What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-19 compared with 2020-02-21 · 271 added, 234 removed, 929 unchanged (35% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of AdvanSix Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of AdvanSix Inc.

and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding

prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment

As described in Note 2 to the consolidated financial statements, the Company’s goodwill balance was $15 million as of December 31, 2020.

Goodwill is subject to impairment testing annually as of March 31, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.

Management first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test.

Potential impairment is identified by comparing the fair value of a reporting unit to the carrying value, including goodwill.

In the first quarter of 2020, the Company concluded that due to the negative effects of the COVID-19 pandemic on revenue and profitability, a triggering event existed for the Company’s reporting unit as of March 31, 2020, and therefore performed a quantitative assessment.

Fair value for the reporting unit was determined based on a combination of the discounted future cash flow model (income approach) and the application of current market multiples for comparable publicly-traded companies (market approach).

Under the income approach, the fair value of the reporting unit is estimated based on the discounted present value of the projected future cash flows.

Management’s cash flow projections for the reporting unit included significant judgments and assumptions, including revenue growth rate, EBITDA margin, and WACC rate.

Under the market approach, management uses selected financial information of publicly-traded companies that compare to the reporting unit to derive a market-based multiple.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a critical audit matter are (i) the significant judgment by management when determining the fair value of the reporting unit;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the revenue growth rate, EBITDA margin, and WACC rate;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the reporting unit.

These procedures also included, among others (i) testing management’s process for determining the fair value of the reporting unit;

(ii) evaluating the appropriateness of the income and market approaches;

(iii) testing the completeness and accuracy of underlying data used in the income and market approaches;

and (iv) evaluating the significant assumptions used by management related to the revenue growth rate, EBITDA margin, and WACC rate.

Evaluating management’s assumptions related to the revenue growth rate and EBITDA margin involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit;

(ii) the consistency with external market and industry data;

and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of (i) the Company’s income and market approaches and (ii) the WACC rate assumption.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

February 19, 2021

We have served as the Company’s auditor since 2015.

ADVANSIX INC.

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Selling, general and administrative expenses 70,870 75,375 81,224

Other non-operating expense, net 6,749 7,495 9,762

Interest expense, net 7,792 5,454 7,492

Other non-operating expense (income), net 53 1,295 3

Total costs, expenses and other 1,102,884 1,244,045 1,429,216

Income before taxes 55,033 53,348 85,768

Income tax expense (benefit) 12,001 19,524 ( 2,067 )

Income tax expense 8,956 12,001 19,524

Net income $ 46,077 $ 41,347 $ 66,244

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Inventories – net 180,085 171,710

Taxes receivable 12,289 2,047

Other current assets 6,969 5,117

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

( 36 ) ( 35 )

Additional paid-in capital 184,732 180,884

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Inventories ( 8,375 ) ( 35,567 ) ( 7,974 )

Taxes receivable ( 10,242 ) ( 707 ) 7,131

Accounts payable ( 1,337 ) ( 20,333 ) 2,280

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Balance at December 31, 2017 30,482,966 $ 305 $ 263,081 $ 121,985 $ — $ ( 9,046 ) $ 376,325

30,482,966 $ 305 $ 242,806 $ ( 24,714 ) $ — $ ( 3,035 ) $ 215,362

Net Income — — — 66,244 — — 66,244

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Foreign exchange translation adjustments — — — — — ( 25 ) ( 25 )

Commodity hedges — — — — — — —

Cash-flow hedges — — — — — ( 633 ) ( 633 )

Pension obligation adjustments — — — ( 410 ) — 7,230 6,820

Total comprehensive income (loss), net of tax — — — ( 410 ) — 6,572 6,162

Spin-off deferred tax adjustments — — 12,533 — — — 12,533

Issuance of common stock 72,749 1 — — — — 1

Acquisition of treasury stock ( 1,210,714 shares)

— ( 38,513 ) — ( 12 ) — ( 38,525 )

Stock-based compensation — — 10,131 — — — 10,131

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Pension obligation adjustments — — — — — ( 6,295 ) ( 6,295 )

Total comprehensive income (loss), net of tax — — — ( 410 ) — 6,572 6,162

Other comprehensive income (loss), net of tax — — — — — ( 6,977 ) ( 6,977 )

Issuance of common stock 868,183 8 9 — — — 17

Acquisition of treasury stock (1,210,714 shares) — ( 38,513 ) — ( 12 ) — ( 38,525 )

Acquisition of treasury shares ( 2,298,407 shares)

— ( 62,173 ) — ( 23 ) — ( 62,196 )

Stock-based compensation — — 8,349 — — — 8,349

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Acquisition of treasury shares ( 84,791 shares)

— ( 1,054 ) — ( 1 ) — ( 1,055 )

Stock-based compensation — — 4,902 — — — 4,902

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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 as part of our integrated manufacturing value chain including caprolactam, ammonium sulfate fertilizers, acetone and other chemical intermediates.

(“AdvanSix”, the “Company”, “we” or “our”) plays a critical role in global supply chains, innovating and delivering essential products for our customers in a wide variety of end markets and applications that touch people’s lives, such as building and construction, fertilizers, plastics, solvents, packaging, paints, coatings, adhesives and electronics.

Our reliable and sustainable supply of quality products emerges from the vertically integrated value chain of our three U.S.-based manufacturing facilities.

AdvanSix strives to deliver best-in-class customer experiences and differentiated products in the industries of nylon solutions, chemical intermediates, and plant nutrients, guided by our core values of Safety, Integrity, Accountability and Respect.

We evaluated segment reporting in accordance with Accounting Standards Codification Topic (“ASC”) 280.

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The separation was completed by Honeywell distributing (the "Distribution") all of the then outstanding shares of common stock of AdvanSix on October 1, 2016 (the “Distribution Date”) through a dividend in kind of AdvanSix common stock, par value $ 0.01 per share, to holders of Honeywell common stock as of the close of business on the record date of September 16, 2016 who held their shares through the Distribution Date (the “Spin-Off”).

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 sales across most industries, declines and volatility within global financial markets, and decreased workforces causing increased unemployment.

The continuously evolving nature of this pandemic and the responses to combat the pandemic, such as governmental restrictions on non-essential business and travel, continue to have a negative impact on the United States and global economies.

While various jurisdictions have ended, or have implemented policies to phase out, these containment measures, increases in new COVID-19 cases have caused certain jurisdictions to re-implement restrictions.

The Company’s 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 Consolidated Financial Statements and reported amounts of revenue and expenses during the reporting periods presented.

The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there was a material impact on the Company’s second quarter 2020 results of operations.

In particular, the Company experienced lower demand, particularly in nylon, caprolactam and phenol, resulting in a reduction of plant utilization rates and a decrease in overall sales volume (approximately 19 %) in the second quarter of

2020 compared to the prior year period, primarily related to global markets and the economic impact of COVID-19.

During the third quarter of 2020, the Company had experienced an improvement in demand to approximately pre-COVID-19 levels.

During the fourth quarter of 2020, the Company experienced even greater demand than in the previous quarter whereby demand and volume exceeded pre-COVID-19 levels overall as compared to 2019.

With states, regions and countries in various phases of re-opening, we expect demand to continue to gradually improve through 2021, although there is no assurance demand recovery will continue given the potential for increased restrictions imposed by governments due to a surge in infection rates.

We will continue to monitor developments and execute our operational and safety mitigation plans.

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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Cash flows of such derivative financial instruments are classified consistent with the underlying hedged item.

For derivative instruments that are designated and qualify as a net investment hedge, the derivative’s gain or loss is reported as a component of Other comprehensive income (loss) and recorded in Accumulated other comprehensive income (loss).

For derivative

instruments that are designated and qualify as a net investment hedge, the derivative’s gain or loss is reported as a component of Other comprehensive income (loss) and recorded in Accumulated other comprehensive income (loss).

The gain or loss will be subsequently reclassified into net earnings when the hedged net investment is either sold or substantially liquidated.

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Goodwill is subject to impairment testing annually as of March 31, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.

The Company first assesses qualitative factors as described in ASC 350 to determine whether it is necessary to perform the quantitative goodwill impairment test.

The Company completed its annual goodwill impairment test as of March 31, 2019 and, based on the results of the Company's assessment of qualitative factors, it was determined that it was not necessary to perform the quantitative goodwill impairment test.

Management first assesses qualitative factors as described in ASC 350 to determine whether it is necessary to perform the quantitative goodwill impairment test.

Potential impairment is identified by comparing the fair value of a reporting unit to the carrying value, including goodwill.

In the first quarter 2020, the Company concluded that, due to the negative effects of the COVID-19 pandemic on revenue and profitability, a triggering event existed for the Company's reporting unit as of March 31, 2020.

Under the income approach, the fair value of the reporting unit is estimated based on the discounted present value of the projected future cash flows.

Management's cash flow projections for the reporting unit included significant judgements and assumptions, including revenue growth rate, EBITDA margin and WACC rate.

Under the market approach, management uses selected financial information of publicly-traded companies that compare to the reporting unit to derive a market-based multiple.

The Company completed its annual goodwill impairment test as of March 31, 2020 and we have concluded that there is no impairment.

Revenue Recognition – The Company recognizes revenue upon the transfer of control of goods or services to customers at amounts that reflect the consideration expected to be received.

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The Company also utilizes the practical expedient in Topic 606 and does not include an adjustment for the effects of a significant financing component given the expected period duration of one year or less.

Environmental – AdvanSix accrues costs related to environmental matters when it is probable that we have incurred a liability related to a contaminated site and the amount can be reasonably estimated.

Environmental – The Company accrues costs related to environmental matters when it is probable that we have incurred a liability related to a contaminated site and the amount can be reasonably estimated.

Deferred Income and Customer Advances – AdvanSix has an annual pre-buy program for ammonium sulfate that is classified as deferred income and customer advances in the Consolidated Balance Sheets.

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Such determination includes analysis and consideration of the particular conditions of the account, including time intervals since last collection, customer performance against agreed upon payment plans, success of outside collection agencies activity, solvency of customer and any bankruptcy proceedings.

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.

Research and Development – AdvanSix conducts research and development (“R&D”) activities, which consist primarily of the development of new products and product applications consisting primarily of labor costs and depreciation and maintenance costs.

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Stock-Based Compensation Plans – The principal awards issued under our stock-based compensation plans, which are described in "Note 16.

Stock-Based Compensation Plans", are non-qualified stock options, performance share units and restricted stock units.

Stock-Based Compensation Plans" to the Consolidated Financial Statements included in Item 8 of this Form 10-K, are non-qualified stock options, performance share units and restricted stock units.

The cost for such awards is measured at the grant date based on the fair value of the award.

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SAB 118 provides guidance for registrants under three scenarios where the measurement of certain tax items is either complete, can be reasonably estimated or cannot be reasonably estimated.

The Company has completed its evaluation of the 2017 Act and the impacts of those items have been reflected in our Consolidated Financial Statements as of December 31, 2018 and 2017.

The Company has completed its evaluation of the 2017 Act and the impacts of those items have been reflected in our Consolidated Financial Statements.

The impacts of those changes are disclosed in “Note 4.

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

The Company has elected the following practical expedients available in Topic 842:

The Company adopted ASU 2016-02, Leases (Topic 842) effective January 1, 2019 and has elected the following practical expedients available in Topic 842:

• the package of three expedients which allows the Company to not re-assess (i) whether any expired or existing contracts are, or contain, leases, (ii) lease classification for any expired or existing leases, and (iii) initial direct costs for any expired or existing leases;

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All reclassified amounts have been immaterial.

Recent Accounting Pronouncements – The Company considers the applicability and impact of all Accounting Standards Updates (“ASU’s”) issued by the FASB.

ASU’s not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Consolidated Financial Statements.

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.

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.

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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.

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 calendar-year public business entities in 2021 and interim periods within that year, and early adoption is permitted.

The Company is still evaluating these changes and does not anticipate any material impact on the Company’s consolidated financial position or results of operations upon adoption.

In October 2018, the FASB issued ASU No.

2018-16, Derivatives and Hedging (Topic 815):

Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes which permits use of the OIS rate based on SOFR as a U.S.

benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the interest rates on direct Treasury obligations of the U.S.

government ("UST"), the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the SIFMA Municipal Swap Rate.

Pursuant to the amendments, SOFR will be an option to replace LIBOR as it is phased out.

The amendments of ASU No.

2018-16 are effective for companies that have adopted ASU 2017-12 for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year or at such time a company adopts ASU 2017-12.

Early adoption of ASU 2018-16 is not permitted without previous adoption of ASU 2017-12.

As the Company elected to early adopt ASU 2017-12 during the fourth quarter of 2018, the Company adopted ASU 2018-16 effective January 1, 2019 which did not have a material impact on the Company's consolidated financial position or results of operations upon adoption.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, that allows companies to reclassify to Retained earnings the stranded tax effects in Accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act.

The amendments in ASU 2018-02 are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

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 elected to early adopt this guidance effective January 1, 2018 and to reclassify the stranded tax effects from the Tax Cuts and Jobs Act from Accumulated other comprehensive income to Retained earnings (refer to "Note 4.

Income Taxes").

The Company adopted ASU 2019-12 effective January 1, 2021, which did not have a material impact on the Company’s consolidated financial position or results of operations upon adoption.

In August 2018, the FASB issued ASU No.

2017-12, Derivatives and Hedging:

Targeted Improvements to Accounting for Hedging Activities which simplifies financial statement reporting for qualifying hedging relationships by eliminating the requirement to separately measure and report hedge ineffectiveness.

For net investment hedges, the entire change in fair value of the hedging instruments is recorded in the currency translation adjustment section of other comprehensive income or loss.

Pursuant to the amendments, these amounts are required to be subsequently reclassified to earnings in the same income statement line item in which the earnings effect of the hedged item is presented when the hedged item affects earnings.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.

The amendments of ASU No.

2017-12 are effective for the Company’s fiscal years beginning after December 31, 2018, including interim periods within that fiscal year.

Early adoption of these amendments is permitted, including in any interim period.

The Company elected to early adopt the guidance in the period ended December 31, 2018.

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715) in order to improve the presentation of net periodic pension and postretirement costs.

The amendment requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.

The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.

The amendments in this ASU also allow only the service cost component to be eligible for capitalization when applicable.

The amendments in this update related to income

statement activity were applied retrospectively whereas balance sheet activity was applied prospectively.

For public business entities, the effective date for ASU 2017-07 was annual periods beginning after December 15, 2017, including interim periods within those annual periods.

Early adoption is permitted within the first interim period.

The Company adopted this guidance effective January 1, 2018 and there was no impact on the Company’s consolidated financial position and results of operations upon adoption other than immaterial pension expense reclassifications in the 2017 and 2016 Consolidated Statements of Operations which reduced Cost of goods sold and Selling, general and administrative expenses and increased Other non-operating expense (income), net.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows.

The amended guidance addresses eight specific cash flow issues, including debt prepayment or extinguishment costs, and clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows.

Entities are required to apply the guidance retrospectively and provide the relevant disclosure in ASC 250.

For public business entities, the effective date for ASU 2017-07 was annual periods beginning after December 15, 2017, including interim periods within those annual periods.

Early adoption is permitted.

The Company adopted this guidance effective January 1, 2018 and there was no impact on the Company’s consolidated financial position, results of operations or cash flows upon adoption on the 2018 Consolidated Statement of Cash Flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which requires lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases.

The new standard also requires disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018 (early adoption is permitted).

Initial guidance stated that the new standard be applied under a modified retrospective approach with periods prior to the adoption date being adjusted.

During July 2018, however, the FASB issued ASU 2018-11, Leases (Topic 842), providing another transition method allowing a company to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjusting prior periods.

The Company adopted the standard effective January 1, 2019 electing the cumulative-effect adjustment approach made available in ASU 2018-11.

The Company has also elected the following practical expedients:

• the short-term lease practical expedient, which allows the Company to exclude leases with an initial term of 12 months or less ("short-term leases") from recognition in the unaudited Consolidated Balance Sheets;

• the bifurcation of lease and non-lease components practical expedients, which did not require the Company to bifurcate lease and non-lease components for our real estate leases;

• the land easements practical expedient, which allows the Company to carry forward the accounting treatment for land easements on existing agreements.

We have implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

The standard had a material impact to our Consolidated Balance Sheet but did not have a significant impact in the recognition, measurement or presentation of lease expenses within the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows.

The most significant impact was the recognition of right-of-use ("ROU") assets and liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.

Leases" for further information.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which replaced the existing accounting standards for revenue recognition with a single comprehensive five-step model eliminating industry-specific accounting rules.

The core principle is to recognize revenue upon the transfer of goods or services to customers at an amount that reflects the consideration expected to be received.

The provisions of ASU 2014-09 became effective for public business entities for interim and annual periods beginning after December 15, 2017.

The Company adopted this standard effective January 1, 2018 using the modified retrospective method of transition.

Under this standard, revenue recognition from the Company's products remained unchanged from the Company's previous revenue recognition model causing no cumulative impact adjustment on the Company’s consolidated financial position and results of operations.

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.

We serve approximately 400 customers annually in more than 50 countries and across a wide variety of industries.

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

Sales to Shaw were 22 % of our total sales for each of the years ended December 31, 2019, 2018 and 2017.

Sales to Shaw were 14 % of our total sales for the year ended December 31, 2020 and 22 % of our total sales for each of the years ended December 31, 2019 and 2018.

Each of the Company’s product lines represented the following approximate percentage of total sales for 2020, 2019 and 2018:

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Caprolactam 19 % 22 % 19 %

Ammonium Sulfate Fertilizer 23 % 20 % 19 %

Chemical Intermediates 32 % 28 % 33 %

Ammonium Sulfate 25 % 23 % 20 %

100 % 100 % 100 %

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2.0 % 2.8 % 3.5 %

state income tax rate change — % — % ( 1.7 ) %

Manufacturing incentives

Energy credit

( 6.2 ) % — % — %

Forfeitures, cancellations and shortfalls of equity compensation 0.3 % — % — %

Executive compensation limitations 0.9 % 1.5 % 1.2 %

Tax credits ( 3.0 ) % ( 0.5 ) % — %

Research and other tax credits ( 2.6 ) % ( 3.0 ) % ( 0.5 ) %

0.9 % 0.2 % ( 0.5 ) %

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On December 22, 2017 the U.S.

government enacted significant changes to federal tax law following the passage of the Tax Cuts and Jobs Act (the “2017 Act”).

government passed the Tax Cuts and Jobs Act (the “2017 Act”).

In 2017, the Company reasonably estimated the accounting for the effects of the 2017 Act.

In 2018, under Staff Accounting Bulletin No.

118 (“SAB 118”), we finalized the accounting for the 2017 Act and our financial statements for the year ended December 31, 2018 and 2017 reflect certain effects of the 2017 Act including a reduction in the corporate tax rate to 21% from 35% and changes made to executive compensation rules.

As a result of changes to tax laws and tax rates under the 2017 Act, the Company recorded a reduction in income tax expense of $ 1,651 and $ 53,424 primarily related to the reduction in the federal corporate tax rate to 21% during the years ended December 31, 2018 and 2017, respectively.

118 (“SAB 118”), we finalized the accounting for the 2017 Act and our financial statements for the year ended December 31, 2018 reflect certain effects of the 2017 Act including a reduction in the corporate tax rate to 21% from 35% and changes made to executive compensation rules.

As a result of the 2017 Act, the Company recorded a reduction in income tax expense of $ 1,651 during the year ended December 31, 2018.

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 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 recorded in Taxes receivable.

We anticipate receiving the refund in the first half of 2021.

Although the carryback claim generates a $ 12.2 million refund, it also results in the loss of prior year permanent tax benefits, the impact of which, is reflected in the above table under "Other, net" above.

The Company's effective income tax rate for 2020 was lower compared to the U.S.

Federal statutory rate of 21% due primarily to the impact of research tax credits as well as an energy tax credit described in more detail below.

This was partially offset by state taxes, executive compensation deduction limitations and a shortfall on the vesting of equity compensation.

The Company's effective income tax rate for 2019 was slightly higher compared to the U.S.

Federal statutory rate of 21% due primarily to state taxes and executive compensation deduction limitations, partially offset by the vesting of restricted stock units as well as current year research tax credits and additional credits claimed on the Company's 2018 U.S.

federal income tax return.

Federal statutory rate of 21% due primarily to state taxes and executive compensation deduction limitations, partially offset by the vesting of restricted stock units and research tax credits.

The Company's effective income tax rate for 2018 was higher compared to the U.S.

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Federal income tax return and the related completion of the accounting for the impacts of the 2017 Act.

The Company’s effective income tax rate for 2017 was lower compared to the U.S.

Federal statutory rate of 35% due primarily to the enactment of the 2017 Act and the related remeasurement of deferred tax assets and liabilities.

Additionally, the Company made certain state tax apportionment elections in 2017 which resulted in a state income tax rate change and related income tax benefit.

For 2019 , 2018 and 2017, there were no unrecognized tax benefits recorded by the Company.

As of December 31, 2020, 2019 and 2018, there were no unrecognized tax benefits recorded by the Company (see below for further information on unrecognized tax benefits).

Although there are no unrecognized income tax benefits, when applicable, the Company’s policy is to report interest expense and penalties related to unrecognized income tax benefits in the income tax provision.

The Company uses the flow-through method to account for investment tax credits, including certain energy credits.

Under this method, investment tax credits are recognized as a reduction to income tax expense in the year they are earned.

The Company is subject to taxation in the United States and various states and foreign jurisdictions.

As of December 31, 2019, tax years 2016, 2017 and 2018 are subject to examination by the tax authorities.

For tax years 2020, 2019, 2018 and 2017 there are no material examinations by tax authorities;

however, these periods remain open under the statute of limitations and are subject to examination by the tax authorities.

Deferred tax assets (liabilities)

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Interest expense limitation — 2,655

Inventory 4,439 —

Pension Obligation 8,028 7,318

Operating lease liability 27,358 32,626

Equity Compensation 1,793 1,695

Other 900 1,314

Total gross deferred tax assets 47,591 56,577

24,008 11,257

Valuation Allowance — —

Total deferred tax assets $ 47,591 $ 56,577

$ 24,008 $ 11,257

Deferred tax liabilities:

Property, plant & equipment $ ( 140,735 ) $ ( 123,915 )

$ ( 123,915 ) $ ( 102,783 )

( 3,713 ) ( 3,280 )

Intangibles ( 3,744 ) ( 3,713 )

Operating lease asset ( 27,262 ) ( 32,569 )

Inventory — ( 5,503 )

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Total deferred tax liabilities ( 173,158 ) ( 166,631 )

( 134,062 ) ( 115,013 )

Net deferred taxes $ ( 125,567 ) $ ( 110,054 )

$ ( 110,054 ) $ ( 103,756 )

The net deferred taxes are primarily related to U.S.

As of December 31, 2019, we recognized a federal net operating loss ("NOL") carryforward of $ 38,301 which can be carried forward indefinitely.

We also recognized state NOL carryforwards in multiple jurisdictions for $ 2,139 which generally begin to expire in 2039.

The federal net operating loss ("NOL") generated as of December 31, 2019 was carried back to previous tax periods under the CARES Act and the amount was fully utilized in the carryback claim.

As of 2020, we also recognized state NOL carryforwards in multiple jurisdictions for $ 1,406 which generally begin to expire in 2032.

The Company has a foreign NOL of $ 25 and $ 70 , respectively, at December 31, 2020 and 2019 which is not subject to expiration.

We recognized a research tax credit carryforward of $ 758 at December 31, 2019 which will expire in 2039.

We believe that the federal, foreign and state NOL carryforwards, tax credit carryforwards and other deferred tax assets are more likely than not to be realized and we have not recorded a valuation allowance against the deferred tax assets.

All 2019 federal tax credits were carried back and utilized in prior periods or expected to be utilized in the current year such that there are no remaining federal tax credit carryforwards.

As of December 31, 2020, we have state tax credit carryforwards of approximately $ 105 that begin to expire in 2030.

We believe that the foreign and state NOL carryforwards, tax credit carryforwards and other deferred tax assets are more likely than not to be realized and we have not recorded a valuation allowance against the deferred tax assets.

The 2019 Deferred tax assets and liabilities reflected in the above table have been adjusted to reflect deferred taxes on the gross up of the Operating lease right-of-use assets and the Operating lease liabilities under ASU 2016-02, Leases (Topic 842) implemented on January 1, 2019.

This update had the effect of increasing both the total deferred tax assets and the deferred tax liabilities by $ 32,569 for the year ending December 31, 2019.

These adjustments have no net impact on the net Deferred taxes or on the consolidated financial statements and the Company does not believe they are material to the annual consolidated financial statements.

As a result of the early adoption of ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , during the three months ended March 31, 2018, the Company elected to reclassify $ 0.4 million from Accumulated other comprehensive income to Retained earnings.

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subsidiaries and, as such, we have not provided a deferred tax liability for undistributed earnings.

Unrecognized tax benefits

The following table sets forth the change in the Company's unrecognized tax benefits (UTBs) for year ended December 31, 2020.

There are no unrecognized tax benefits in 2019 and 2018.

Unrecognized tax benefits - January 1 $ —

Gross amounts of decreases in UTBs for tax positions related to the prior year ( 3,804 )

Gross amounts of increases in UTBs for tax positions related to the prior year 3,804

Gross amounts of increases and decreases in UTBs for tax positions taken during the current period —

Unrecognized tax benefits - December 31 $ —

At the end of fiscal 2019, it was unclear whether we qualified for a certain energy tax credit.

After performing a detailed review during the second quarter of 2020, we concluded it was appropriate to recognize a tax benefit (credit) of $ 3.8 million.

However, based on information available at the time, we also recorded a corresponding unrecognized tax benefit reserve for the same amount.

A portion of this credit which was claimed on the 2019 U.S.

federal income tax return of approximately $ 2.2 million was utilized in the carryback claim under the CARES Act and the remaining is expected to be utilized in 2020.

In the fourth quarter of 2020, based on new information and technical guidance, the Company reassessed its position which resulted in the reversal of the unrecognized tax benefit as reflected in the above table.

As such, the full amount of the energy credit is reflected in the effective income tax rate reconciliation table above for the year ended December 31, 2020.

Accounts and Other Receivables – Net

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The roll-forward of allowance for doubtful accounts are summarized in the table below:

Bad Debt Write-Offs (1)

Year ended December 31, 2020 $ 2,323 $ 33 $ ( 559 ) $ ( 326 ) $ 1,471

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Year ended December 31, 2018 1,410 6,226 ( 187 ) 18 7,467

(1) No Impact to Statement of Operations

Raw materials

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We determine if an arrangement is a lease at inception.

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

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

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

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The operating 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:

Year ended December 31, 2019

Years Ended December 31,

Finance lease cost:

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Supplemental cash flow information related to leases was as follows:

Year ended December 31, 2019

Years Ended December 31,

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

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Supplemental balance sheet information related to leases was as follows:

December 31, 2019

Years Ended December 31,

Operating Leases

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Weighted Average Remaining Lease Term

Operating leases 9.1 years

Finance leases 2.2 years

Operating leases 9.8 years 9.1 years

Finance leases 1.5 years 2.2 years

Weighted Average Discount Rate

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Finance leases 4.65 % 4.79 %

The cumulative effect of the changes made to the Consolidated Balance Sheets for the adoption of the new leasing standard on January 1, 2019 was as follows:

Balance Sheet accounts prior to new leasing standard adoption adjustments Adjustments due to the adoption of the new leasing standard Balance Sheet accounts after the new leasing standard adoption adjustments

Property, plant and equipment – net $ 1,032 $ — $ 1,032

Operating lease right-of-use assets — 117,921 117,921

Total assets 1,034,626 $ 117,921 1,152,547

LIABILITIES AND EQUITY

Current Liabilities:

Accounts payable $ 318 $ — $ 318

Operating lease liabilities – short term — 24,794 24,794

Total current liabilities 284,724 24,794 309,518

Operating lease liabilities – long term — 93,127 93,127

Other liabilities 762 — 762

Total liabilities 614,288 117,921 732,209

Total equity 420,338 — 420,338

Total liabilities and equity 1,034,626 $ 117,921 1,152,547

Maturities of lease liabilities are as follows:

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Total $ 114,884 $ 724

As previously disclosed in our 2018 Form 10-K and under the previous lease accounting standard, future minimum lease payments for leases having initial or remaining non-cancellable lease terms in excess of one year were as follows:

Year Ending December 31, Operating

Leases Capital

2019 $ 36,110 $ 239

2020 29,318 212

2021 16,111 131

2022 11,571 89

Thereafter 26,627 —

Total lease payments $ 128,841 $ 671

As of December 31, 2020, we have an additional operating lease that has not yet commenced for $ 17.1 million.

This lease will commence during 2021 with a lease term of 3 years.

Long-term Debt and Credit Agreement

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Total long-term debt due after one year

At December 31, 2019, the Company assessed the amount recorded under the Term Loan (defined below) and the Revolving Credit Facility (defined below) and determined that such amounts approximated fair value.

At December 31, 2020, the Company assessed the Revolving Credit Facility (defined below) and determined that such amounts approximated fair value.

The fair values of the debt are based on quoted inactive market prices and are therefore classified as Level 2 within the valuation hierarchy.

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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.

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.

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The Company has the option to incur 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 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.

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

The Company had approximately $ 4.2 million of letter of credit agreements outstanding as of December 31, 2019, of which $ 3.2 million are bi-lateral letters of credit outside the Revolving Credit Facility with $ 1.0 million outstanding under the Revolving Credit Facility.

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

2 to the Credit Agreement to amend the consolidated leverage ratios in order to provide the Company with additional operating flexibility.

For a discussion of Amendment No.

2 to the Credit Agreement, please refer to Note 19.

"Subsequent Events."

2 (the “Second Amendment”) to the First Amended and Restated Credit Agreement (the First Amended and Restated Credit Agreement, after giving effect to the Second Amendment, the “Second Amended and Restated Credit Agreement”).

The Second Amendment amends the consolidated leverage ratio financial covenant of the First Amended and Restated 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 ending 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 compliant with all financial related covenants at December 31, 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 is expected to be 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 Company had approximately $ 1.0 million of letter of credit agreements outstanding under the Revolving Credit Facility at December 31, 2020.

There was no amount associated with bilateral letters of credit outside of the Revolving Credit Facility.

Postretirement Benefit Obligations

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48,444 35,979 26,789

Funded status of plan

Under-Funded status of plan

$ 40,693 $ 33,302 $ 21,661

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$ 15,491 $ 15,841 $ ( 237 )

The estimated actuarial loss (gain) that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 2019 and 2018 is expected to be nil.

The estimated actuarial loss (gain) that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 2020 and 2019 was nil.

Significant actuarial assumptions used in determining the benefit obligations and net periodic benefit cost for our pension plan were as follows:

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Our general funding policy for our pension plan is to contribute amounts at least sufficient to satisfy regulatory funding standards.

We plan to make estimated payments through such time as the plan is fully funded.

The Company made pension plan contributions sufficient to satisfy pension funding requirements under the AdvanSix Retirement Earnings Plan as follows:

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Total $ 8,100 $ 4,200 $ 11,800

The Company plans to make pension plan contributions during 2020 sufficient to satisfy pension funding requirements of $5.0 to $10.0 million as well as additional contributions in future years sufficient to satisfy pension funding requirements in those periods.

The Company plans to make pension plan contributions during 2021 sufficient to satisfy pension funding requirements of $ 8.0 million to $ 10.0 million as well as 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.

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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 December 31, 2019 and 2018 was a loss of approximately $ 1.7 million and $ 0.8 million, respectively, and is considered a Level 2 liability.

There were no financial or non-financial assets or liabilities which required fair value measurement at December 31, 2017.

The fair value of the interest rate swaps at December 31, 2020, 2019 and 2018 was a loss of approximately $ 3.1 million, $ 1.7 million and $ 0.8 million, respectively, and is considered a Level 2 liability.

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

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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.

Although the Company did not have any customers with significant concentrations of trade accounts receivable – net at December 31, 2019, it had one customer that accounted for approximately 22 % of trade accounts receivable – net at December 31, 2018.

The Company did not have any customers with significant concentrations of trade accounts receivable – net at December 31, 2020 and December 31, 2019, respectively.

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.

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Derivatives designated as hedging instruments under ASC 815:

Interest Rate Contracts Accrued liabilities and Other liabilities $ ( 1,718 ) Accrued liabilities and Other liabilities $ ( 833 ) N / A $ —

Interest Rate Contracts Accrued liabilities and Other liabilities $ ( 3,063 ) Accrued liabilities and Other liabilities $ ( 1,718 ) Accrued liabilities and Other liabilities $ ( 833 )

Total Derivatives $ ( 3,063 ) $ ( 1,718 ) $ ( 833 )

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Loss on derivative instruments included in Accumulated other comprehensive income at December 31, 2020 $ ( 3,063 )

At December 31, 2019, the Company expects to reclassify approximately $ 0.8 million of net gains (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.

At December 31, 2020, the Company expects to reclassify approximately $ 2.1 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

Twelve Months Ended December 31,

Interest Rate Contracts $ 2,240 $ 705

Total Derivatives $ 2,240 $ 705

Commitments and Contingencies

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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.

On March 13, 2018, a federal search warrant was executed at the Company’s Hopewell, Virginia manufacturing facility.

On the same date, the Company was separately served with a grand jury subpoena issued by the U.S.

District Court for the Eastern District of Virginia, which requested documents related to the Hopewell facility’s air emissions and its compliance with the terms of the previously disclosed 2013 consent decree with the federal government and the Commonwealth of Virginia.

The Company was notified during the first quarter of 2019 that the U.S.

Attorney’s Office for the Eastern District of Virginia had closed its investigation and no further action by the Company was required.

On May 13, 2019, the Company announced that the United States Government notified the Company that the balance of the criminal investigation concluded with no further action required.

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 three current manufacturing locations and the other 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.

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.

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comprehensive income (loss)

— — 2,240 2,240

Income tax expense (benefit)

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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.

For the years ended December 31, 2019, 2018 and 2017, stock options of 544,635 , 349,312 and nil, respectively, were anti-dilutive and excluded from the computations of dilutive EPS.

For the years ended December 31, 2020, 2019 and 2018, stock options of 951,607 , 544,635 and 349,312 , respectively, were anti-dilutive and excluded from the computations of dilutive EPS.

In September 2017, the Board of Directors (the "Board") adopted the AdvanSix Inc.

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The share repurchase program has no expiration date and may be modified, suspended or discontinued at any time.

During 2019, the Company repurchased 1,898,013 shares of common stock under the share repurchase program and 400,394 shares of common stock covering the tax withholding obligations in connection with the vesting of equity awards for a total of $ 62.2 million at a weighted average market price of $ 27.04 per share.

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.

During 2020, the Company had repurchased 84,791 shares of common stock to cover the tax withholding obligations in connection with the vesting awards, for an aggregate of $ 1.1 million at a weighted average market price of $ 12.44 per share.

The purchase of shares reduces the weighted average number of shares outstanding in the basic and diluted earnings per share calculations.

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On September 8, 2016, prior to the Spin-Off, our Board adopted, and Honeywell, as our sole stockholder, approved, the 2016 Stock Incentive Plan of AdvanSix Inc.

(the “Equity Plan”).

Following the Spin-Off, the material terms of performance-based compensation under the Equity Plan were approved by the Company's stockholders for tax purposes at our 2017 annual meeting of stockholders.

and its Affiliates, and the material terms of performance-based compensation were approved by the Company's stockholders for tax purposes at our 2017 annual meeting of stockholders (the "Original Plan").

The Original Plan was amended and restated as the 2016 Stock Incentive Plan of AdvanSix Inc.

and its Affiliates, as Amended and Restated, which was approved by stockholders of the Company at the Annual Meeting of Stockholders held on June 23, 2020 (the “Equity Plan”).

result, no further grants will be made under the Original Plan.

The Equity Plan provides for the grant of stock options, stock appreciation rights, performance awards, restricted stock units, restricted stock, other stock-based awards and non-share-based awards.

The maximum aggregate number of shares of our common stock that may be issued under all stock-based awards granted under the Equity Plan is 3,350,000 .

Of those shares, only 1,750,000 may be subject, on a one-for-one basis, to awards granted under the Equity Plan that are not stock options or stock appreciation rights (“full-value awards”).

After the number of shares subject to full-value awards exceed such limit, each share subject to future full-value awards would reduce the number of shares available for grant under the Equity Plan by four shares, with the exception of awards to non-employee directors, which shall not count towards such limit and shares related to such awards shall always be counted on a one-for-one basis.

Under the terms of the Equity Plan, there were 1,438,519 shares of AdvanSix common stock available for future grants of full-value awards, of which 328,799 were available for awards other than full-value awards on a one-for-one basis, at December 31, 2019.

The maximum aggregate number of shares of our common stock that may be issued under all stock-based awards granted under the Equity Plan is 2,937,209 , subject to adjustment in accordance with the terms of the Equity Plan.

Under the Equity Plan, the shares underlying all full-value awards, including those granted to non-employee directors, will be counted against the share reserve on a 1.85-for-one basis.

Shares underlying stock option awards and SARs will be counted against the share reserve on a one-for-one basis.

Under the terms of the Equity Plan, there were approximately 2,800,000 shares of AdvanSix common stock available for future grants of full-value awards at December 31, 2020.

Restricted Stock Units – The Company granted RSUs to key management employees and directors that generally vest over periods ranging from 1 to 3 years.

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Granted 65 41.58

Vested ( 73 ) 19.31

Forfeited ( 2 ) 32.59

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Outstanding at December 31, 2017 172 26.66 9.31 $ 2,651

Exercisable at December 31, 2017 — $ — — $ —

Granted 129 41.97

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Exercisable at December 31, 2020 326 $ 32.16 6.84 $ —

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the number of in-the-money options) that would have been received had all option holders exercised their in-the-money options at year-end.

would have been received had all option holders exercised their in-the-money options at year-end.

The amount changes based on the fair market value of the Company’s stock.

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Performance Stock Units – The Company has issued PSUs to key senior management employees which, upon vesting, convert one-for-one to AdvanSix common stock.

The actual number of shares an employee receives for each PSU depends on the Company’s performance against cumulative Earnings Per Share and average annual Return on

Investment goals over three -year performance and vesting periods.

The actual number of shares an employee receives for each PSU depends on the Company’s performance against cumulative Earnings Per Share and average annual Return on Investment goals over three -year performance and vesting periods.

Each grantee is granted a target level of PSUs and may earn between 0 % and 200 % of the target level depending on the Company’s performance against the financial goals.

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Granted 248 13.99

Vested ( 91 ) 26.66

Forfeited ( 40 ) 35.72

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

The Company recorded a restructuring charge of $ 11.0 million during 2019 and does not expect to incur any additional restructuring charges related to the closure of its films plant.

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 December 31, 2020, all related restructuring liabilities have been paid.

Restructuring costs for the year ended December 31, 2020 were as follows:

Year ended December 31, 2019

Years Ended December 31,

Write-off of equipment and facility $ — $ 7,164

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Accrual balance at December 31, 2019 $ 127 $ 410 $ 537

The balance of accrued restructuring charges is expected to be settled within the next twelve months.

Charges — — —

Cash payments ( 127 ) ( 410 ) ( 537 )

Accrual balance at December 31, 2020

Subsequent Events

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

Based on 2019 year-end results, the applicable margin under the Second Amended and Restated Credit Agreement is expected to be 1.25 % for base rate loans and 2.25 % for Eurodollar rate loans and the applicable commitment fee rate is expected to be 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).

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of AdvanSix Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of AdvanSix Inc.

and its subsidiaries (the "Company") as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting

principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Critical Audit Matters

Revenue Recognition – Transfer of Control

As described in Notes 2 and 3 to the consolidated financial statements, the Company recorded $1,297 million in total revenues for the year ended December 31, 2019.

Sales of the Company’s products to customers are made under a purchase order, and in certain cases in accordance with the terms of a master services agreement.

A performance obligation is created when a customer submits a purchase order for a specific product at a specified price.

Management considers the performance obligation satisfied at the point in time when control of the product is transferred to the customer, which is indicated by shipment of the product and transfer of title and risk of loss to the customer.

Transfer of control to the customer occurs through various modes of shipment, including trucks, railcars, and vessels, and follows a variety of commercially acceptable shipping or destination point terms pursuant to the arrangement with the customer.

The principal considerations for our determination that performing procedures relating to revenue recognition – transfer of control is a critical audit matter are there was a high degree of auditor subjectivity and effort in performing procedures and evaluating audit evidence relating to the determination of the point in time when control of the product was transferred to the customer and thus revenue was recognized.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the Company’s revenue recognition process, including controls over the point in time when control of the product was transferred to the customer, which was when management considered the performance obligation was satisfied.

These procedures also included, among others, evaluating contractual terms in customer arrangements that impact management’s determination of the transfer of control of the product to the customer and subsequent recognition of revenue on a sample basis.

Evaluating when control of the product was transferred to the customer involved obtaining purchase orders and shipping documents relating to the satisfaction of the performance obligation and the point in time when control of the product was transferred to the customer and thus revenue was recognized.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

February 21, 2020

We have served as the Company’s auditor since 2015.

In January 2021, the Company acquired certain assets associated with ammonium sulfate packaging, warehousing and logistics services in Virginia for approximately $ 9.5 million, net of assumed liabilities of approximately $ 0.4 million.

The acquisition builds on the Company's expertise in ammonium sulfate and sulfate nutrition and enables its ability to directly supply packaged ammonium sulfate to customers, while bolstering logistics and operational efficiency for the Virginia sites.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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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-K

Item 8. Financial Statements and Supplementary Data