What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-18 compared with 2021-02-19 · 141 added, 294 removed, 223 unchanged (66% of the section changed)

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Discussions of our financial condition and results of operations as of and for the year ended December 31, 2019 and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 19, 2021.

Corporate History

On October 1, 2016, Honeywell International Inc.

(“Honeywell”) completed the separation of AdvanSix.

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”).

Business Overview

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Applications such as engineered plastics and packaging have potential to grow at faster rates given certain macrotrends.

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

Additionally, we continue to execute against our strategic focus on developing and commercializing select higher-value, differentiated Nylon 6 products, such as our wire and cable, Post-Industrial Recycled resins and films 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.

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In addition, due to its nutrient density, the typical ammonium sulfate product delivers pound for pound the most readily available sulfur and nitrogen to crops than other fertilizers.

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.

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.

Sales of most of our other products have generally been subject to minimal, or no, seasonality.

We seek to run our production facilities on a nearly continuous basis for maximum efficiency as several of our intermediate products are key feedstock materials for other products in our integrated manufacturing chain.

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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 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.

Department of Homeland Security designated our industry as "essential critical infrastructure" during the response to COVID-19 for both public health and safety as well as community well-being.

The Company takes its obligation seriously to produce materials that support the broader population, all while maintaining a prioritized focus on the health and safety of its employees and the communities in which it operates, and assuring the continuity of its business operations.

As a global provider of products that are key inputs for our customers’ processes serving a variety of end-markets, a pandemic presents obstacles that can adversely affect our supply chain effectiveness and efficiencies, our manufacturing operations and customer demand for our products and, ultimately, our financial results.

We believe we are positioned to respond to and mitigate the potential impacts of the rapidly evolving market dynamics.

For a description of risks in relation to the COVID-19 pandemic, see "Risks Relating to Our Business" under "Risk Factors" in Item 1A.

In the first quarter of 2020, the Company began executing its business continuity plans with dedicated teams chartered to proactively implement measures to mitigate COVID-19 impacts while continuing to operate all of its manufacturing facilities to meet customer demand.

In response to COVID-19, the Company took many actions to protect its employees, customers, suppliers, shareholders and surrounding communities including, but not limited to:

(i) 100% thermal screening process at all manufacturing facilities and restrictions on non-essential visitors;

(ii) telecommuting across all sites, where possible;

(iii) prohibiting all non-essential domestic and international business travel;

(iv) establishing social distancing while limiting the number of employees in control rooms, labs and in-person meetings;

and (v) maintaining policies and practices consistent with CDC and government guidelines including upgraded personal protective equipment, face coverings at all facilities, and exposure management protocols.

Our telecommuting policies have been designed to allow for continued operation of non-production business-critical functions, including financial reporting systems and internal controls.

The Company has protocols in place at all sites, including on-site medical personnel at manufacturing facilities to actively monitor employees and contractors who report symptoms of or exposure to COVID-19.

In addition, the Company has trained a contingent workforce to operate the plants as part of its business continuity planning.

The Company continued its execution of these measures at all sites through the fourth quarter of 2020 and into 2021.

We believe our competitive strengths are serving us well during this time including our vertically integrated asset base and global low-cost advantage as well as driving disciplined cost and cash management across the organization with further reductions of capital expenditures and discretionary spending.

During the fourth quarter of 2020, the Company continued to support safe and stable operations while serving its customers by adjusting output to changes in mix and demand.

From an industry perspective, building and construction demand has improved, particularly in residential applications, however, commercial construction remains soft.

Auto demand has also been improving with the U.S.

and Europe experiencing a slower recovery, while China and other Asia markets saw a faster rebound.

Export demand for textiles out of Asia has been soft, which has had an impact on nylon supply and demand conditions.

The nylon product line has seen an improvement in demand domestically as end markets improved from a challenging first half of 2020.

Ammonium Sulfate and acetone demand have not been significantly impacted by COVID-19 to date.

Ammonium Sulfate has experienced steady demand through the peak second quarter domestic planting season and into the new season fill, while the North American acetone industry supply and demand balance has continued to be favorable following the affirmative final anti-dumping duties and robust demand for isopropyl alcohol (IPA), used for hand sanitizer and other disinfectants, and methyl methacrylate (MMA), used for acrylic screens, and other solvents.

As a result of COVID-19, demand reduction for transportation fuels and resultant inventory builds have reduced refinery utilization rates, which the Company continues to monitor as it relates to potential impacts on its supply chain and availability of key raw materials.

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 experienced an improvement in demand to approximately pre-COVID-19 levels.

During the fourth quarter of 2020, the Company experienced greater demand than in the third 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 and the continued development and distribution of vaccines for COVID-19, 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, see below in the MD&A under "Liquidity and Capital Resources" and Part I, Item 1A, "Risk Factors".

The Company continues to evaluate the potential impact of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), enacted on March 27, 2020 and the Consolidated Appropriations Act, 2021 which was enacted on December 27, 2020.

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

Income Taxes" below for further discussion of the CARES Act.

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, 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 end 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.

As announced on February 18, 2022, the Board declared a quarterly cash dividend of $0.125 per share on the Company's common stock, payable on March 15, 2022 to stockholders of record as of the close of business on March 1, 2022.

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.

On February 18, 2022, the Company announced the signing of a definitive agreement to acquire U.S.

Amines, Ltd., a leading North American producer of alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals, for an estimated net purchase price of approximately $100 million.

The transaction is expected to close in the first quarter of 2022, subject to customary closing conditions.

In January 2021, the Company acquired certain assets associated with ammonium sulfate packaging, warehousing and logistics services in Virginia from Commonwealth Industrial Services, Inc.

for approximately $9.5 million.

This acquisition enables the Company to expand its product offerings by directly supplying packaged ammonium sulfate to customers, primarily in North and South America.

It diversifies and optimizes our product offerings to include spray-grade adjuvant to support crop protection and products for industrial use.

Credit Agreement

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 9.

Long-term Debt and Credit Agreement" under "Financial Statements and Supplementary Data" in Item 8.

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 9.

Long-term Debt and Credit Agreement."

Anti-Dumping Duty Petitions

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Effective March 31, 2020, Commerce imposed anti-dumping orders and applicable duties on imports of acetone from Belgium, South Africa and South Korea for a five-year period.

The anti-dumping orders are subject to annual administrative review, which may change the applicable level of duties.

On May 26, 2020, LG Chem, Ltd., and LG Chem America, Inc., filed a motion with the U.S.

The anti-dumping orders are subject to annual administrative review, if requested, which may change the level of duties applicable to imports in future periods.

On May 26, 2020, LG Chem, Ltd., and LG Chem America, Inc.

filed a motion with the U.S.

Court of International Trade contesting the final determination made by Commerce concerning imports from South Korea, and on June 19, 2020, the Company filed a motion to intervene.

The anti-dumping orders applicable to imports from all other sources were not appealed.

2019 Developments

On May 2, 2019, the Company approved the closure of its Pottsville, Pennsylvania films plant as part of its broader strategic efforts to improve the Company’s competitive position in providing quality film products and services to its customers.

The Company has also announced a strategic alliance with Oben Holdings Group S.A.

(“Oben”), a third-party producer of films for the flexible packaging industry, leveraging the Company's sales channels and Nylon 6 resin supply with Oben's new state-of-the-art manufacturing facility.

The Company ceased operations at the Pottsville, Pennsylvania plant in July 2019.

We recognized a restructuring charge of approximately $11 million during 2019 and do not expect to incur any additional restructuring charges related to the closure.

See “Note 18.

Restructuring” to the Consolidated Financial Statements included in Item 8 of this Form 10-K for further information.

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

On February 22, 2019, the Company announced that the Board authorized a share repurchase program of up to an additional $75 million of the Company's common stock, which was in addition to the remaining capacity available under the May 2018 share repurchase program.

Repurchases may be made, from time to time, on the open market, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act of 1934, as amended (the "Exchange Act").

The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors.

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

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 a 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.

Operational Events

On June 24, 2019, the Company announced that it was assessing the potential business impact of the fire that occurred at Philadelphia Energy Solutions' (“PES”) refinery in Philadelphia, Pennsylvania.

On August 13, 2021, the U.S.

Court of International Trade affirmed its final determination and LG Chem did not file any further appeal.

Ammonium Sulfate

In January 2017, Commerce published its final affirmative determination in the anti-dumping duty investigation of imports of ammonium sulfate from the People's Republic of China ("PRC") and in March 2017, the ITC issued its final determination of material injury by reason of imports from the PRC.

Effective March 9, 2017, Commerce imposed anti-dumping and countervailing duty orders and applicable duties on imports of ammonium sulfate from the PRC for a five-year period.

The anti-dumping and countervailing duty orders are subject to annual administrative review, if requested, which may change the level of duties applicable to imports in future periods.

In February 2022, Commerce and the ITC initiated five-year reviews of the anti-dumping and countervailing duty orders to determine whether to extend the orders for another five years.

Determinations are expected in the fourth quarter of 2022.

Philadelphia Energy Solutions’ Shut Down

The Company has assessed the business impact of the fire that shut down Philadelphia Energy Solutions’ (“PES”) refinery in Philadelphia, Pennsylvania.

PES was one of multiple suppliers to the Company of cumene, a feedstock material used to produce phenol, acetone and other chemical intermediates.

The PES disruption did not have a material impact on second quarter 2019 financial results.

The Company incurred an approximately $10 million unfavorable impact to pre-tax income in the second half of 2019, including incremental raw material and logistics costs as well as a modest unfavorable impact from fixed cost absorption.

As the PES refinery remains shutdown, the Company submitted a business interruption insurance claim and has realigned its supply chain to ensure the continuity of cumene supply.

The Company had an approximately $11 million unfavorable impact to pre-tax income in 2020, associated with its realigned supply chain, which was comparable to full-year impact in 2019.

On March 11, 2019, the Company announced that it declared force majeure on its phenol product line as a result of shortages and delivery delays of its key raw material, cumene.

The Company's cumene deliveries were reduced due to weather-related logistics disruptions in the Gulf Coast area and supplier operational constraints.

As a result of this force majeure event, phenol production at the Company's Frankford, Pennsylvania facility and caprolactam production at its Hopewell, Virginia facility were reduced.

The Company incurred an approximately $6.9 million unfavorable impact to pre-tax income in the first quarter of 2019, including the unfavorable impact of fixed cost absorption and incremental logistics costs.

In addition, the Company incurred an approximately $1.4 million unfavorable impact to pre-tax income in the first quarter of 2019 and an approximately $2.3 million unfavorable impact to pre-tax income in the second quarter of 2019 due to lost sales.

The Company is no longer on force majeure with phenol customers.

On January 17, 2018, the Company announced that it had experienced a temporary production issue at its Hopewell, Virginia facility related to the severe winter weather ("first quarter 2018 weather event").

As a result of this unplanned interruption, caprolactam and resin production had been reduced at the Hopewell and Chesterfield, Virginia facilities.

The Company incurred a $20 million unfavorable impact to pre-tax income in the first quarter of 2018 including the impact of fixed cost absorption, maintenance expense and incremental raw material costs.

In addition, the Company incurred an approximately $10 million unfavorable impact to pre-tax income in the first quarter of 2018 due to lost sales.

The Company submitted a business interruption insurance claim related to the first quarter 2018 weather event and recorded a benefit of $2.9 million to Cost of goods sold in the fourth quarter of 2018 and $6.6 million and $2.3 million to Cost of goods sold in the first and second quarters of 2019, respectively.

The business interruption claim was closed in the second quarter of 2019 with a total recorded benefit of approximately $12 million.

As of year-end 2021, the Company has incurred an approximately $35 million unfavorable impact to pre-tax income since the refinery shut down and, during 2020, submitted a business interruption insurance claim, while realigning its supply chain to ensure the continuity of its cumene supply.

While the Company has received $3.9 million of insurance proceeds through December 31, 2021, it continues to pursue the claim, which is ongoing.

Consolidated Results of Operations for the Years Ended December 31, 2021, 2020 and 2019

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2021 compared with 2020

Sales decreased in 2020 compared to 2019 by $139.5 million (approximately 11%) due primarily to lower sales prices (approximately 11%) driven primarily by (i) lower prices of raw materials (approximately 7%), following a net decrease in the cost of benzene and propylene (inputs to cumene which is a key feedstock material for our products) and (ii) lower market-based pricing (approximately 5%) in nylon, ammonium sulfate and caprolactam product lines partially offset by increases in chemical intermediates, specifically

Volume showed a slight increase (approximately 1%) due primarily to favorable mix and sales timing related to the ammonium sulfate product line, partially offset by decreases in caprolactam and chemical intermediates related to global markets and the economic impact of COVID-19.

Sales increased in 2021 compared to 2020 by $526.7 million (approximately 45%) due primarily to (i) favorable market-based pricing (approximately 20%), (ii) higher formula-based pass-through pricing (approximately 18%) as a result of net cost increases in benzene and propylene and (iii) higher sales volume (approximately 7%) driven primarily by improved end market demand and tight industry supply conditions across all product lines.

Cost of Goods Sold

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2021 compared with 2020

Costs of goods sold decreased in 2020 compared to 2019 by $137.8 million (approximately 12%) due primarily to (i) lower prices of raw materials, particularly benzene and propylene (approximately 11%), (ii) the net impact of lower plant spend and construction-related expenses, and lower production (approximately 2%) and (iii) the absence of the restructuring charge from the closure of the Pottsville films plant in 2019 (approximately 1%), partially offset by (i) increased sales volume (approximately 1%) and (ii) the absence of insurance proceeds received in 2019 (approximately 1%).

Gross margin percentage increased by approximately 1% in 2020 compared to 2019 due primarily to (i) lower raw material pricing (approximately 4%), (ii) the net favorable impact of lower plant spend and construction-related expenses, and lower production (approximately 1%), (iii) absence of the Pottsville restructuring (approximately 1%), partially offset by lower market based pricing (approximately 5%) and the absence of insurance proceeds (approximately 1%).

Costs of goods sold increased in 2021 compared to 2020 by $386.3 million (approximately 38%) due primarily to (i) increased prices of raw materials (approximately 31%), (ii) higher sales volume (approximately 4%), (iii) increased plant spend and sales freight to support higher sales volume (approximately 3%) and (iv) an unfavorable non-cash LIFO inventory reserve adjustment (approximately 1%).

The noted increase was partially offset by the collection of insurance proceeds related to the 2019 shut-down of cumene supplier Philadelphia Energy Solutions (approximately 1%).

Gross margin percentage increased by approximately 5% in 2021 compared to 2020 due primarily to (i) the net impact of formula-based pass-through pricing and increased market pricing (approximately 4%) and (ii) higher sales volume (approximately 2%), partially offset by increased plant spend and sales freight to support higher sales volume (approximately 2%).

Selling, General and Administrative Expenses

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2021 compared with 2020

Selling, general and administrative expenses decreased in 2020 compared to 2019 by $4.5 million, or approximately 6%, due primarily to decreased legal expenses, lower IT spending and reduced compensation costs related to performance incentives.

Selling, general and administrative expenses increased in 2021 compared to 2020 by $12.1 million, or approximately 17%, 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.

Interest Expense, Net

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2021 compared with 2020

Interest expense, net, increased in 2020 compared to 2019 by $2,338, or approximately 42.9%, due primarily to higher average borrowings and lower amounts of interest capitalized associated with capital projects.

Other Non-operating Expense (Income), Net

Interest expense, net, decreased in 2021 compared to 2020 by $2.8 million, or approximately 36%, due primarily to lower average borrowings, partially offset by lower amounts of interest capitalized associated with capital projects.

Other Non-operating Expense, Net

2021 2020 2019

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

Other non-operating expense, net $ 998 $ 53 $ 1,295

2021 compared with 2020

The decrease in Other non-operating expense (income), net in 2020 compared to 2019 was due primarily to the decrease of severance accruals and environmental remediation costs in the current year.

The increase in Other non-operating expense, net in 2021 compared to 2020 was due primarily to an increase in deferred compensation expense in the current year.

Income Tax Expense

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Effective tax rate 24.5 % 16.3 % 22.5 %

On December 22, 2017 the U.S.

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 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.

The Company's income tax expense for 2020 and 2019 was $8,956 and $12,001, respectively.

In the absence of the changes due to the 2017 Act and the related one-time remeasurement of deferred tax assets and liabilities to account for the reduction in the corporate tax rate to 21%, tax expense for 2018 would have been $21,175.

Under a provision included in the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, the Company filed a Federal net operating loss (NOL) carryback claim in July 2020 which generated a refund of previously paid taxes in the amount of $12.3 million.

The refund was received in the first quarter of 2021.

The Company's effective income tax rate for 2021 was higher compared to the U.S.

Federal statutory rate of 21% due primarily to state taxes and executive compensation deduction limitations partially offset by research tax credits and the foreign-derived intangible income deduction.

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

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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.

Federal statutory rate of 21% due primarily to state taxes and executive compensation deduction limitations resulting from the 2017 Act, partially offset by income tax benefits associated with the filing of the 2017 U.S.

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

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 impact our effective tax rate and cash flows from operating activities.

The current U.S.

administration has released various draft tax reform proposals and, as such, we continue to monitor these legislative proposals to evaluate the impact on our business.

As of December 31, 2021, 2020 and 2019, there were no unrecognized tax benefits recorded by the Company.

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EBITDA margin % excluding one-time Pottsville restructuring charges (non-GAAP) 15.2 % 10.7 % 9.8 %

(1) Prior year one-time Pottsville restructuring charges reflect the closure of the Company's Pottsville, Pennsylvania films plant.

See "Note 18.

Restructuring" to the Consolidated Financial Statements included in Item 8 of this Form 10-K for further information.

The following are reconciliations between the non-GAAP financial measure of Net Income and EPS excluding the one-time net tax benefit to its most directly comparable GAAP financial measure of Net Income and EPS:

Years Ended December 31,

2020 2019 2018

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

One-time net tax benefit (2)

Net Income excluding one-time net tax benefit $ 46,077 $ 41,347 $ 64,593

Years Ended December 31,

2020 2019 2018

EPS $ 1.64 $ 1.47 $ 2.20

One-time net tax benefit (2)

EPS excluding one-time net tax benefit $ 1.64 $ 1.47 $ 2.15

Years Ended December 31,

2020 2019 2018

EPS $ 1.64 $ 1.43 $ 2.14

One-time net tax benefit (2)

EPS excluding one-time net tax benefit $ 1.64 $ 1.43 $ 2.09

(2) Reflects a net tax benefit primarily related to re-measurement of net deferred tax liability at a lower corporate tax rate pursuant to the 2017 Act.

Income Taxes" in the Notes accompanying the audited Consolidated Financial Statements included in Item 8 of this Form 10-K.

(1) 2019 one-time Pottsville restructuring charges reflect the closure of the Company's Pottsville, Pennsylvania films plant.

Liquidity and Capital Resources

We believe that cash balances and operating cash flows, together with available capacity under our credit agreement, will provide adequate funds to support our current short-term operating objectives as well as our longer-term strategic plans, subject to the risks and uncertainties outlined below and in the risk factors as previously disclosed in in Item 1A, Risk Factors.

Our principal source of liquidity is our cash flow generated from operating activities, which is expected to provide us with the ability to meet the majority of our short-term funding requirements.

Our cash flows are affected by capital requirements and production volume, which may be materially impacted by unanticipated events such as unplanned downtime, material disruptions at our production facilities as well as the prices of our raw materials and general economic and industry trends, and customer demand.

Our principal source of liquidity is our cash flow generated from operating activities, which is expected to provide us with the ability to meet the majority of our short-term funding requirements for the next twelve months and beyond.

Our cash flows are affected by capital requirements and production volume, which may be materially impacted by unanticipated events such as unplanned downtime, material disruptions at our production facilities as well as the prices of our raw materials, general economic and industry trends and customer demand.

The Company applies a proactive and disciplined approach to working capital management to optimize cash flow and to enable capital allocation options in support of the Company’s strategy.

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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 Item 1A, as well as general economic, financial, competitive, regulatory and other factors that are beyond our control.

As of the end of 2020, the Company had approximately $11 million of cash on hand with approximately $149 million of additional capacity available under the revolving credit facility.

Given the uncertain environment in light of the COVID-19 pandemic, the Company maintained higher cash balances as a precautionary measure in the second quarter of 2020 for its working capital needs and other general corporate purposes.

Cash balances were reduced in the second half of 2020 in order to decrease debt levels and minimize interest cost.

At December 31, 2021, the Company had approximately $15 million of cash on hand with approximately $364 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 in 2020.

In response to the current environment, the Company took certain actions to improve liquidity and optimize cash flow in 2020.

Capital expenditures were approximately $83 million in 2020, which represents a decrease of approximately $67 million versus 2019, as we continued to prioritize investments and assess opportunities to maximize free cash flow by deferring, or reducing, non-critical repair and maintenance capital expenditures in light of current and anticipated economic conditions.

The Company is also driving disciplined cost management across the organization including all discretionary spending.

As a result of its actions, the Company executed approximately $26 million in cost reductions in 2020 versus the prior year.

Given several of the cost actions were temporal in nature, the Company expects approximately 50% of the expenses to return in 2021.

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

While we continue to evaluate all the impacts and benefits of the CARES Act and the Consolidated Appropriations Act, 2021, the Company deferred payment of approximately $6.5 million of social security taxes in 2020 and anticipates receiving a $12 million federal income tax refund in the first half of 2021.

For social security taxes that have been deferred, 50% will be due by December 31, 2021 with the remainder due by December 31, 2022.

Capital expenditures were approximately $57 million in 2021 compared to $83 million in 2020, reflecting efficiencies in project execution in 2021 and the completion of several high-return growth and cost savings investments in 2020.

As noted in Note 4.

"Income Taxes," the Company filed a Federal net operating loss (NOL) carryback claim under the CARES Act in July 2020 which generated a refund of previously paid taxes in the amount of $12.3 million received in the first quarter of 2021.

Additionally, the Company deferred approximately $6.5 million of social security taxes in 2020 under the CARES Act of which 50% was paid on January 3, 2022 and the remainder is due by January 3, 2023.

We assumed from Honeywell all 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.

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Although we have ongoing environmental remedial obligations at certain of our facilities, in the past three years, the associated remediation costs have not been material, and we do not expect our known remediation costs to have a material adverse effect on our consolidated financial position and results of operations.

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

See the items noted below in “Contractual Obligations” and “Capital Expenditures” for more information.

We expect that our primary cash requirements for 2022 will be to fund costs associated with ongoing operations, capital expenditures and amounts related to contractual obligations.

See below under “Capital Expenditures” for more information regarding our capital expenditures in 2021, 2020 and 2019 and anticipated capital expenditures for 2022.

Amounts related to contractual obligations are related to principal repayments and interest payments on leases, long-term debt, purchase obligations, estimated environmental compliance costs, and postretirement benefit obligations.

We anticipate that our estimated environmental compliance costs will be approximately $1.7 million in aggregate for 2022 through 2026.

This amount is related to what has been accrued as probable and reasonably estimable as of December 31, 2021.

For information regarding material cash requirements from known contractual obligations with respect to lease obligations, long-term debt principal repayments and purchase obligations please refer to "Note 8.

Leases", "Note 9.

Long-term Debt and Credit Agreement" and "Note 13.

Commitments and Contingencies", respectively, to the Consolidated Financial Statements in Item 8 of this Form 10-K.

Interest payments are estimated based on the interest rate applicable as of December 31, 2021 and approximate $4.1 million per year, subject to changes in variable interest rates and additional obligations.

The Company made contributions to the defined benefit pension plan of $17.5 million during the year ended December 31, 2021 sufficient to satisfy pension funding requirements for 2021 under the AdvanSix Retirement Earnings Plan.

Cash contributions of $1.7 million and $6.4 million were made in the first and the fourth quarters of 2020, respectively.

No cash contributions were made during the second and third quarters of 2020.

The Company plans to make $8.0 million to $10.0 million of cash contributions in 2021 and additional contributions in future years sufficient to satisfy pension funding requirements in those periods as outlined in the contractual obligations table.

Cash contributions of $1.2

million, $3.6 million and $12.7 million were made in the first three quarters of 2021, respectively.

No cash contributions were made in the fourth quarter of 2021.

The Company plans to make $10.0 million to $15.0 million of cash contributions in 2022 and additional contributions in future years sufficient to satisfy pension funding requirements in those periods.

The Company made cash contributions to the defined contribution plan of $5.9 million and $6.1 million for the years ended December 31, 2021 and 2020, respectively.

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As of December 31, 2021, $59.6 million remained available for repurchase under the currently authorized repurchase program.

During 2020 and the period January 1, 2021 through February 1, 2021, no additional shares were repurchased under the currently authorized repurchase program.

During 2021 and the period from January 1, 2022 through February 4, 2022, no additional shares were repurchased under the currently authorized repurchase program.

At December 31, 2021, 2020 and 2019, the Company did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K or financing activities with special-purpose entities.

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

Dividends paid to common stockholders were approximately $3.5 million in 2021 and $0 in 2020.

We generally expect to declare and pay dividends on a quarterly basis;

however, the timing, declaration, amount and payment of future dividends to stockholders, if any, will depend on our financial condition, earnings, capital requirements and debt service obligations and 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.

Our credit agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other things, pay cash dividends.

There can be no assurance that payment of a dividend will occur in the future.

Credit Agreement

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”).

The credit facilities under the Original Credit Agreement consisted of a senior secured term loan in an aggregate principal amount of $270 million, of which $267 million was outstanding just prior to entering into the First Amendment, and a senior secured revolving credit facility in a principal amount of $155 million.

Pursuant to the First Amendment, (i) the term loan facility under the Original Credit Agreement was terminated and the entire outstanding balance of the term loan facility (the “Term Loan”) thereunder was paid in full and (ii) the maximum aggregate principal amount of the senior secured revolving credit facility (the “Revolving Credit Facility”) was increased to $425 million.

On the First Amendment Date, the Company borrowed $242 million under the Revolving Credit Facility.

The proceeds of such loans, as well as cash on hand, were used to repay the outstanding Term Loan under the Original Credit Agreement.

The Revolving Credit Facility under the First Amended and Restated Credit Agreement has a 5-year term with a scheduled maturity date of February 21, 2023.

The First Amendment resulted in an increase in the Revolving Credit Facility to replace the Term Loan and provided increased borrowing flexibility and reduced overall borrowing costs with an approximate 50 basis point reduction in the interest rate spread.

The First Amended and Restated Credit Agreement permits the Company to utilize up to $40 million of the Revolving Credit Facility for the issuance of letters of credit and up to $40 million for swing line loans.

The Company has the option to incur incremental term loans and/or increase the amount of the Revolving Credit Facility in an aggregate principal amount for all such incremental term loans and increases of the Revolving Credit Facility of up to the sum of (x) $175 million plus (y) an amount such that the Company’s Consolidated Senior Secured Leverage Ratio (as defined in the First Amended and Restated Credit Agreement) would not be greater than 1.75 to 1.00, in each case, to the extent that any one or more lenders, whether or not currently party to the First Amended and Restated Credit Agreement, commits to be a lender for such amount.

Borrowings under the First Amended and Restated Credit Agreement bore interest at a rate equal to either the sum of a base rate plus a margin ranging from 0.50% to 1.50% or the sum of a Eurodollar rate plus a margin ranging from 1.50% to 2.50%, with either such margin varying according to the Company’s Consolidated Leverage Ratio (as defined in the First Amended and Restated Credit Agreement).

The Company was also required to pay a commitment fee in respect of unused commitments under the Revolving Credit Facility, if any, at a rate ranging from 0.20% to 0.40% per annum depending on the Company’s Consolidated Leverage Ratio.

The initial margin under the First Amended and Restated Credit Agreement was 0.75% for base rate loans and 1.75% for Eurodollar rate loans and the initial commitment fee rate was 0.25% per annum.

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

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

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

The Company was compliant with all related covenants at December 31, 2020.

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

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.

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.

On September 30, 2016, the Company as the borrower, entered into a Credit Agreement with Bank of America, as administrative agent (the "Original Credit Agreement"), which was amended on February 21, 2018 pursuant to Amendment No.

1 to the Original Credit Agreement (the "First Amended and Restated Credit Agreement"), and further amended on February 19, 2020 pursuant to, Amendment No.

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 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

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.

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 December 31, 2020 and through the date of the filing of this Form 10-K.

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.

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.

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 Part 1, Item 1A.

"Risk Factors".

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.

On October 27, 2021, the Company completed a refinancing of 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”).

The Revolving Credit Facility has a scheduled maturity date of October 27, 2026.

The Credit Agreement permits the Company to utilize up to $40 million of the Revolving Credit Facility for the issuance of letters of credit and up to $40 million for swing line loans.

The Company has the option to establish a new class of 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 First Lien Secured Leverage Ratio (as defined in the Credit Agreement) would not be greater than 2.75 to 1.00, in each case, to the extent that any one or more lenders, whether or not currently party to the Credit Agreement, commits to be a lender for such amount or any portion thereof.

Borrowings under the Credit Agreement bear interest at a rate equal to either the sum of a base rate plus a margin ranging from 0.25% to 1.25% or the sum of a Eurodollar rate plus a margin ranging from 1.25% to 2.25%, with either such margin varying according to the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement).

The Company is also required to pay a commitment fee in respect of unused commitments under the Revolving Credit Facility, if any, at a rate ranging from 0.15% to 0.35% per annum depending on the Company’s Consolidated Leverage Ratio.

As of October 27, 2021, the applicable margin under the Credit Agreement was 0.375% for base rate loans and 1.375% for Eurodollar loans and the applicable commitment fee rate was 0.175% per annum.

The Revolving Credit Facility also contains certain administrative provisions regarding alternative rates of interest for LIBOR, as applicable.

Substantially all tangible and intangible assets of the Company and its domestic subsidiaries are pledged as collateral to secure the obligations under the Credit Agreement.

As of October 27, 2021, the Company borrowed $150 million under the Revolving Credit Facility.

Borrowings under the Revolving Credit Facility will be subject to customary borrowing conditions.

The 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.

The Credit Agreement also contains financial covenants that require the Company to maintain a Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) of not less than 3.00 to 1.00 and to maintain a Consolidated Leverage Ratio of (i) 4.00 to 1.00 or less for the fiscal quarter ending December 31, 2021, through and including the fiscal quarter ending September 30, 2023 and (ii) 3.75 to 1.00 or less for 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 does not comply with the covenants in the Credit Agreement, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding under the Revolving Credit Facility.

We were in compliance with all of our covenants at December 31, 2021 and through the date of the filing of this Annual Report on Form 10-K.

As of December 31, 2021, $364 million was available for use out of the total of $500 million under the Revolving Credit Facility.

As of December 31, 2020, we had a balance of $275 million under our prior credit facility.

During the twelve months ended December 31, 2021, we repaid an incremental net amount of $140 million to bring the balance under the Revolving Credit Facility to $135 million as of December 31, 2021.

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

The Company had approximately $1 million of letter of credit agreements outstanding under the Revolving Credit Facility at December 31, 2021.

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2021 compared with 2020

Net cash provided by operating activities decreased by $8.5 million for the year ended December 31, 2020 versus the prior year period due primarily to a $20.2 million unfavorable impact from working capital (comprised of Accounts receivables, Inventories, Accounts payable and Deferred income and customer advances) for the year ended December 31, 2020 versus a $4.4 million unfavorable impact from working capital in the prior year period and a $9.5 million unfavorable cash impact from taxes receivable.

These decreases were partially offset by a favorable impact from the timing of payments for Accrued liabilities of $13.9 million for year ended December 31, 2020 versus a $4.6 million impact the same period in the prior year and a $9.2 million favorable impact from deferred income taxes.

A majority of the remaining variances were non-cash in nature, such as the 2019 Pottsville restructuring charge, loss on disposal of assets and depreciation and amortization.

Cash used for investing activities decreased by $69.0 million for the year ended December 31, 2020 versus the prior year period due to a decrease in cash paid for capital expenditures driven by disciplined capital deployment following the completion of several high-return growth and cost saving investments.

Cash used for financing activities increased by $54.2 million for the year ended December 31, 2020 versus the prior year due to net payments of $22.0 million for the year ended December 31, 2020 compared to net borrowings of $97.0 million during the prior year, offset by $1.1 million in cash outflows for share repurchases during the year ended December 31, 2020 compared to $62.2 million in cash outflows during the prior year, both of which are described above.

Contractual Obligations

(Dollars in thousands, unless otherwise noted)

Payments due by period

Contractual Obligations Total 2021 2022 2023 2024 2025 Thereafter

Long-term debt – principal repayments (1)

$ 275,000 $ — $ — $ 275,000 $ — $ — $ —

Long-term debt – interest payments (1)

20,621 9,625 9,625 1,371 — — —

Leases 160,916 35,729 25,787 17,762 15,853 13,247 52,538

Estimated environmental compliance costs (2)

3,760 1,610 1,140 690 320 — —

Purchase obligations (3)

328,457 138,464 74,092 10,499 10,362 5,940 89,100

Postretirement benefit obligations (4)

42,220 9,110 9,110 8,000 8,000 8,000 —

Total contractual obligations $ 830,974 $ 194,538 $ 119,754 $ 313,322 $ 34,535 $ 27,187 $ 141,638

(1) Long-term Debt - Principal repayments:

refer to "Note 9.

Long-term Debt and Credit Agreement" to the Consolidated Financial Statements in Item 8 of this Form 10-K.

Interest payments are estimated based on the interest rate applicable as of December 31, 2020.

(2) The payment amounts in the table only reflect the environmental compliance costs which we have accrued as probable and reasonably estimable as of December 31, 2020.

(3) Purchase obligations are entered into with various vendors in the normal course of business, which are consistent with our expected requirements and primarily relate to cumene, oleum, sulfur and natural gas, as well as a long-term agreement for loading, unloading and handling of a portion of our ammonium sulfate export volumes.

(4) Actual contribution payments will depend on several factors, including investment performance and discount rates, timing of benefits and changes in applicable local requirements.

The Company plans to make pension plan contributions in future years sufficient to satisfy pension funding requirements in those periods.

Net cash provided by operating activities increased by $107.0 million for the year ended December 31, 2021 versus the prior year due primarily to a $93.7 million increase in net income and a $21.6 million cash improvement from Taxes receivable (including a $12.3 million cash tax refund received in the first quarter of 2021).

These net favorable impacts were partially offset by a $7.7 million unfavorable cash impact from Other assets and liabilities driven a decrease in pension liability of $10.0 million (primarily reflecting the impact of cash pension contributions) partially offset by a $2.7 million increase in prepaid expenses.

Cash from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) was relatively neutral year-over-year, with a $20.8 million unfavorable cash impact for the year ended December 31, 2021 compared to a $20.2 million unfavorable cash impact in the prior year period.

Included within the year-over-year neutrality of working capital was a $23.6 million unfavorable impact due to the strategic absence of our typical ammonium sulfate pre-buy cash advances during the fourth quarter of 2021.

Cash used for investing activities decreased by $16.5 million for the year ended December 31, 2021 versus the prior year period due to a decrease in cash paid for capital expenditures of approximately $26.1 million reflecting capital project efficiencies and timing of project execution offset by cash paid for the acquisition of Commonwealth Industrial Services, Inc.

of approximately $9.5 million.

Cash used for financing activities increased by $122.6 million for the year ended December 31, 2021 versus the prior year due to net payments on the credit facility of $140.0 million for the year ended December 31, 2021 compared to net payments of $22.0 million during the prior year.

During the year ended December 31, 2021 the Company paid dividends of approximately $3.5 million and entered into a new Revolving Credit Facility, as described above, with approximately $2.4 million in fees compared to fee payments of $0.4 million during the prior year, both of which are described above.

Capital Expenditures

Our operations are capital intensive, requiring ongoing investments that have consisted, and are expected to continue to consist, primarily of capital expenditures required to maintain and improve equipment reliability, expand production output, further improve mix, yield and cost position and comply with environmental and safety regulations.

The following table summarizes ongoing and expansion capital expenditures.

The following table summarizes ongoing and expansion capital expenditures for the periods indicated.

Years Ended December 31,

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Purchases of property, plant and equipment $ 56,811 $ 82,918 $ 150,322

Capital expenditures decreased $67.4 million from 2019 to 2020 due to disciplined capital deployment following the completion of several high-return growth and cost saving investments.

Capital expenditures decreased $26.1 million from 2020 to 2021 reflecting process and execution efficiencies, as well as timing and scope of replacement maintenance and high-return growth and cost savings projects.

For 2022, we expect our total capital expenditures to be approximately $95 million to $105 million.

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

Off-Balance Sheet Arrangements

At December 31, 2020, 2019 and 2018, the Company did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K or financing activities with special-purpose entities.

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

Critical Accounting Policies and Estimates (Dollars in thousands, unless otherwise noted)

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Management believes that the following represents some of the more critical judgment areas in the applications of the Company’s accounting policies which could have a material effect on the Company’s financial position, results of operations or cash flows.

Cash and Cash Equivalents – Cash and cash equivalents include cash on hand and on deposit and highly liquid, temporary cash investments with an original maturity to the Company of three months or less.

We reduce cash and extinguish liabilities when the creditor receives our payment and we are relieved of our obligation for the liability when checks clear the Company’s bank account.

Liabilities to creditors to whom we have issued checks that remain outstanding aggregated $7.2 million at December 31, 2020 and are included in Cash and cash equivalents and Accounts payable in the Consolidated Balance Sheets.

Fair Value Measurement – ASC 820, Fair Value Measurement defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

The Financial Accounting Standards Board's ("FASB") guidance classifies the inputs used to measure fair value into the following hierarchy:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or

Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or Inputs other than quoted prices that are observable for the asset or liability

Level 3 Unobservable inputs for the asset or liability

Derivative Financial Instruments – We minimize our risks from interest and foreign currency exchange rate fluctuations through our normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments.

Derivative financial instruments are used to manage risk and are not used for trading or other speculative purposes.

Derivative financial instruments that qualify for hedge accounting must be designated and effective as a hedge of the identified risk exposure at the inception of the contract.

Accordingly, changes in fair value of the derivative contract must be highly correlated with changes in fair value of the underlying hedged item at inception of the hedge and over the life of the hedge contract.

All derivatives are recorded on the balance sheet as assets or liabilities and measured at fair value.

For derivatives designated as hedges of the fair value of assets or liabilities, the changes in fair values of both the derivatives and the hedged items are recorded in current earnings.

For derivatives designated as cash flow hedges, the changes in fair value of the derivatives are recorded in Accumulated other comprehensive income (loss) and subsequently recognized in earnings when the hedged items impact earnings.

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).

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

Inventories – Substantially all of the Company's inventories are valued at the lower of cost or market using the last-in, first-out (“LIFO”) method.

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Had such LIFO inventories been valued at current costs, their carrying values would have been approximately $6.0 million and $35.4 million higher at December 31, 2021 and 2020.

Property, Plant, Equipment – Property, plant, equipment asset values are recorded at cost, including any asset retirement obligations, less accumulated depreciation.

For financial reporting, the straight-line method of depreciation is used over the estimated useful lives of 30 to 50 years for buildings and improvements and 5 to 40 years for machinery and equipment.

Our machinery and equipment includes (1) assets used in short production cycles or subject to high corrosion, such as instrumentation, controls and insulation systems with useful lives up to 15 years, (2) standard plant assets, such as boilers and railcars, with useful lives ranging from 15 to 30 years and (3) major process equipment that can be used for long durations with effective preventative maintenance and repair, such as cooling towers, compressors, tanks and turbines with useful lives ranging from 30 to 40 years.

Recognition of the fair value of obligations associated with the retirement of tangible long-lived assets is required when there is a legal obligation to incur such costs.

Upon initial recognition of a liability, the cost is capitalized as part of the related long-lived asset and depreciated over the corresponding asset’s useful life.

Repairs and maintenance, including planned major maintenance, are expensed as incurred.

Costs which materially add to the value of the asset or prolong its useful life are capitalized and the replaced assets are retired.

Goodwill – The Company had goodwill of $15.0 million as of December 31, 2020 and 2019.

Goodwill – The Company had goodwill of $17.6 million and $15.0 million as of December 31, 2021 and 2020, respectively.

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 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.

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 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, based on the results of the Company's assessment, we have concluded that the estimated fair value of the reporting unit was substantially in excess of its carrying value resulting in no impairment.

Although management believes its estimate of fair value is reasonable, it is dependent on numerous economic and business assumptions and reflects management’s best estimates

at a particular point in time.

Changes in the factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized.

If future financial performance falls below our expectations or there are negative revisions to significant assumptions, or if our market capitalization declines, and if such a decline becomes indicative that the fair value of our reporting unit has declined below its carrying value, we may need to record a material, non-cash goodwill impairment charge in a future period.

The Company completed its annual goodwill impairment test as of March 31, 2021 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.

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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Management considers the performance obligation with respect to such purchase order 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.

Variable consideration is estimated for future volume rebates and early pay discounts on certain products and product returns.

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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 – 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.

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

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.

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

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

The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods (generally the vesting period of the equity award) and is included in selling, general and administrative expenses.

The value of the portion of the award that is ultimately expected to vest, including the impact of the Company's anticipated performance against certain metrics for performance stock units, is recognized as expense over the requisite service periods (generally the vesting period of the equity award) and is included in selling, general and administrative expenses.

Estimates of future performance are utilized to determine the underlying expense for shares expected to vest.

Forfeitures are estimated at the time of grant to recognize expense for those awards that are expected to vest and are based on our historical forfeiture rates.

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Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is

recognized in operations in the period enacted.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted.

A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized.

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We do not expect any significant changes in our unrecognized tax benefits in the next year.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No.

118 ("SAB 118") to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Act.

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.

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

Income Taxes” to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Leases – The Company enters into agreements to lease transportation equipment, storage facilities, office space, dock access and other equipment.

Operating leases have initial terms of up to 20 years with some containing renewal options subject to customary conditions.

An arrangement is considered to be a lease if the agreement conveys the right to control the use of the identified asset in exchange for consideration.

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.

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 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;

• 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 real estate leases;

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

Earnings Per Share – Basic earnings per share is based on the weighted average number of common shares outstanding.

Diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common shares outstanding.

Use of Estimates – The preparation of the Consolidated Financial Statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and related disclosures in the accompanying Notes.

GAAP requires management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and related disclosures in

the accompanying Notes.

Actual results could differ from those estimates.

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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 7. Management’s Discussion and Analysis