands)

Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Equity

Shares Amount

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Balance at March 31, 2019 30,578,212 306 213,632 207,993 ( 20 ) ( 2,667 ) 419,244

Net Income — — — 15,346 — — 15,346

Comprehensive income

Foreign exchange translation adjustments — — — — — 4 4

Cash-flow Hedges — — — — — ( 429 ) ( 429 )

Pension obligation adjustments — — — — — — —

Other comprehensive income (loss), net of tax — — — — — ( 425 ) ( 425 )

Issuance of common stock 13,260 — — — — — —

Purchase of treasury stock ( 578,045 shares)

— — ( 16,408 ) — ( 6 ) — ( 16,414 )

Stock-based compensation — — 2,812 — — — 2,812

Balance at June 30, 2019 30,591,472 $ 306 $ 200,036 $ 223,339 $ ( 26 ) $ ( 3,092 ) $ 420,563

See accompanying notes to Condensed Consolidated Financial Statements.

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(“AdvanSix”, the “Company”, "we" or "our") is an integrated manufacturer of Nylon 6, a polymer resin which is a synthetic material used by our customers to produce fibers, filaments, engineered plastics and films that, in turn, are used in such end-products as carpets, automotive and electronic components, sports apparel, food packaging and other industrial applications.

As a result of our backward integration and the configuration of our manufacturing facilities, we also sell a variety of other products, all of which are produced as part of our integrated manufacturing value chain including caprolactam, ammonium sulfate fertilizers, acetone and other chemical intermediates.

As a result of our backward integration and the configuration of our manufacturing facilities, we also sell a variety of other products, all of which are produced within unit operations across our manufacturing value chain, including caprolactam, ammonium sulfate fertilizers, acetone and other chemical intermediates.

In March 2020, the World Health Organization categorized the novel coronavirus ("COVID-19") as a global pandemic with numerous countries around the world declaring national emergencies, including the United States.

Since early 2020, COVID-19 has spread rapidly, with most countries and territories worldwide with confirmed cases.

Since early 2020, COVID-19 has continued to spread rapidly, with most countries and territories worldwide having confirmed cases, and with certain jurisdictions experiencing resurgences.

The spread has resulted in authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns.

The pandemic and these containment measures have had, and are expected to continue to have, a substantial negative impact on businesses around the world and on global, regional and national economies, including disruptions to supply chains, reduced demand and production across most industries, declines and volatility within global financial markets and decreased workforces causing increased unemployment.

Department of Homeland Security has designated our industry as "essential critical infrastructure" during the response to COVID-19 for both public health and safety as well as community well-being and we are executing our business continuity plans to maintain operations and meet customer demand.

Although countries and regions are in various phases of re-opening, certain jurisdictions have returned to certain restrictions in light of new COVID-19 cases.

Department of Homeland Security designated our industry as "essential critical infrastructure" during the response to COVID-19 for both public health and safety as well as community well-being, and we continue to execute our business continuity plans to maintain operations and meet customer demand.

The Company continues to evaluate the potential impact of The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), enacted on March 27, 2020.

The CARES Act, and other government stimulus programs are intended to provide economic relief resulting from the COVID-19 pandemic and includes, but is not limited to, provisions for taxes, employment related costs, deferral of pension payments and options for liquidity.

The CARES Act, and other government stimulus programs are intended to provide economic relief resulting from the COVID-19 pandemic which includes, but is not limited to, provisions for taxes, employment related costs, deferral of pension payments and options for liquidity.

The Company’s Condensed Consolidated Financial Statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and reported amounts of revenue and expenses during the periods presented.

The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there were no material adverse impacts on the Company’s first quarter 2020 results of operations, however, it may have a material impact in the future on the Company's results of operations, financial position and liquidity.

In the second quarter of 2020, the Company experienced lower demand, resulting in a reduction of utilization rates and a decrease in overall sales volume compared to the prior year period, primarily related to global markets and the economic impact of COVID-19.

The situation surrounding COVID-19 remains fluid and unpredictable, and the potential for a continued material impact on the Company increases the longer the social and economic restrictions which impact the overall level of consumer and business activity in the United States and globally, remain in place or are reinstituted.

For this reason, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity.

Basis of Presentation

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GAAP for complete financial statements.

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of March 31, 2020, and its results of operations for the three months ended March 31, 2020 and 2019 and cash flows for the three months ended March 31, 2020 and 2019.

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of June 30, 2020, and its results of operations for the three and six months ended June 30, 2020 and 2019 and cash flows for the six months ended June 30, 2020 and 2019.

The year-end Condensed Consolidated Balance Sheet data were derived from audited financial statements but does not include all disclosures required by U.S.

The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year.

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year.

These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Form 10-K").

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Historically, the effects of this practice were generally not significant to reported results for any quarter and only existed within a reporting year.

In the event that differences in actual closing dates are material to year-over-year comparisons

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

of quarterly or year-to-date results, we will provide the appropriate disclosures.

Our actual closing dates for the three months ended March 31, 2020 and 2019 wer e March 28, 2020 and March 30, 2019, respe ctively.

Liabilities to creditors to whom we have issued checks that remained outstanding at March 31, 2020 and December 31, 2019 aggregated $ 0.3 million and $ 1.7 million, respectively, and were included in Cash and cash equivalents and Accounts payable in the Condensed Consolidated Balance Sheets.

In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, we will provide the appropriate disclosures.

Our actual closing dates for the three and six months ended June 30, 2020 and 2019 wer e June 27, 2020 and June 29, 2019, respe ctively.

Liabilities to creditors to whom we have issued checks that remained outstanding at June 30, 2020 and December 31, 2019 aggregated $ 2.1 million and $ 1.7 million, respectively, and were included in Cash and cash equivalents and Accounts payable in the Condensed Consolidated Balance Sheets.

On May 4, 2018, the Company announced that its Board of Directors (the “Board”) authorized a share repurchase program of up to $ 75 million of the Company’s common stock.

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The par value of the shares repurchased is applied to Treasury stock and the excess of the purchase price over par value is applied to Additional paid-in capital.

As of March 31, 2020, the Company had repurchased 3,582,278 shares of common stock, including 492,516 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $ 101.6 million at a weighted average market price of $ 28.36 per share.

As of March 31, 2020, $ 59.6 million remained available for share repurchases under the current authorization.

During the period April 1, 2020 through April 24, 2020, no additional shares were repurchased under the currently authorized repurchase program.

As of June 30, 2020, the Company had repurchased 3,592,639 shares of common stock, including 502,877 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $ 101.7 million at a weighted average market price of $ 28.31 per share.

As of June 30, 2020, $ 59.6 million remained available for share repurchases under the current authorization.

During the period July 1, 2020 through July 24, 2020, no additional shares were repurchased under the currently authorized repurchase program.

Recent Accounting Pronouncements

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GAAP when accounting for franchise taxes that are partially based on income, transactions with government resulting in a step-up in tax basis goodwill, separate financial statements of legal entities not subject to tax, and enacted changes in tax laws in interim periods.

Different transition approaches, retrospective, modified retrospective, or prospective, will apply to each income tax simplification provision.

Different transition

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

approaches, retrospective, modified retrospective, or prospective, will apply to each income tax simplification provision.

The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

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The Company adopted ASU 2018-13 effective January 1, 2020, which did not have a material impact on the Company's consolidated financial position or results of operations upon adoption.

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

In January 2017, the FASB issued ASU No.

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We serve approximately 400 customers annually in more than 40 countries and across a wide variety of industries.

For the three months ended March 31, 2020 and 2019, the Company's ten largest customers accounted for approximately 43 % and 48 % of total sales, respectively.

For the three months ended June 30, 2020 and 2019, the Company's ten largest customers accounted for approximately 50 % and 47 % of total sales, respectively.

For the six months ended June 30, 2020 and 2019, the Company's ten largest customers accounted for approximately 48 % and 46 % of total sales, respectively.

We typically sell to customers under master service agreements, with primarily one-year terms, or by purchase orders.

We have historically experienced low customer turnover and have an average customer relationship of approximately 20 years.

We have historically experienced low customer turnover and have long-standing customer relationships, which span decades.

Our largest customer is Shaw Industries Group Inc.

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We sell Nylon 6 resin and caprolactam to Shaw under a long-term agreement.

For the three months ended March 31, 2020 and 2019, our sales to Shaw were 17 % and 22 %, respectively, of our total sales.

Each of the Company’s product lines represented the following approximate percentage of total sales for the three months ended March 31, 2020 and 2019:

For the three months ended June 30, 2020 and 2019, our sales to Shaw were 17 % and 19 %, respectively, of our total sales.

For the six months ended June 30, 2020 and 2019, our sales to Shaw were 20 % and 21 %, respectively, of our total sales.

Each of the Company’s product lines represented the following approximate percentage of total sales for the three and six months ended June 30, 2020 and 2019:

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Nylon 22 % 27 % 24 % 29 %

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Chemical Intermediates 29 % 26 % 29 % 26 %

The Company's revenues by geographic area for the three months ended March 31, 2020 and 2019 were as follows:

100 % 100 % 100 % 100 %

The Company's revenues by geographic area for the three and six months ended June 30, 2020 and 2019 were as follows:

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

United States $ 176,313 $ 289,551 $ 406,756 $ 547,193

1 unchanged sentence

Total $ 233,022 $ 345,215 $ 535,735 $ 660,110

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

Deferred Income and Customer Advances

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Customer advances relate primarily to sales from the ammonium sulfate business.

Below is a roll-forward of Deferred income and customer advances for the three months ended March 31, 2020:

Below is a roll-forward of Deferred income and customer advances for the six months ended June 30, 2020:

Opening balance January 1, 2020 $ 19,696

Additions to deferred revenues 678

Additions to deferred income and customer advances 4,220

Less amounts recognized in revenues ( 18,653 )

Ending balance March 31, 2020 $ 13,070

The Company expects to recognize as revenue the March 31, 2020 ending balance of Deferred income and customer advances within one year or less.

Ending balance June 30, 2020 $ 5,263

The Company expects to recognize as revenue the June 30, 2020 ending balance of Deferred income and customer advances within one year or less.

Earnings Per Share

The computation of basic and diluted earnings per share ("EPS") is based on Net income divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively.

The details of the basic and diluted EPS calculations for the three months ended March 31, 2020 and 2019 were a s follows:

The details of the basic and diluted EPS calculations for the three and six months ended June 30, 2020 and 2019 were a s follows:

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Net Income $ 11,429 $ 15,346 $ 20,005 $ 35,520

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The diluted EPS calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price of the common shares during the period.

The anti-dilutive common stock equivalents outstanding at the three months ended March 31, 2020 and 2019 were as follows:

Three Months Ended

Options and stock equivalents 935,402 330,823

The anti-dilutive common stock equivalents outstanding at the three and six months ended June 30, 2020 and 2019 were as follows:

ADVANSIX INC.

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(Dollars in thousands, except share and per share amounts and as otherwise noted)

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Options and stock equivalents 1,369,522 539,054 1,152,462 434,939

Accounts and Other Receivables – Net

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Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Service cost $ 2,005 $ 1,714 $ 4,010 $ 3,427

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Net periodic benefit cost $ 2,025 $ 1,901 $ 4,049 $ 3,801

The Company made contributions to the defined benefit pension plan of $ 1.7 million during the three months ended March 31, 2020.

The Company currently plans to make pension plan contributions during 2020 sufficient to satisfy pension funding requirements under the AdvanSix Retirement Earnings Plan in an aggregate amount of approximately $ 5 to $ 10 million and will continue to evaluate options afforded under the CARES Act with respect to the deferral of pension plan contributions for calendar year 2020.

The Company made cash contributions to the defined benefit pension plan of $ 1.7 million during the six months ended June 30, 2020 with $ 1.7 million in the first quarter of 2020 and no contributions in the second quarter of 2020.

The Company currently plans to make pension plan contributions during 2020 sufficient to satisfy pension funding requirements under the AdvanSix Retirement Earnings Plan in an aggregate amount of approximately $ 7 million to $ 9 million and will continue to evaluate options afforded under the CARES Act with respect to the deferral of pension plan contributions for calendar year 2020.

We anticipate making additional contributions in future years sufficient to satisfy pension funding requirements in those periods.

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Long-term Debt and Credit Agreement

At March 31, 2020, the Company assessed the amount recorded under the Revolving Credit Facility (defined below) and determined that such amounts approximate fair value.

Since a floating rate interest is applied to all borrowings from our Revolving Credit Facility, the fair value of our debt closely approximates the carrying value and is therefore classified as Level 2 within the valuation hierarchy.

ADVANSIX INC.

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(Dollars in thousands, except share and per share amounts and as otherwise noted)

At June 30, 2020, the Company assessed the amount recorded under the Revolving Credit Facility (defined below) and determined that such amounts approximate fair value.

Credit Agreement

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The First Amended and Restated Credit Agreement contained customary covenants limiting the ability of the Company and its subsidiaries to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock of the Company, enter into transactions with affiliates, make investments, make capital expenditures, merge or consolidate with others or dispose of assets.

The First Amended and Restated Credit Agreement also contained financial covenants that required the Company to maintain a Consolidated Interest Coverage Ratio (as defined in the First Amended and Restated Credit Agreement) of not less than 3.00 to 1.00 and to maintain a Consolidated Leverage Ratio of (i) 3.50 to 1.00 or less for the fiscal quarter ending March 31, 2018, through and including the fiscal quarter ending December 31, 2019, (ii) 3.25 to 1.00 or less for the fiscal quarter ending March 31, 2020, through and including the fiscal quarter ending December 31, 2020, (iii) 3.00 to 1.00 or less for the fiscal quarter ending March 31, 2021, through and including the fiscal quarter ending December 31, 2021, and (iv) 2.75 to 1.00 or less for the fiscal quarter ending March 31, 2022 and each fiscal quarter thereafter (subject to the Company’s option to elect a consolidated leverage ratio increase in connection with certain acquisitions).

If the Company did not comply with the covenants in the First Amended and Restated Credit Agreement, the lenders could have, subject to customary cure rights, required the immediate payment of all amounts outstanding under the Revolving Credit Facility.

The Company was compliant with all related covenants at December 31, 2019.

ADVANSIX INC.

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(Dollars in thousands, except share and per share amounts and as otherwise noted)

consolidated leverage ratio increase in connection with certain acquisitions).

The Company was in compliance with all related covenants at December 31, 2019.

On February 19, 2020, the Company entered into Amendment No.

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If the Company does not comply with the covenants in the Second Amended and Restated Credit Agreement, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding under the Revolving Credit Facility.

The Company was in compliance with all related covenants at June 30, 2020.

Borrowings under the Second Amended and Restated Credit Agreement bear interest at a rate equal to either the sum of a base rate plus a margin ranging from 0.50 % to 2.00 % or the sum of a Eurodollar rate plus a margin ranging from 1.50 % to 3.00 %, with either such margin varying according to the Company’s Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement).

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The obligations under the Second Amended and Restated Credit Agreement are secured by a pledge of assets and liens on substantially all of the assets of AdvanSix.

Since the start of 2020, the Company has since borrowed an incremental $ 133.5 million for working capital purposes under the Revolving Credit Facility and repaid $ 93.5 million to bring the balance under the Revolving Credit Facility to $ 337 million at March 31, 2020.

The Company had approximately $ 1.0 million of letter of credit agreements outstanding under the Revolving Credit Facility at March 31, 2020, as well as an immaterial amount associated with bilateral letters of credit outside the Revolving Credit Facility.

Since the start of 2020, the Company has borrowed an incremental $ 219.5 million for liquidity and working capital purposes under the Revolving Credit Facility and repaid $ 128.5 million to bring the balance under the Revolving Credit Facility to $ 388.0 million at June 30, 2020.

The Company had approximately $ 1.0 million of letter of credit agreements outstanding under the Revolving Credit Facility at June 30, 2020, as well as an immaterial amount associated with bilateral letters of credit outside the Revolving Credit Facility.

We determine if an arrangement is a lease at inception.

Operating leases are included in Operating lease right-of-use assets, Operating lease liabilities – short-term, and Operating lease liabilities – long-term in our Condensed Consolidated Balance Sheets.

Operating leases are included in Operating lease right-of-use assets ("ROU"), Operating lease liabilities – short-term, and Operating lease liabilities – long-term in our Condensed Consolidated Balance Sheets.

Finance leases are included in Property, plant and equipment – net, Accounts payable, and Other liabilities in our Condensed Consolidated Balance Sheets.

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The operating lease ROU asset also includes any lease pre-payments made and excludes lease incentives.

Our lease terms may include options to extend or terminate the lease and, when it is reasonably certain that such an option will be exercised, it is included in the determination of the corresponding assets and liabilities.

Our lease terms may include options to extend or terminate the lease and, when it

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

is reasonably certain that such an option will be exercised, it is included in the determination of the corresponding assets and liabilities.

Short-term leases are not recognized on our unaudited Condensed Consolidated Balance Sheets.

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Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

The Company has entered into agreements to lease transportation equipment, storage facilities, office space, dock access and other equipment.

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The components of lease expense were as follows:

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020

Finance lease cost:

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Supplemental cash flow information related to leases was as follows:

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

Cash paid for amounts included in the measurement of lease liabilities:

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One provision included in the CARES Act allows for a five-year carryback of Federal net operating losses (NOLs) generated in tax years beginning in 2018, 2019 and 2020.

At this point, the Company anticipates filing its 2019 federal income tax return with a net operating loss, on a tax basis, which now may be carried back to earlier years to request a refund of previously paid taxes.

As such, we have recorded the estimated impact of the federal NOL carryback in the quarterly financial results, which includes an $ 8.0 million reclassification from Deferred income taxes to Taxes receivable.

However, we have not yet filed our 2019 federal income tax return and continue to evaluate the impact of the CARES Act on our tax positions, which may result in a change to our estimate.

The Company finalized its 2019 U.S.

federal income tax return which reflected a net operating loss, on a tax basis, and certain tax credits which were carried back to earlier tax years.

This carryback claim reflected a refund of previously paid taxes in the amount of $ 12.2 million.

As such, in the second quarter, we recorded a true up between the actual impact of the federal carryback compared to the estimated impact which was recorded in the first quarter of 2020.

This true up resulted in an increase of $ 4.2 million recorded in Taxes receivable compared with the $ 8.0 million previously recorded in the first quarter.

The Company’s provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against Income before taxes for the period in addition to recording any tax effects of discrete items for the quarter.

For interim reporting purposes, the Company recorded Income tax expense of $ 0.6 million as discrete items.

The discrete items relate to tax deficiencies on vesting of equity compensation in the quarter and the expected loss of 2018 foreign-derived intangible income tax benefits resulting from the anticipated Federal NOL carryback under the CARES Act.

The provision for income taxes was $ 3.7 million and $ 6.8 million for the three months ended March 31, 2020 and 2019, respectively.

The Company recorded a net Income tax benefit of $ 1.1 million as discrete items for the quarter ended June 30, 2020, and a net Income tax benefit of $ 0.6 million as discrete items for the six months ended June 30, 2020.

The year to date discrete items relate to the impact of the CARES Act, additional research tax credits claimed on the Company's 2019 U.S.

federal income tax return affecting the current period results, tax deficiencies on vesting of equity compensation and the impact of changes in the Company's geographical sales mix on state tax.

Additionally, in the quarter ended June 30, 2020, we recorded a liability for unrecognized tax benefits, in the amount of $ 3.8 million, all of which, if recognized, would impact our effective tax rate.

As of June 30, 2020, we have not recorded any interest and penalties associated with uncertain tax positions.

The provision for income taxes was $ 2.3 million and $ 5.3 million for the three months ended June 30, 2020 and 2019, respectively.

Fair Value Measurements

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The purchase price of the royalty stream for $ 1.0 million approximated its fair value at December 31, 2018 and is considered a Level 3 asset.

The fair value measurement is based on the expected future cash flows and, as there is no reason to believe that the asset is impaired, it is assumed that the valuation remains unchanged at March 31, 2020.

In November 2018 and July 2019, the Company entered into two interest rate swap transactions related to its credit agreement.

The fair value of the interest rate swaps at March 31, 2020 was a loss of approximately $ 4.2 million and is considered a Level 2 liability.

The fair value of the interest rate swaps at June 30, 2020 was a loss of approximately $ 4.3 million and is considered a Level 2 liability.

The pension plan assets are invested in collective investment trust funds.

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These assets are evaluated when certain triggering events occur (including a decrease in estimated future cash flows) that indicate the asset should be evaluated for impairment which could result in such assets being measured at fair value.

Goodwill and indefinite lived intangible assets must be evaluated at least annually.

Our annual evaluation occurred on March 31, 2020 and we have concluded that an impairment for goodwill or indefinite-lived intangible assets did no t occur.

Goodwill must be evaluated at least annually.

Our annual evaluation occurred on March 31, 2020 and we have concluded that an impairment for goodwill did no t occur.

ADVANSIX INC.

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The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer.

The Company did not have any customers accounting for a significant percentage of trade accounts receivable - net at March 31, 2020, or December 31, 2019.

The Company did not have any customers accounting for a significant percentage of trade accounts receivable - net at June 30, 2020, or December 31, 2019.

Allowance for doubtful accounts is calculated based upon the Company's estimate of expected credit losses over the life of exposure based upon both historical information as well as future expected losses.

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Forward commodity contracts are marked-to-market, with the resulting gains and losses recognized in earnings, in the same category as the items being hedged, when the hedged transaction is recognized.

At March 31, 2020 and 2019, we had no financial contracts related to forward commodity agreements.

At June 30, 2020 and 2019, we had no financial contracts related to forward commodity agreements.

Interest Rate Risk Management – The Company has entered into two interest rate swap agreements for a total notional amount of $ 100 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings.

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Liability Derivatives

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Balance Sheet Classification Fair Value Balance Sheet Classification Fair Value

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Fair value adjustment ( 2,545 )

Loss on derivative instruments included in Accumulated other comprehensive income at March 31, 2020 $ ( 4,166 )

At March 31, 2020, the Company expects to reclassify approximately $ 2.0 million of net losses on derivative instruments from Accumulated other comprehensive income to earnings during the next 12 months due to the payment of variable interest associated with the floating rate debt.

Loss on derivative instruments included in Accumulated other comprehensive income at June 30, 2020 $ ( 4,263 )

At June 30, 2020, the Company expects to reclassify approximately $ 2.3 million of net losses on derivative instruments from Accumulated other comprehensive income to earnings during the next 12 months due to the payment of variable interest associated with the floating rate debt.

Restructuring

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These costs are included in Costs of goods sold in the Condensed Consolidated Statements of Operations.

The Company recorded a restructuring charge of $ 11.0 million in 2019.

As of March 31, 2020, all related restructuring liabilities have been paid.

The following table summarizes the components of restructuring activities and the remaining balances of accrued restructuring charges as of March 31, 2020:

The Company recorded a restructuring charge of $ 12.6 million in the second quarter of 2019 which was reduced to $ 11.0 million in the fourth quarter of 2019.

As of June 30, 2020, all related restructuring liabilities have been paid.

The following table summarizes the components of restructuring activities and the remaining balances of accrued restructuring charges as of June 30, 2020:

Employee Separation Benefits Facility Exit Costs Total

2 unchanged sentences

Cash payments ( 127 ) ( 410 ) ( 537 )

Accrual balance at March 31, 2020 $ — $ — $ —

Accrual balance at June 30, 2020

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements