What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-29 compared with 2021-07-30 · 115 added, 82 removed, 200 unchanged (50% of the section changed)

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and globally, including the impact of the coronavirus (COVID-19) pandemic and any resurgences;

the scope, duration and pace of recovery of the pandemic;

the scope, shape and pace of recovery of the pandemic;

the timing of the distribution and the efficacy of vaccines or treatments for COVID-19 that are currently available or may be available in the future and related vaccination rates;

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failure to maintain effective internal controls;

disruptions in transportation and logistics;

our ability to declare and pay quarterly cash dividends and the amounts and timing of any future dividends;

our ability to repurchase our common stock and the amount and timing of any future repurchases;

disruptions in supply chain, transportation and logistics;

potential for uncertainty regarding qualification for tax treatment of our spin-off;

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We internally polymerize caprolactam into Aegis® Nylon 6 Resins, and we also market and sell the caprolactam that is not consumed internally to customers who use it to manufacture polymer resins to produce nylon fibers, films and other nylon products.

Our Hopewell manufacturing facility is one of the world’s largest single-site producers of caprolactam as of June 30, 2021.

Our Hopewell manufacturing facility is one of the world’s largest single-site producers of caprolactam as of September 30, 2021.

• Chemical Intermediates – We manufacture, market and sell a number of other chemical products that are derived from the chemical processes within our integrated supply chain.

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Ammonium sulfate fertilizer is derived from the integrated operations at the Hopewell manufacturing facility.

Because of our Hopewell facility’s size, scale and technology design, we are the world’s largest single-site producer of ammonium sulfate fertilizer as of June 30, 2021.

Because of our Hopewell facility’s size, scale and technology design, we are the world’s largest single-site producer of ammonium sulfate fertilizer as of September 30, 2021.

We market and sell ammonium sulfate primarily to North American and South American distributors, farm cooperatives and retailers to fertilize crops.

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Additionally, one of our strategies is to continue developing higher-value, differentiated Nylon 6 products, such as our wire and cable and co-polymer offerings, in current and new customer applications.

We also manufacture, market and sell a number of chemical intermediate products that are derived from the chemical processes within our integrated supply chain.

Most significant is acetone, which is used by our customers in the production of adhesives, paints, coatings and solvents.

Prices for acetone are influenced by its own supply and demand dynamics but can also be influenced by the underlying move in propylene input costs.

We continue to invest in and grow our differentiated product offerings in high-purity applications and high-value intermediates including our oximes-based EZ-Blox™ anti-skinning agent used in paints and Nadone® cyclohexanone, which is a solvent used in various high-value applications.

Global prices for ammonium sulfate fertilizer are influenced by several factors including the price of urea, which is the most widely used source of nitrogen-based fertilizer in the world.

Other global factors driving ammonium sulfate fertilizer demand are general agriculture trends, including planted acres and the price of crops.

Other global factors driving ammonium sulfate fertilizer demand

are general agriculture trends, including planted acres and the price of crops.

Our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition to increase yields of key crops.

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We recently expanded our offering to directly supply packaged ammonium sulfate to customers, primarily in North and South America, and diversified and optimized our offerings to include spray-grade adjuvant to support crop protection and products for industrial use.

We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, but quarterly sales experience seasonality based on the timing and length of the growing seasons in North and South America.

North America

ammonium sulfate prices are typically strongest during second quarter fertilizer application and then typically decline seasonally with new season fill in the third quarter.

We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, but quarterly sales experience seasonality reflecting both geographical and product sales mix considerations based on the timing and length of the growing seasons in North and South America.

North America ammonium sulfate prices are typically strongest during second quarter fertilizer application, where we sell a higher mix of granular product domestically, and then typically decline seasonally with new season fill in the third quarter, where we generally drive a higher mix of standard grade product sales into export markets.

Due to the ammonium sulfate fertilizer sales cycle, we occasionally build up higher inventory balances because our production is continuous and not tied to seasonal demand for fertilizers.

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Further, although we believe that our sources of supply for our raw materials, including cumene, natural gas and sulfur, are generally robust, it is difficult to predict the impact that shortages, increased costs and related supply chain logistics considerations may have in the future.

In order to mitigate the risk of unplanned interruptions, we schedule several planned plant turnarounds each year to conduct routine and major maintenance across our facilities.

In order to mitigate the risk of unplanned interruptions, we schedule planned plant turnarounds each year to conduct routine and major maintenance across our facilities.

We also utilize maintenance excellence and mechanical integrity programs, targeted buffer inventory of intermediate chemicals necessary for our manufacturing process, and co-producer swap arrangements, which are intended to mitigate the extent of any production losses as a result of planned and unplanned downtime;

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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, with most countries and territories worldwide having confirmed cases, and with certain jurisdictions experiencing resurgences, including as a result of variant strains.

Since early 2020, COVID-19 has continued to spread, with confirmed cases worldwide, and with certain jurisdictions experiencing resurgences, including as a result of variant strains.

The spread 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 a substantial impact on businesses around the world and on global, regional and national economies, including disruptions to supply chains, reduced demand, production and 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 pace of recovery may continue to have an impact on the United States and global economies.

The pandemic and these containment measures have had a substantial impact on businesses around the world and on global, regional and national economies, including disruptions to supply chains, volatility in demand, production and sales across most industries, volatility within global financial markets, inflationary pressures in commodity pricing and an increasingly dynamic workforce environment.

The continuously evolving nature of this pandemic and the pace and shape of a full recovery may continue to have an impact on the United States and global economies.

As previously disclosed, the Company experienced a material impact on its second quarter 2020 results of operations associated with lower demand, particularly in nylon, caprolactam and phenol, and a decrease in overall sales volume related to global markets and the economic impact of COVID-19.

Starting in the second half of 2020, and through the second quarter of 2021, demand improved to pre-COVID-19 levels with states, regions and countries in various phases of re-opening and continued administration of vaccines for COVID-19, although there is no assurance demand recovery will continue given vaccination rates, the potential for surges in infection rates and newly identified strains of COVID-19.

Starting in the second half of 2020, and through the third quarter of 2021, demand improved to pre-COVID-19 levels with states, regions and countries in various phases of re-opening and continued administration of vaccines for COVID-19.

The Company will continue to monitor developments and execute our operational and safety mitigation plans as previously disclosed.

As the situation surrounding COVID-19 remains fluid and unpredictable, 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.

Credit Agreement

On October 27, 2021, the Company completed a refinancing of its existing senior secured revolving credit facility under that certain Credit Agreement, dated as of September 30, 2016, among the Company, the guarantors, the lenders party thereto and

Bank of America, N.A., as administrative agent (as amended by Amendment No.

1 on February 21, 2018 and Amendment No.

2 on February 19, 2020), by entering into a new Credit Agreement (the “Credit Agreement”), among the Company, the lenders party thereto, the swing line lenders party thereto, the letter of credit issuers party thereto and Truist Bank, as administrative agent, which provides for a new senior secured revolving credit facility in an aggregate principal amount of $500 million (the “Revolving Credit Facility”).

For a discussion of the Credit Agreement and Revolving Credit Facility, please refer to "Note 14.

Subsequent Events."

As announced on September 28, 2021, the Board declared a quarterly cash dividend of $0.125 per share on the Company's common stock, payable on November 23, 2021 to stockholders of record as of the close of business on November 9, 2021.

Results of Operations

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Three Months Ended

June 30, 2021 Six Months Ended

June 30, 2021

September 30, 2021 Nine Months Ended

September 30, 2021

Volume 7.9% 15.3%

Price 50.5% 38.9%

Sales increased in the three months ended June 30, 2021 compared to the prior year period by $204.7 million (approximately 88%) due primarily to higher formula-based pass-through pricing (approximately 31%) as a result of net cost increases in benzene and propylene (inputs to cumene which is a key feedstock to our products), favorable market-based pricing (approximately 25%) and higher sales volume (approximately 32%) reflecting strength across all product lines.

Sales increased in t he six months ended June 30, 2021 co mpared to the prior year period by $278.3 million (approximately 52%) due primarily to higher formula-based pass-through pricing (approximately 20%) as a result of net cost increases in benzene and propylene, favorable market-based pricing (approximately 13%) and higher sales volume (approximately 19%) reflecting strength across all product lines.

Sales increased in the three months ended September 30, 2021 compared to the prior year period by $164.6 million (approximately 58%) due primarily to higher formula-based pass-through pricing (approximately 22%) as a result of net cost increases in benzene and propylene (inputs to cumene which is a key feedstock to our products), favorable market-based pricing (approximately 28%) and higher sales volume (approximately 8%) driven primarily by improved end market demand across our ammonium sulfate, nylon and caprolactam product lines.

Sales increased in the nine months ended September 30, 2021 compared to the prior year period by $442.9 million (approximately 54%) due primarily to higher formula-based pass-through pricing (approximately 21%) as a result of net cost increases in benzene and propylene, favorable market-based pricing (approximately 18%) and higher sales volume (approximately 15%) driven primarily by improved end market demand across all product lines.

Costs of Goods Sold

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Gross Margin percentage 18.0% 5.7% 17.4% 9.9%

Costs of goods sold increased in the three months ended June 30, 2021 compared to the prior year period by $158.1 million (approximately 80% ) due primarily to increased prices of raw materials (approximately 52%) and higher sales volumes as discussed above (approximately 26%).

Costs of goods sold increased in the six months ended June 30, 2021 compared to the prior year period by $204.0 million (approximately 43%) due primarily to (i) increased prices of raw materials (approximately 28%), (ii) higher sales volumes (approximately 12%) and (iii) an unfavorable non-cash LIFO inventory reserve adjustment (1%).

Gross margin percentage increased by approximately 4% in the three months ended June 30, 2021 compared to the prior year period due primarily to (i) increased sales volume (approximately 3%), (ii) the impact of formula-based pass-through pricing and increased market pricing (approximately 2%) and (iii) the initial collection of insurance proceeds related to the 2019 shut-down of cumene supplier Philadelphia Energy Solutions (approximately 1%), partially offset by higher manufacturing spend to support volume growth (approximately 2%).

Gross margin percentage increased by approximately 5% in the six months ended June 30, 2021 compared to the prior year period due primarily to increased sales volume (approximately 4%) and the impact of formula-based pass-through pricing and increased market pricing (approximately 3%), partially offset by an unfavorable non-cash LIFO inventory reserve adjustment (approximately 1%) and higher manufacturing spend to support volume growth (approximately 1%).

Costs of goods sold increased in the three months ended September 30, 2021 compared to the prior year period by $100.4 million (approximately 38% ) due primarily to increased prices of raw materials (approximately 38%) and higher sales volumes as discussed above (approximately 6%), which was partially offset by a net favorable impact of plant turnarounds year-over-year (approximately 6%).

Costs of goods sold increased in the nine months ended September 30, 2021 compared to the prior year period by $304.5 million (approximately 41%) due primarily to (i) increased prices of raw materials (approximately 32%), (ii) higher sales

volumes (approximately 10%) and (iii) an unfavorable non-cash LIFO inventory reserve adjustment (approximately 1%).

The noted increase was partially offset by a net favorable impact of plant turnarounds year-over-year (approximately 2%).

Gross margin percentage increased by approximately 12% in the three months ended September 30, 2021 compared to the prior year period due primarily to the (i) impact of formula-based pass-through pricing and increased market pricing (approximately 7%), (ii) net favorable impact of plant turnarounds year-over-year (approximately 4%), (iii) higher sales volume (approximately 2%) and (iv) the collection of additional insurance proceeds related to the 2019 shut-down of cumene supplier Philadelphia Energy Solutions (approximately 1%).

The noted increase was partially offset by increased plant spend and sales freight to support higher sales volume (approximately 2%).

Gross margin percentage increased by approximately 8% in the nine months ended September 30, 2021 compared to the prior year period due primarily to (i) the impact of formula-based pass-through pricing and increased market pricing (approximately 4%), (ii) higher sales volume (approximately 4%) and (iii) net favorable impact of plant turnarounds year-over-year (approximately 1%).

The noted increase was partially offset by an unfavorable non-cash LIFO inventory reserve adjustment (approximately 1%).

Selling, General and Administrative Expenses

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Percentage of Sales 4.7% 5.7% 4.9% 6.2%

Selling, general and administrative expenses increased by $3.8 million in the three months ended June 30, 2021 compared to the prior year period due primarily to increased incentive and stock-based compensation costs.

Selling, general and administrative expenses increased by $6.3 million in the six months ended June 30, 2021 compared to the prior period due primarily to increased incentive and stock-based compensation costs and increased IT costs.

Selling, general and administrative expenses increased by $4.9 million in the three months ended September 30, 2021 compared to the prior year period due primarily to increased incentive and stock-based compensation costs and increased functional support costs as compared to cost control measures implemented in response to the COVID-19 pandemic in the prior year.

Selling, general and administrative expenses increased by $11.3 million in the nine months ended September 30, 2021 compared to the prior period due primarily to increased incentive and stock-based compensation costs and increased functional support costs as compared to cost control measure implemented in response to the COVID-19 pandemic in the prior year.

Income Tax Expense

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Income tax expense $ 13,817 $ 2,273 $ 23,088 $ 5,938

Income tax expense (benefit) $ 13,747 $ (980) $ 36,835 $ 4,957

Effective tax rate 23.8% 58.6% 24.1% 20.4%

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The refund was received in the first quarter of 2021.

The Company’s effective tax rate for the three and six months ended June 30, 2021 was higher compared to the U.S.

The Company’s effective tax rate for the three and nine months ended September 30, 2021 was higher compared to the U.S.

federal statutory rate, due primarily to state taxes and executive compensation deduction limitations, partially offset by tax credits and the deduction for foreign-derived intangible income.

The Company’s effective tax rate for the three months ended June 30, 2020 was lower compared to the U.S.

federal statutory rate, due primarily to the impact of changes in the Company's geographical sales mix on state tax and additional research tax credits claimed on the Company's 2019 U.S.

federal income tax return recorded as discrete tax adjustments in the second quarter of 2020.

This decrease was partially offset by tax deficiencies on vesting of equity compensation in the quarter and executive compensation limitations.

The Company’s effective tax rate for the six months ended June 30, 2020 was higher compared to the U.S.

statutory rate due primarily to tax deficiencies on vesting of equity compensation, executive compensation deduction limitations, and the impact of the CARES Act, partially offset by discrete tax adjustments related to additional research tax credits claimed on the Company’s 2019 U.S.

federal income tax return and the impact of changes in the Company’s geographical sales mix on state tax.

The Company’s effective tax rate for the three months ended June 30, 2021 was higher than the prior year period due primarily to the impact of discrete tax adjustments recorded in the second quarter of 2020, related to changes in the Company's geographical sales mix on state tax and additional research tax credits claimed on the Company's 2019 U.S.

federal income tax return, which decreased the quarterly effective tax rate.

The Company’s effective tax rate for the six months ended June 30, 2021 was higher than the prior year period due primarily to the impact of discrete tax adjustments recorded in the second quarter of 2020 related to changes in the Company's geographical sales mix on state tax and additional research tax credits claimed on the Company's 2019 U.S.

federal income tax return, which decreased the effective tax rate.

These adjustments are partially offset by tax deficiencies on vesting of equity compensation, the impact of the CARES Act recorded in the period ended June 30, 2020 and the anticipated income tax benefit of the deduction for foreign-derived intangible income in the period ended June 30, 2021.

The Company’s effective tax rate for the three months ended September 30, 2020, was higher compared to the U.S.

federal statutory rate primarily due to research tax credits and the 2019 state return-to-provision adjustment recorded in that quarter as discrete tax adjustments which had a larger than normal impact on the quarterly effective tax rate due to the nominal Loss before taxes recorded in that quarter.

The Company’s effective tax rate for the nine months ended September 30, 2020 was lower compared to the U.S.

federal statutory rate due primarily to research tax credits and the impact of changes in the Company’s geographical sales mix on state tax, partially offset by tax deficiencies on vesting of equity compensation, executive compensation deduction limitations, and state taxes.

The Company’s effective tax rate for the three months ended September 30, 2021 was lower than the prior year period due primarily to the Loss before taxes, an increase in 2020 anticipated research tax credits and a discrete 2019 state return-to-provision adjustments recorded in the third quarter of 2020, which resulted in a large increase on the quarterly effective tax rate.

The Company’s effective tax rate for the nine months ended September 30, 2021 was higher than the prior year period due primarily to the impact of discrete tax adjustments recorded in 2020 related to changes in the Company's geographical sales mix on state tax and 2019 federal and state return-to-provision adjustments, which decreased the 2020 effective tax rate.

We are subject to income taxes in the United States and to a lesser extent several foreign jurisdictions.

Changes to income tax laws and regulations, or the interpretation of such laws, in any of the jurisdictions in which we operate could increase our effective tax rate and reduce our cash flows from operating activities.

The current US administration has released various draft tax reform proposals that, if enacted, would generally increase U.S.

federal income taxes on corporations.

These proposals, if implemented, could have an unfavorable effect on our business, results of operations and financial condition.

As such, we continue to monitor these legislative proposals to evaluate the impact on our business.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net income $ 44,131 $ 11,429 $ 72,262 $ 20,005

As a result of the factors described above, Net income was $44.1 million and $72.3 million for the three and six months ended June 30, 2021 as compared to $11.4 million and $20.0 million in the corresponding prior year period.

Net income (loss) $ 43,942 $ (692) $ 116,204 $ 19,313

As a result of the factors described above, Net income (loss) was $43.9 million and $116.2 million for the three and nine months ended September 30, 2021 as compared to $(0.7) million and $19.3 million in the corresponding prior year period.

Non-GAAP Measures

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The following tables may also present each of these measures as further adjusted.

Company, and facilitate a better comparison among fiscal periods and performance relative to its competitors, as the non-GAAP measures exclude items that are not considered core to the Company’s operations.

The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and performance relative to its competitors, as the non-GAAP measures exclude items that management believes do not reflect the Company’s ongoing operations.

These non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with U.S.

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net income $ 44,131 $ 11,429 $ 72,262 $ 20,005

Net income (loss) $ 43,942 $ (692) $ 116,204 $ 19,313

Interest expense, net 1,174 1,981 4,096 5,827

Income tax expense 13,817 2,273 23,088 5,938

Income tax expense (benefit) 13,747 (980) 36,835 4,957

Depreciation and amortization 16,325 15,497 49,058 45,061

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EBITDA Margin* (non-GAAP) 16.8% 5.6% 16.4% 9.2%

*EBITDA Margin is defined as EBITDA divided by Sales

Liquidity and Capital Resources

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We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities.

On a recurring basis, our primary future cash needs will be centered on operating activities, working capital, and capital expenditures reflecting disciplined capital deployment.

On a recurring basis, our primary future cash needs will be centered on operating activities, working capital, dividends, liquidity, and capital expenditures reflecting disciplined capital deployment.

Capital expenditures are deployed for various ongoing investments and initiatives to improve reliability, yield and quality, expand production capacity and comply with HSE regulations.

While the COVID-19 pandemic has created and continues to create significant volatility in funding markets, we believe that our future cash from operations, together with cash on hand and our access to credit and capital markets, will provide adequate resources to fund our expected operating and financing needs and obligations.

Our ability to fund our capital needs, however, will depend on our ongoing ability to generate cash from operations and access to credit and capital markets, both of which are subject to

the risk factors previously disclosed in our 2020 Form 10-K, as well as general economic, financial, competitive, regulatory and other factors that are beyond our control.

As of the end of the second quarter of 2021, the Company had approximately $4.3 million of cash on hand with approximately $229 million of additional capacity available under the revolving credit facility.

Our ability to fund our capital needs, however, will depend on our ongoing ability to generate cash from operations and access to credit and capital markets, both of which are subject to the risk factors previously disclosed in our 2020 Form 10-K, as well as general economic, financial, competitive, regulatory and other factors that are beyond our control.

As of the end of the third quarter of 2021, the Company had approximately $7.2 million of cash on hand with approximately $289 million of additional capacity available under the revolving credit facility.

The Company’s Consolidated Leverage Ratio financial covenant of its credit facility allows it to net up to $75 million of cash with debt.

The Second Amendment to the credit facility also provided leverage ratio covenant flexibility through the maturity date of the credit facility.

Capital expenditures are expected to be approximately $65 million to $70 million in 2021 compared to $83 million in 2020, reflecting efficiencies in project execution and following the completion of several high-return growth and cost savings investments.

Capital expenditures are expected to be approximately $63 million in 2021 compared to $83 million in 2020, reflecting efficiencies in project execution and following the completion of several high-return growth and cost savings investments.

“Subsequent Events,” for information regarding the Company’s Credit Agreement, entered into on October 27, 2021, which replaces and supersedes the Company’s existing credit facility.

As noted in Note 10.

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We expect that our primary cash requirements for the remainder of 2021 will be to fund costs associated with ongoing operations, capital expenditures, and amounts related to other contractual obligations.

The Company made cash contributions to the defined benefit pension plan of $4.8 million during the six months ended June 30, 2021 with $1.2 million in the first quarter of 2021 and $3.6 million in the second quarter of 2021.

The Company made cash contributions to the defined benefit pension plan of $17.5 million during the nine months ended September 30, 2021 with $1.2 million in the first quarter of 2021, $3.6 million in the second quarter of 2021 and $12.7 million

in the third quarter of 2021.

The Company currently plans to make pension plan contributions during 2021 sufficient to satisfy funding requirements under the AdvanSix Retirement Earnings Plan in an aggregate amount of approximately $18 million to $23 million.

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

As of June 30, 2021, the Company had repurchased 3,614,202 shares of common stock, including 524,440 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $102.3 million at a weighted average market price of $28.31 per share.

As of June 30, 2021, $59.6 million remained available for share repurchases under the current authorization.

During the second quarter of 2021 and the period from July 1, 2021 through July 23, 2021, no additional shares were repurchased under the currently authorized repurchase program.

As of September 30, 2021, the Company had repurchased 3,614,202 shares of common stock, including 524,440 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $102.3 million at a weighted average market price of $28.31 per share.

As of September 30, 2021, $59.6 million remained available for share repurchases under the current authorization.

During the third quarter of 2021 and the period from October 1, 2021 through October 22, 2021, no additional shares were repurchased under the currently authorized repurchase program.

The timing, declaration, amount and payment of future dividends to stockholders, if any, will fall within the discretion of our Board.

Holders of shares of our common stock will be entitled to receive dividends when, and if, declared by our Board at its discretion out of funds legally available for that purpose, subject to the terms of our indebtedness, the preferential rights of any preferred stock that may be outstanding, legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant.

Credit Agreement

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

The Second Amended and Restated Credit Agreement has a five year term with a scheduled maturity date of February 21, 2023.

The Second Amended and Restated Credit Agreement 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 requires 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 June 30, 2021.

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 Second Amended and Restated Credit Agreement had a five year term with a scheduled maturity date of February 21, 2023.

The Second Amended and Restated Credit Agreement required 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 required 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 did not comply with the covenants in the Second Amended and Restated Credit Agreement, the lenders could, 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, 2021.

Borrowings under the Second 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 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 was 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.

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.

The Second Amended and Restated Credit Agreement contains 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, as well as financial covenants that require the Company to maintain interest coverage and leverage ratios at levels specified in the Second Amended and Restated Credit Agreement.

These covenants may limit how we conduct our business, and in the event of certain defaults, our repayment obligations may be accelerated.

We were in compliance with all of our covenants at June 30, 2021 and through the date of the filing of this Quarterly Report on Form 10-Q.

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

The Second 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, as well as financial covenants that require the Company to maintain interest coverage and leverage ratios at levels specified in the Second Amended and Restated Credit Agreement.

These covenants placed limits on how we conduct our business, and in the event of certain defaults, our repayment obligations could be accelerated.

We were in compliance with all of our covenants at September 30, 2021 and through the date of the filing of this Quarterly Report on Form 10-Q.

On October 27, 2021, the Company completed a refinancing of its existing senior secured revolving credit facility under the Second Amended and Restated Credit Agreement, by entering into a new Credit Agreement (the “Credit Agreement”), among the Company, the lenders party thereto, the swing line lenders party thereto, the letter of credit issuers party thereto and Truist Bank, as administrative agent, which provides for a new senior secured revolving credit facility in an aggregate principal amount of $500 million (the “Revolving Credit Facility”).

For a discussion of the Credit Agreement and Revolving Credit Facility, please refer to Note 14.

"Subsequent Events".

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

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For further information regarding risk and the impact COVID-19 could have on our business, financial condition, results of operations and liquidity, including our ability to comply with financial covenants in our credit facility and our access to, and cost of, capital, see "Risk Factors" in Item 1A of Part I of the 2020 Form 10-K.

As of June 30, 2021, $229 million was available for use out of the total of $425 million under the Revolving Credit Facility.

As of September 30, 2021, $289 million was available for use out of the total of $425 million under the Revolving Credit Facility.

As of December 31, 2020, we had a balance of $275 million under the Revolving Credit Facility.

During the six months ended June 30, 2021, we repaid an incremental net amount of $80 million to bring the balance under the Revolving Credit Facility to $195 million as of June 30, 2021.

During the nine months ended September 30, 2021, we repaid an incremental net amount of $140 million to bring the balance under the Revolving Credit Facility to $135 million as of September 30, 2021.

We expect that Cash provided by operating activities will fund future interest payments on the Company's outstanding indebtedness.

Cash Flow Summary

Six Months Ended

Nine Months Ended

September 30,

Cash provided by (used for):

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Net change in cash and cash equivalents $ (3,367) $ 9,636

Cash provided by operating activities increased by $80.5 million for the six months ended June 30, 2021 versus the prior year period due primarily to a $52.3 million increase in net income, a $20.1 million cash improvement from Taxes receivable (including a $12.3 million cash tax refund received in the first quarter of 2021) and a $21.0 million favorable cash impact from working capital (comprised of Accounts receivables, Inventories, Accounts payable and Deferred income) year-over-year with a $16.9 million unfavorable cash impact from working capital for the six months ended June 30, 2021 compared to a $37.8 million unfavorable cash impact in the prior year period.

These favorable impacts were partially offset by a $15.5 million unfavorable cash impact from Other assets and liabilities driven by a $7.4 million increase in prepaid insurance and decreases in the reserve for uncertain tax positions and pension liability of $3.8 million and $3.5 million, respectively, compared to the prior year period.

Cash used for investing activities decreased by $17.6 million for the six months ended June 30, 2021 versus the prior year period due to lower cash payments for capital expenditures of approximately $27.1 million offset by cash paid for the acquisition of Commonwealth Industrial Services for approximately $9.5 million.

Cash used for financing activities increased by $170.1 million for the six months ended June 30, 2021 versus the prior year period due primarily to net repayments of $80.0 million for the six months ended June 30, 2021 compared to net borrowings of $91.0 million during the prior year period as described above.

Cash provided by operating activities increased by $121.4 million for the nine months ended September 30, 2021 versus the prior year period due primarily to a $96.9 million increase in net income, a $23.7 million cash improvement from Taxes receivable (including a $12.3 million cash tax refund received in the first quarter of 2021) and a $13.3 million favorable cash impact from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) year-over-year with a $4.9 million unfavorable cash impact from working capital for the nine months ended September 30, 2021 compared to a $18.2 million unfavorable cash impact in the prior year period.

These net favorable

impacts for the nine months ended September 30, 2021 were partially offset by a $20.3 million unfavorable cash impact from Other assets and liabilities driven by a $2.7 million increase in prepaid insurance and a decrease in the pension liability of $16.4 million (primarily reflecting the impact of cash pension contributions), compared to the prior year period.

Cash used for investing activities decreased by $20.5 million for the nine months ended September 30, 2021 versus the prior year period due to lower cash payments for capital expenditures of approximately $30.1 million reflecting capital project efficiencies and timing of project execution offset by cash paid for the acquisition of Commonwealth Industrial Services for approximately $9.5 million.

Cash used for financing activities increased by $154.9 million for the nine months ended September 30, 2021 versus the prior year period due primarily to net repayments of $140.0 million for the nine months ended September 30, 2021 compared to net borrowings of $16.0 million during the prior year period as described above.

Capital Expenditures

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The following table summarizes ongoing and expansion capital expenditures:

Six Months Ended

June 30, 2021

Nine Months Ended

September 30, 2021

Capital expenditures in Accounts payable at December 31, 2020

Purchases of property, plant and equipment 38,076

Capital expenditures in Accounts payable at June 30, 2021

Capital expenditures in Accounts payable at September 30, 2021

Cash paid for capital expenditures $ 37,471

For 2021, we expect our total capital expenditures to be approximately $65 million to $70 million compared to $83 million in 2020, reflecting efficiencies in project execution and following the completion of several high-return growth and cost savings investments.

For 2021, we expect our total capital expenditures to be approximately $63 million compared to $83 million in 2020, reflecting process and execution efficiencies, as well as timing and scope of replacement maintenance and high-return growth and cost savings projects.

Capital expenditures are deployed for various ongoing investments and initiatives to improve reliability, yield and quality, expand production capacity and comply with HSE regulations.

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Off-Balance Sheet Arrangements and Contractual Obligations

As of June 30, 2021, the Company did not have any off-balance sheet arrangements as described in Instruction 8 to Item 303(b) of Regulation S-K and did not have any material changes in the commitments or contractual obligations detailed in the Company's 2020 Form 10-K.

As of September 30, 2021, the Company did not have any off-balance sheet arrangements as described in Instruction 8 to Item 303(b) of Regulation S-K and did not have any material changes in the commitments or contractual obligations detailed in the Company's 2020 Form 10-K.

The Company has not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

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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-Q

Item 2. Management’s Discussion and Analysis