AdvanSix Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS ADVANSIX INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except share and per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Sales $ 281,910 $ 310,633 $ 817,644 $ 970,743 Costs, expenses and other: Costs of goods sold 265,758 280,123 736,504 850,131 Selling, general and administrative expenses 16,177 19,261 50,827 58,683 Interest expense, net 1,981 1,293 5,827 3,727 Other non-operating expense (income), net ( 334 ) 522 216 1,144 Total costs, expenses and other 283,582 301,199 793,374 913,685 Income (loss) before taxes ( 1,672 ) 9,434 24,270 57,058 Income tax expense (benefit) ( 980 ) 1,513 4,957 13,617 Net income (loss) $ ( 692 ) $ 7,921 $ 19,313 $ 43,441 Earnings (loss) per common share Basic $ ( 0.02 ) $ 0.29 $ 0.69 $ 1.54 Diluted $ ( 0.02 ) $ 0.28 $ 0.69 $ 1.49 Weighted average common shares outstanding Basic 28,079,937 27,608,985 28,037,651 28,192,760 Diluted 28,079,937 28,581,451 28,092,712 29,164,024 See accompanying notes to Condensed Consolidated Financial Statements. 3 ADVANSIX INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Net income (loss) $ ( 692 ) $ 7,921 $ 19,313 $ 43,441 Foreign exchange translation adjustment ( 10 ) ( 20 ) ( 67 ) ( 17 ) Cash-flow hedges 346 ( 439 ) ( 1,563 ) ( 1,060 ) Other comprehensive income (loss), net of tax 336 ( 459 ) ( 1,630 ) ( 1,077 ) Comprehensive income (loss) $ ( 356 ) $ 7,462 $ 17,683 $ 42,364 See accompanying notes to Condensed Consolidated Financial Statements. 4 ADVANSIX INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except share and per share amounts) September 30, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 16,686 $ 7,050 Accounts and other receivables – net 97,101 104,613 Inventories – net 173,873 171,710 Taxes receivable 13,807 2,047 Other current assets 7,096 5,117 Total current assets 308,563 290,537 Property, plant and equipment – net 765,125 755,881 Operating lease right-of-use assets 110,360 135,985 Goodwill 15,005 15,005 Other assets 36,079 38,561 Total assets $ 1,235,132 $ 1,235,969 LIABILITIES Current liabilities: Accounts payable $ 179,652 $ 205,911 Accrued liabilities 35,610 28,114 Operating lease liabilities – short-term 31,724 38,005 Deferred income and customer advances 6,176 19,696 Total current liabilities 253,162 291,726 Deferred income taxes 121,445 110,071 Operating lease liabilities – long-term 79,085 98,347 Line of credit – long-term 313,000 297,000 Postretirement benefit obligations 36,783 32,410 Other liabilities 10,623 5,537 Total liabilities 814,098 835,091 COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS' EQUITY Common stock, par value $ 0.01 ; 200,000,000 shares authorized; 31,622,910 shares issued and 28,030,271 outstanding at September 30, 2020; 31,423,898 shares issued and 27,914,777 outstanding at December 31, 2019 316 314 Preferred stock, par value $ 0.01 ; 50,000,000 shares authorized and 0 shares issued and outstanding at September 30, 2020 and December 31, 2019 — — Treasury stock at par ( 3,592,639 shares at September 30, 2020; 3,509,121 shares at December 31, 2019) ( 36 ) ( 35 ) Additional paid-in capital 183,356 180,884 Retained earnings 248,479 229,166 Accumulated other comprehensive loss ( 11,081 ) ( 9,451 ) Total stockholders' equity 421,034 400,878 Total liabilities and stockholders' equity $ 1,235,132 $ 1,235,969 See accompanying notes to Condensed Consolidated Financial Statements. 5 ADVANSIX INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net income $ 19,313 $ 43,441 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 45,061 42,094 Loss on disposal of assets 143 4,967 Deferred income taxes 11,895 9,149 Stock based compensation 3,503 7,575 Accretion of deferred financing fees 412 320 Restructuring charges — 12,623 Changes in assets and liabilities: Accounts and other receivables 7,445 51,170 Inventories ( 2,163 ) ( 26,739 ) Taxes receivable ( 11,760 ) ( 34 ) Accounts payable ( 9,939 ) ( 12,844 ) Accrued liabilities 7,776 ( 4,470 ) Deferred income and customer advances ( 13,520 ) ( 20,608 ) Other assets and liabilities 5,920 ( 6,108 ) Net cash provided by operating activities 64,086 100,536 Cash flows from investing activities: Expenditures for property, plant and equipment ( 67,563 ) ( 106,386 ) Other investing activities ( 898 ) ( 2,203 ) Net cash used for investing activities ( 68,461 ) ( 108,589 ) Cash flows from financing activities: Borrowings from line of credit 268,500 316,750 Payments of line of credit ( 252,500 ) ( 250,750 ) Payment of line of credit facility fees ( 425 ) — Principal payments of finance leases ( 534 ) ( 4,656 ) Purchase of treasury stock ( 1,032 ) ( 53,067 ) Issuance of common stock 2 16 Net cash provided by financing activities 14,011 8,293 Net change in cash and cash equivalents 9,636 240 Cash and cash equivalents at beginning of period 7,050 9,808 Cash and cash equivalents at the end of period $ 16,686 $ 10,048 Supplemental non-cash investing activities: Capital expenditures included in accounts payable $ 5,802 $ 27,344 Supplemental cash activities: Cash paid for interest $ 4,493 $ 3,519 Cash paid for income taxes $ 1,501 $ 6,949 See accompanying notes to Condensed Consolidated Financial Statements. 6 ADVANSIX INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Dollars in thousands) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Equity Shares Amount Balance at December 31, 2019 31,423,898 $ 314 $ 180,884 $ 229,166 $ ( 35 ) $ ( 9,451 ) $ 400,878 Net Income — — — 8,576 — — 8,576 Comprehensive income Foreign exchange translation adjustments — — — — — ( 57 ) ( 57 ) Cash-flow Hedges — — — — — ( 1,836 ) ( 1,836 ) Pension obligation adjustments — — — — — — — Other comprehensive income (loss), net of tax — — — — — ( 1,893 ) ( 1,893 ) Issuance of common stock 154,495 2 — — — — 2 Purchase of treasury stock ( 73,157 shares) — — ( 924 ) — ( 1 ) — ( 925 ) Stock-based compensation — — 1,198 — — — 1,198 Balance at March 31, 2020 31,578,393 316 181,158 237,742 ( 36 ) ( 11,344 ) 407,836 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 Net Loss — — — ( 692 ) — — ( 692 ) Comprehensive income Foreign exchange translation adjustments — — — — — ( 10 ) ( 10 ) Cash-flow Hedges — — — — — 346 346 Pension obligation adjustments — — — — — — — Other comprehensive income (loss), net of tax — — — — — 336 336 Issuance of common stock — — — — — — — Purchase of treasury stock ( 0 shares) — — — — — — — Stock-based compensation — — 603 — — — 603 Balance at September 30, 2020 31,622,910 $ 316 $ 183,356 $ 248,479 $ ( 36 ) $ ( 11,081 ) $ 421,034 7 ADVANSIX INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Dollars in thousands) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Equity Shares Amount Balance at December 31, 2018 30,555,715 $ 306 $ 234,699 $ 187,819 $ ( 12 ) $ ( 2,474 ) $ 420,338 Net Income — — — 20,174 — — 20,174 Comprehensive income Foreign exchange translation adjustments — — — — — ( 1 ) ( 1 ) Cash-flow Hedges — — — — — ( 192 ) ( 192 ) Pension obligation adjustments — — — — — — — Other comprehensive income (loss), net of tax — — — — — ( 193 ) ( 193 ) Issuance of common stock 22,497 — 16 — — — 16 Purchase of treasury stock ( 793,754 shares) — — ( 23,845 ) — ( 8 ) — ( 23,853 ) Stock-based compensation — — 2,762 — — — 2,762 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 Net Income — — — 7,921 — — 7,921 Comprehensive income Foreign exchange translation adjustments — — — — — ( 20 ) ( 20 ) Cash-flow Hedges — — — — — ( 439 ) ( 439 ) Pension obligation adjustments — — — — — — — Other comprehensive income (loss), net of tax — — — — — ( 459 ) ( 459 ) Issuance of common stock 9,236 — — — — — — Purchase of treasury stock ( 537,033 shares) — — ( 12,795 ) — ( 5 ) — ( 12,800 ) Stock-based compensation — — 2,001 — — — 2,001 Balance at September 30, 2019 30,600,708 $ 306 $ 189,242 $ 231,260 $ ( 31 ) $ ( 3,551 ) $ 417,226 See accompanying notes to Condensed Consolidated Financial Statements. 8 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) 1. Organization, Operations and Basis of Presentation Description of Business AdvanSix Inc. (“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 within unit operations across our manufacturing value chain, including caprolactam, ammonium sulfate fertilizers, acetone and other chemical intermediates. COVID-19 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 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. 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. The U.S. 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 which includes, but is not limited to, provisions for taxes, employment related costs, deferral of pension payments and options for liquidity. See "Note 11. Income Taxes" below for a further discussion of the CARES Act. 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 was no material impact on the Company’s first quarter 2020 results of operations. In the second quarter of 2020, the Company experienced lower demand, resulting in a reduction of plant 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. During the third quarter, the Company experienced an improvement of demand to approximately pre-COVID-19 levels. 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 The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. 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 September 30, 2020, and its results of operations for the three and nine months ended 9 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) September 30, 2020 and 2019 and cash flows for the nine months ended September 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. GAAP. 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. 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"). All intercompany transactions have been eliminated. Certain prior period amounts have been reclassified for consistency with the current period presentation. It is our practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires our businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on our business processes. 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 of quarterly or year-to-date results, we will provide the appropriate disclosures. Our actual closing dates for the three and nine months ended September 30, 2020 and 2019 wer e September 26, 2020 and September 28, 2019, respe ctively. Liabilities to creditors to whom we have issued checks that remained outstanding at September 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. On February 22, 2019, the Company announced that the Board authorized a share repurchase program of up to an additional $ 75 million of the Company's common stock , which was in addition to the remaining capacity available under the May 2018 share repurchase program. Repurchases may be made from time to time on the open market, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The share repurchase program has no expiration date and may be modified, suspended or discontinued at any time. 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 September 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 September 30, 2020, $ 59.6 million remained available for share repurchases under the current authorization. During the period October 1, 2020 through October 23, 2020, no additional shares were repurchased under the currently authorized repurchase program. 2. Recent Accounting Pronouncements The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations. On August 5, 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in the ASU remove certain separation models for convertible debt instruments and convertible preferred stock that require the separation of a convertible debt instrument into a debt component and an equity or derivative component. Therefore, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in-capital. This will result in more convertible debt instruments being accounted for as a single liability measured at its amortized cost and more convertible preferred stock being accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. The ASU also amends the derivative scope exception guidance for contracts in an entity’s own equity. The amendments remove three settlement conditions that are required for equity contracts to qualify for the derivative scope exception. The guidance is effective for public business entities for fiscal years, and interim terms within those fiscal years, beginning after December 15, 2021. Early adoption of the amendments in this update is permitted, but no earlier than fiscal years, including interim periods within those fiscal years, beginning after December 15, 2020. The Company is evaluating the impact that the amendments of this standard would have on the Company's consolidated financial position or results of operations upon adoption. 10 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments of ASU No. 2020-04 are effective for companies as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The amendments in this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The Company is evaluating the impact that the amendments of this standard would have on the Company's consolidated financial position or results of operations upon adoption. On December 18, 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes the exception to the general principles in ASC 740, Income Taxes, associated with the incremental approach for intra-period tax allocation, accounting for basis differences when there are ownership changes in foreign investments and interim-period income tax accounting for year-to-date losses that exceed anticipated losses. In addition, the ASU improves the application of income tax related guidance and simplifies U.S. 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. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments in this update is permitted, including adoption in any interim period. The Company is evaluating these changes and does not anticipate any material impact on the Company’s consolidated financial position or results of operations upon adoption. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments of ASU No. 2018-13 are effective for companies for fiscal years beginning after December 15, 2019. 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. In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates step 2, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill, from the goodwill impairment test. The amendments of ASU No. 2017-04 are effective for companies for fiscal years beginning after December 15, 2019 and requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. The Company adopted ASU 2017-04 effective January 1, 2020, which did not have a material impact on the Company's consolidated financial position or results of operations upon adoption. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments of ASU No. 2016-13 are effective for companies for fiscal years beginning after December 15, 2019 and modify existing guidance related to the measurement of credit losses on financial instruments, including trade and loan receivables. The new guidance requires impairments to be measured based on expected losses over the life of the asset rather than incurred losses. The Company adopted ASU 2016-13 effective January 1, 2020, using a modified retrospective approach, which did not have a material impact on the Company's consolidated financial position or results of operations upon adoption. 3. Revenues Revenue Recognition We serve approximately 400 customers annually in more than 50 countries and across a wide variety of industries. For the three months ended September 30, 2020 and 2019, the Company's ten largest customers accounted for approximately 48 % and 51 % of total sales, respectively. For the nine months ended September 30, 2020 and 2019, the Company's ten largest customers accounted for approximately 43 % and 47 % 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 long-standing customer relationships, which span decades. Our largest 11 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) customer is Shaw Industries Group Inc. (“Shaw”), a significant consumer of caprolactam and Nylon 6 resin, to whom we sell under a long-term agreement. For the three months ended September 30, 2020 and 2019, our sales to Shaw were 14 % and 23 %, respectively, of our total sales. For the nine months ended September 30, 2020 and 2019, our sales to Shaw were 13 % 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 nine months ended September 30, 2020 and 2019: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Nylon 26 % 25 % 25 % 28 % Caprolactam 18 % 26 % 18 % 22 % Ammonium Sulfate Fertilizers 22 % 20 % 26 % 23 % Chemical Intermediates 34 % 29 % 31 % 27 % 100 % 100 % 100 % 100 % The Company's revenues by geographic area for the three and nine months ended September 30, 2020 and 2019 were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 United States $ 217,062 $ 250,056 $ 623,817 $ 797,249 International 64,848 60,577 193,827 173,494 Total $ 281,910 $ 310,633 $ 817,644 $ 970,743 Deferred Income and Customer Advances The Company defers revenues when cash payments are received in advance of our performance. Customer advances relate primarily to sales from the ammonium sulfate business. Below is a roll-forward of Deferred income and customer advances for the nine months ended September 30, 2020: Opening balance January 1, 2020 $ 19,696 Additions to deferred income and customer advances 9,673 Less amounts recognized in revenues ( 23,193 ) Ending balance September 30, 2020 $ 6,176 The Company expects to recognize as revenue the September 30, 2020 ending balance of Deferred income and customer advances within one year or less. 4. Earnings (Loss) Per Share The computation of basic and diluted earnings (loss) 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 and nine months ended September 30, 2020 and 2019 were a s follows: 12 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Basic Net Income (loss) $ ( 692 ) $ 7,921 $ 19,313 $ 43,441 Weighted average common shares outstanding 28,079,937 27,608,985 28,037,651 28,192,760 EPS – Basic $ ( 0.02 ) $ 0.29 $ 0.69 $ 1.54 Diluted Dilutive effect of equity awards and other stock-based holdings — 972,466 55,061 971,264 Weighted average common shares outstanding 28,079,937 28,581,451 28,092,712 29,164,024 EPS – Diluted $ ( 0.02 ) $ 0.28 $ 0.69 $ 1.49 Diluted EPS is computed based upon the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents (which includes units allocated to the AdvanSix stock unit fund under the AdvanSix Inc. Deferred Compensation Plan) using the treasury stock method and the average market price of our common stock for the year. 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 and nine months ended September 30, 2020 and 2019 were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Options and stock equivalents 890,484 658,327 1,042,020 509,401 5. Accounts and Other Receivables – Net September 30, 2020 December 31, 2019 Accounts receivables $ 96,252 $ 105,275 Other 2,291 1,661 Total accounts and other receivables 98,543 106,936 Less – allowance for doubtful accounts ( 1,442 ) ( 2,323 ) Total accounts and other receivables – net $ 97,101 $ 104,613 6. Inventories September 30, 2020 December 31, 2019 Raw materials $ 80,038 $ 63,644 Work in progress 56,921 56,065 Finished goods 46,218 58,527 Spares and other 26,105 25,035 209,282 203,271 Reduction to LIFO cost basis ( 35,409 ) ( 31,561 ) Total inventories – net $ 173,873 $ 171,710 7. Postretirement Benefit Cost The components of Net periodic benefit cost of the Company’s pension plan are as follows: 13 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Service cost $ 2,005 $ 1,714 $ 6,016 $ 5,141 Interest cost 544 521 1,631 1,563 Expected return on plan assets ( 524 ) ( 334 ) ( 1,573 ) ( 1,002 ) Net periodic benefit cost $ 2,025 $ 1,901 $ 6,074 $ 5,702 The Company made cash contributions to the defined benefit pension plan of $ 1.7 million during the nine months ended September 30, 2020 with $ 1.7 million in the first quarter of 2020 and no contributions in the second or third quarters of 2020. The Company made an additional cash contribution of $ 6.4 million in the fourth quarter of 2020 for a total of $ 8.1 million for the full year of 2020. The Company does not anticipate making any further contributions for the remainder of 2020 but anticipates making additional contributions in future years sufficient to satisfy pension funding requirements in those periods. The pension plan assets are invested through a master trust fund. The strategic asset allocation for the trust fund is selected by the Company's Investment Committee reflecting the results of comprehensive asset and liability modeling. The Investment Committee establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. 8. Long-term Debt and Credit Agreement At September 30, 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. Credit Agreement On September 30, 2016, in connection with the consummation of the Spin-Off, the Company as the borrower, entered into a Credit Agreement with Bank of America, as administrative agent (the “Original Credit Agreement”). The Original Credit Agreement consisted of a $ 270 million term loan (the “Original Term Loan”) and a $ 155 million revolving loan facility (the “Original Revolving Credit Facility”). The Original Revolving Credit Facility included a $ 25 million letter-of-credit sub-facility and a $ 20 million Swing-Line Loan sub-facility, issuances against which reduce the available capacity for borrowing. On February 21, 2018 (the “First Amendment Date”), the Company entered into Amendment No. 1 (the “First Amendment”) to the Credit Agreement among the Company, the guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent (the Original Credit Agreement, after giving effect to the First Amendment, the “First Amended and Restated Credit Agreement”). As discussed above, the credit facilities under the Original Credit Agreement consisted of a senior secured term loan in an aggregate principal amount of $ 270 million, of which $ 267 million was outstanding just prior to entering into the First Amendment, and a senior secured revolving credit facility in a principal amount of $ 155 million. Pursuant to the First Amendment, (i) the term loan facility under the Original Credit Agreement was terminated and the entire outstanding balance of the term loan facility (the “Term Loan”) thereunder was paid in full and (ii) the maximum aggregate principal amount of the senior secured revolving credit facility (the “Revolving Credit Facility”) was increased to $ 425 million. On the First Amendment Date, the Company borrowed $ 242 million under the Revolving Credit Facility. The proceeds of such loans, as well as cash on hand, were used to repay the outstanding Term Loan under the Original Credit Agreement. The Revolving Credit Facility under the First Amended and Restated Credit Agreement has a 5 -year term with a scheduled maturity date of February 21, 2023. The First Amendment resulted in an increase in the Revolving Credit Facility to replace the Term Loan and provided increased borrowing flexibility and reduced overall borrowing costs with an approximate 50 basis point reduction in the interest rate spread. The First Amended and Restated Credit Agreement permits the Company to utilize up to $ 40 million of the Revolving Credit Facility for the issuance of letters of credit and up to $ 40 million for swing line loans. The Company has the option to incur 14 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) incremental term loans and/or increase the amount of the Revolving Credit Facility in an aggregate principal amount for all such incremental term loans and increases of the Revolving Credit Facility of up to the sum of (x) $ 175 million plus (y) an amount such that the Company’s Consolidated Senior Secured Leverage Ratio (as defined in the First Amended and Restated Credit Agreement) would not be greater than 1.75 to 1.00, in each case, to the extent that any one or more lenders, whether or not currently party to the First Amended and Restated Credit Agreement, commits to be a lender for such amount. Borrowings under the First Amended and Restated Credit Agreement bore interest at a rate equal to either the sum of a base rate plus a margin ranging from 0.50 % to 1.50 % or the sum of a Eurodollar rate plus a margin ranging from 1.50 % to 2.50 %, with either such margin varying according to the Company’s Consolidated Leverage Ratio (as defined in the First Amended and Restated Credit Agreement). The Company was also required to pay a commitment fee in respect of unused commitments under the Revolving Credit Facility, if any, at a rate ranging from 0.20 % to 0.40 % per annum depending on the Company’s Consolidated Leverage Ratio. The initial margin under the First Amended and Restated Credit Agreement was 0.75 % for base rate loans and 1.75 % for Eurodollar rate loans and the initial commitment fee rate was 0.25 % per annum. 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). The Company was in compliance with all related covenants at December 31, 2019. On February 19, 2020, the Company entered into Amendment No. 2 (the “Second Amendment”) to the First Amended and Restated Credit Agreement (after giving effect to the Second Amendment, the “Second Amended and Restated Credit Agreement”). The Second Amendment amended the Consolidated Leverage Ratio financial covenant of the Credit Agreement and requires the Company to maintain a Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement) of (i) 3.50 to 1.00 or less for the fiscal quarter ended March 31, 2020, (ii) 4.50 to 1.00 or less for the fiscal quarter ending June 30, 2020, (iii) 4.25 to 1.00 or less for the fiscal quarter ending September 30, 2020, (iv) 3.50 to 1.00 or less for the fiscal quarter ending December 31, 2020, (v) 3.25 to 1.00 or less for the fiscal quarter ending March 31, 2021 through and including the fiscal quarter ending December 31, 2021, and (vi) 3.00 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). The Consolidated Interest Coverage Ratio financial covenant of the First Amended and Restated Credit Agreement was not changed and continues to require the Company to maintain a Consolidated Interest Coverage Ratio (as defined in the Second Amended and Restated Credit Agreement) of not less than 3.00 to 1.00. 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 September 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). The Company is also required to pay a commitment fee in respect of unused commitments under the credit facility, if any, at a rate ranging from 0.20 % to 0.50 % per annum depending on the Company’s Consolidated Leverage Ratio. The initial margin under the Second Amended and Restated Credit Agreement was 1.25 % for base rate loans and 2.25 % for Eurodollar rate loans and the applicable commitment fee rate was 0.35 % per annum. In addition, the Second Amendment also amended certain administrative provisions associated with the LIBOR Successor Rate (as defined in the Second Amended and Restated Credit Agreement). 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. 15 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) Since the start of 2020, the Company has borrowed an incremental $ 268.5 million for liquidity and working capital purposes under the Revolving Credit Facility and repaid $ 252.5 million to bring the balance under the Revolving Credit Facility to $ 313.0 million at September 30, 2020. The Company had approximately $ 1.0 million of letter of credit agreements outstanding under the Revolving Credit Facility at September 30, 2020, as well as an immaterial amount associated with bilateral letters of credit outside the Revolving Credit Facility. 9. Leases We determine if an arrangement is a lease at inception. 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. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. 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. Short-term leases are not recognized on our unaudited Condensed Consolidated Balance Sheets. Lease expense for all operating lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities. The Company has entered into agreements to lease transportation equipment, storage facilities, office space, dock access and other equipment. The leases have initial terms of up to 20 years with some containing renewal options subject to customary conditions. The term and length of the various agreements, as well as the timing of any renewals, will impact the ROU asset calculation and related liability. The components of lease expense were as follows: Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020 Finance lease cost: Amortization of right-of-use asset $ 172 $ 527 Interest on lease liabilities 11 39 Total finance lease cost 183 566 Operating lease cost 11,087 33,157 Short-term lease cost 2,126 5,846 Variable lease cost — — Total lease cost $ 13,396 $ 39,569 Supplemental cash flow information related to leases was as follows: 16 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) Nine Months Ended September 30, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 33,046 Operating cash flows from finance leases 41 Financing cash flows from finance leases 534 Non-cash information: Right-of-use assets obtained in exchange for lease obligations: Operating leases 2,785 Finance leases 16 Supplemental balance sheet information related to leases was as follows: September 30, 2020 Operating Leases Operating lease right-of-use assets $ 110,360 Operating lease liabilities – short-term 31,724 Operating lease liabilities – long-term 79,085 Total operating lease liabilities $ 110,809 Finance Leases Property, plant and equipment – gross $ 1,992 Accumulated depreciation ( 1,101 ) Property, plant and equipment – net $ 891 Accounts payable 581 Other liabilities 320 Total finance lease liabilities $ 901 Weighted Average Remaining Lease Term Operating leases 9.9 years Finance leases 1.7 years Weighted Average Discount Rate Operating leases 5.92 % Finance leases 4.69 % Maturities of lease liabilities are as follows: Year Ending December 31, Operating Leases Finance Leases 2020 (remainder) $ 11,092 $ 186 2021 33,182 531 2022 23,099 199 2023 13,620 13 2024 11,754 8 Thereafter 62,376 — Total lease payments 155,123 937 Less imputed interest ( 44,314 ) ( 36 ) Total $ 110,809 $ 901 17 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) 10. Commitments and Contingencies The Company is subject to a number of lawsuits, investigations and disputes, some of which involve substantial amounts claimed, arising out of the conduct of the Company or other third-parties in the normal and ordinary course of business. A liability is recognized for any contingency that is probable of occurrence and reasonably estimable. The Company continually assesses the likelihood of adverse judgments or outcomes in these matters, as well as potential ranges of possible losses (taking into consideration any insurance recoveries), based on an analysis of each matter with the assistance of legal counsel and, if applicable, other experts. Given the uncertainty inherent in such lawsuits, investigations and disputes, the Company does not believe it is possible to develop estimates of reasonably possible loss in excess of current accruals for these matters. Considering the Company’s past experience and existing accruals, the Company does not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on the Company’s consolidated financial position or results of operations. Potential liabilities are subject to change due to new developments, changes in settlement strategy or the impact of evidentiary requirements, which could cause the Company to pay damage awards or settlements (or become subject to equitable remedies) that could have a material adverse effect on the Company’s consolidated results of operations, balance sheet and/or operating cash flows in the periods recognized or paid. We assumed from Honeywell all health, safety and environmental (“HSE”) liabilities and compliance obligations related to the past and future operations of our current business, as well as all HSE liabilities associated with our manufacturing locations used in our current operations, including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past. Honeywell retained all HSE liabilities related to former business locations or the operation of our former businesses. Although we have ongoing environmental remedial obligations at certain of our facilities, in the past three years, the associated remediation costs have not been material, and we do not expect our known remediation costs to have a material adverse effect on the Company's consolidated financial position or results of operations. 11. Income Taxes The CARES Act includes various modifications to current tax law and is intended to provide economic relief in response to the COVID-19 pandemic. 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. The Company finalized its 2019 U.S. federal income tax return in July 2020 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 generated a refund of previously paid taxes in the amount of $ 12.2 million which is currently reflected in Taxes receivable. We anticipate receiving the refund in the fourth quarter of 2020. 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. The Company recorded a net Income tax benefit of $ 0.2 million as a discrete item for the quarter ended September 30, 2020 related to 2019 state return-to-provision adjustments, and a net Income tax benefit of $ 0.8 million as discrete items for the nine months ended September 30, 2020. The year to date discrete items primarily relate to the impact of the CARES Act, additional research tax credits claimed on the Company's 2019 U.S. federal income tax return, tax deficiencies on vesting of equity compensation and the impact of changes in the Company's geographical sales mix on state tax. In the quarter ended June 30, 2020, we recorded a liability for unrecognized tax benefits ("UTB"), in the amount of $ 3.8 million, all of which, if recognized, would impact our effective tax rate. The UTB relates to an energy credit claimed on the Company's 2019 U.S. federal income tax return associated with the installation of natural gas boilers at our Hopewell manufacturing plant. As of September 30, 2020, we have not recorded any interest and penalties associated with uncertain tax positions. The benefit from income taxes was $( 1.0 ) million for the three months ended September 30, 2020 and the provision for income taxes was $ 1.5 million for the three months ended September 30, 2019, respectively. 12. Fair Value Measurements Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. During the fourth quarter of 2018, the Company acquired a royalty stream which has been treated as an asset acquisition. 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 18 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) September 30, 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 September 30, 2020 was a loss of approximately $ 3.8 million and is considered a Level 2 liability. The pension plan assets are invested in collective investment trust funds. These investments are measured at fair value using the net asset value per share as a practical expedient. Investments valued using the net asset value method (NAV) (or its equivalent) practical expedient are excluded from the fair value hierarchy disclosure. The Company’s Condensed Consolidated Balance Sheets also include Cash and cash equivalents, Accounts receivable and Accounts payable all of which are recorded at amounts which approximate fair value. The Company also has assets that are required to be recorded at fair value on a non-recurring basis. 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 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. 13. Derivative and Hedging Instruments The specific credit and market, commodity price and interest rate risks to which the Company is exposed in connection with its ongoing business operations are described below. This discussion includes an explanation of the hedging instrument, interest rate swap agreements, used to manage the Company’s interest rate risk associated with a fixed and floating-rate borrowing. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in Other comprehensive income. Those amounts are reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the hedged item affects earnings. Credit and Market Risk – Financial instruments, including derivatives, expose the Company to counterparty credit risk for non-performance and to market risk related to changes in commodity prices, interest rates and foreign currency exchange rates. The Company manages its exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. The Company’s counterparties in derivative transactions are substantial investment and commercial banks with significant experience using such derivative instruments. The Company monitors the impact of market risk on the fair value and cash flows of its derivative and other financial instruments considering reasonably possible changes in commodity prices, interest rates and foreign currency exchange rates and restricts the use of derivative financial instruments to hedging activities. The Company continually monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. The Company had one customer that accounted for approximately 13 % of trade accounts receivable - net at September 30, 2020, and did not have any customers accounting for a significant percentage of trade accounts receivable - net at 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. Commodity Price Risk Management – The Company's exposure to market risk for commodity prices can result in changes in the cost of production. We primarily mitigate our exposure to commodity price risk by using long-term, formula-based price contracts with our suppliers and formula-based price agreements with customers. Our customer agreements provide for price adjustments based on relevant market indices and raw material prices and generally do not include take-or-pay terms. We may also enter into forward commodity contracts with third-parties designated as hedges of anticipated purchases of several commodities. 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 September 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. These interest rate swaps had a fair value of zero at inception and were effective November 30, 2018 and July 31, 2019 with respective maturity dates of November 30, 2021 and February 21, 2023. In accordance with FASB Accounting Standards Codification (“ASC”) ASC 815, the Company designated the interest rate swaps as cash flow hedges of floating-rate borrowings. The 19 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) interest rate swaps convert the Company’s interest rate payments on the first $ 100 million of variable-rate, 1-month LIBOR-based debt to a fixed interest rate. These interest rate swaps involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the interest rate swap without an exchange of the underlying principal amount. Liability Derivatives September 30, 2020 December 31, 2019 Balance Sheet Classification Fair Value Balance Sheet Classification Fair Value Derivatives designated as hedging instruments under ASC 815: Interest Rate Contracts Accrued liabilities and Other liabilities ( 3,801 ) Accrued liabilities and Other liabilities ( 1,718 ) Total Derivatives $ ( 3,801 ) $ ( 1,718 ) The following table summarizes adjustments related to cash flow hedge included in Cash-flow hedges, in the Condensed Consolidated Statements of Comprehensive Income: September 30, 2020 Loss on derivative instruments included in Accumulated other comprehensive income (loss) at December 31, 2019 $ ( 1,718 ) Fair value adjustment ( 2,083 ) Loss on derivative instruments included in Accumulated other comprehensive income (loss) at September 30, 2020 $ ( 3,801 ) At September 30, 2020, the Company expects to reclassify approximately $ 2.4 million of net losses on derivative instruments from Accumulated other comprehensive income ("AOCI") to earnings during the next 12 months due to the payment of variable interest associated with the floating rate debt with the remainder recognized in future periods through the expiration date. The following table summarizes the reclassification of net losses on derivative instruments from AOCI into earnings: Amount of Loss Recognized in Earnings Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Derivatives: Interest Rate Contracts $ 595 $ 223 $ 1,675 $ 497 Total Derivatives $ 595 $ 223 $ 1,675 $ 497 14. Restructuring On May 2, 2019, the Company approved the closure of its Pottsville, Pennsylvania films plant as part of its broader strategic efforts to improve the Company’s competitive position in providing quality film products and services to its customers. The Company also announced a strategic alliance with Oben Holding Group S.A. (“Oben”), a third-party producer of films for the flexible packaging industry, leveraging the Company's sales channels and Nylon 6 supply with Oben's new state-of-the-art manufacturing facility. The Company ceased operations at the Pottsville, Pennsylvania plant in July 2019. Restructuring costs consist of long-lived asset impairments, facility exit costs, employee separations and inventory write-downs. Facility exit costs include demolition, equipment relocation, contract terminations and project management costs. These 20 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) costs are included in Costs of goods sold in the Condensed Consolidated Statements of Operations. 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 September 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 September 30, 2020: Employee Separation Benefits Facility Exit Costs Total Accrual balance at December 31, 2019 $ 127 $ 410 $ 537 Charges — — — Cash payments ( 127 ) ( 410 ) ( 537 ) Accrual balance at September 30, 2020 $ — $ — $ — 21