What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-10-29 · 123 added, 134 removed, 181 unchanged (59% of the section changed)

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

the potential effects of inflationary pressures, labor market shortages and supply chain issues;

instability or volatility in financial markets or other unfavorable economic or business conditions caused by geopolitical concerns, including as a result of the conflict between Russia and Ukraine;

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;

the severity and transmissibility of newly identified strains of COVID-19;

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risks associated with employees working remotely or operating with a reduced workforce;

risks associated with our indebtedness including compliance with financial and restrictive covenants, and our ability to access capital on reasonable terms, at a reasonable cost, or at all, due to economic conditions resulting from COVID-19 or otherwise;

the impact of scheduled turnarounds and significant unplanned downtime and interruptions of production or logistics operations as a result of mechanical issues or other unanticipated events such as fires, severe weather conditions, natural disasters and pandemics;

price fluctuations, cost increases and supply of raw materials;

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Forward-looking statements are not guarantees of future performance and actual results could differ materially from those contemplated by the forward-looking statements as a result of a number of risks, uncertainties and other factors including those noted above and those detailed in Item 1A of Part I and elsewhere in our 2021 Form 10-K, and subsequent reports filed with the SEC.

All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.

All subsequent written or oral forward-looking statements attributable

to us or persons acting on our behalf are qualified in their entirety by this paragraph.

We do not undertake to update or revise any of our forward-looking statements.

Business Overview

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

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

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

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

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

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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 September 30, 2021.

Our Hopewell, VA manufacturing facility is one of the world’s largest single-site producers of caprolactam as of March 31, 2022.

• 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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Other intermediate chemicals that we manufacture, market and sell include phenol, alpha-methylstyrene (“AMS”), cyclohexanone, oximes (methyl ethyl ketoxime, acetaldehyde oxime and 2-pentanone oxime), cyclohexanol, sulfuric acid, ammonia and carbon dioxide.

With the acquisition of U.S.

Amines"), we now produce alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals.

• Ammonium Sulfate – Our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur, two key plant nutrients.

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 September 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 March 31, 2022.

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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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.

Most significant is acetone, the price of which is 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 newly acquired U.S.

Amines portfolio as well as 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 reflecting both geographical and product sales mix considerations based on the timing and length of the growing seasons in North and South America.

We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, however, 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.

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Recent Developments

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 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.

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

The pandemic and related containment measures, such as travel bans and restrictions, shelter in place orders and business shutdowns, 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 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.

Starting in the second half of 2020, and through the first quarter of 2022, 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.

In February 2022, the Company acquired U.S.

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

$98 million, net of cash acquired.

Amines employs approximately 50 people in the United States at manufacturing facilities in Bucks, AL and Portsmouth, VA.

This acquisition enhances the Company's value chain through internal supply of products and raw materials.

The acquisition also provides a unique platform in the agrochemicals space as well as a number of opportunities to support further penetration into high-value applications including electronics, pharmaceuticals and water treatment.

Amines has a complementary business model with long-tenured customer relationships and formula pricing mechanisms with a business that is adjacent to both our ammonium sulfate adjuvant and solvent businesses.

As announced on May 6, 2022, the Board declared a quarterly cash dividend of $0.125 per share on the Company's common stock, payable on May 31, 2022 to stockholders of record as of the close of business on May 17, 2022.

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.

Results of Operations

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Sales $ 479,073 $ 376,383

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Three Months Ended

September 30, 2021 Nine Months Ended

September 30, 2021

March 31, 2022

Volume (4.0)%

Price 50.5% 38.9%

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.

Acquisition 1.9%

Sales increased in the three months ended March 31, 2022 compared to the prior year period by $102.7 million (approximately 27%) due primarily to (i) net favorable market-based pricing (approximately 26%) reflecting strength in our ammonium sulfate and nylon product lines, (ii) favorable raw material pass-through pricing (approximately 3%) as a result of net cost increases in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) acquisitions (approximately 2%), partially offset by decreased sales volume (approximately 4%) driven primarily by higher sales in the first quarter of 2021 through a reduction of finished goods inventory in the prior year period to meet customer demand recovery.

Costs of Goods Sold

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Costs of goods sold $ 375,646 $ 317,899

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Gross Margin percentage 21.6% 15.5%

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%).

Costs of goods sold increased in the three months ended March 31, 2022 compared to the prior year period by $57.7 million (approximately 18%) due primarily to (i) increased prices of raw materials, particularly natural gas and sulfur (approximately 18%), (ii) an increase in plant spend (approximately 2%) and (iii) the impact of the U.S.

Amines acquisition (approximately 2%), partially offset by decreased sales volumes as discussed above (approximately 2%) and the favorable impact of a prior year non-cash LIFO reserve adjustment (approximately 2%).

Gross margin percentage increased by approximately 6% in the three months ended March 31, 2022 compared to the prior year period due primarily to the net impact of (i) formula-based pass-through pricing and increased market pricing (approximately 7%) and (ii) the favorable impact of a prior year non-cash LIFO reserve adjustment (approximately 1%), partially offset by (i) higher plant spend (approximately 1%) and (ii) lower sales volume (approximately 1%).

Selling, General and Administrative Expenses

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Selling, general and administrative expenses $ 21,210 $ 19,308

Percentage of Sales 4.4% 5.1%

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.

Selling, general and administrative expenses increased by $1.9 million in the three months ended March 31, 2022 compared to the prior year period due primarily to increased functional support costs as compared to the prior year.

Income Tax Expense

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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

Income tax expense $ 19,184 $ 9,271

Effective tax rate 23.3% 24.8%

As noted in Note 10.

"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.

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.

The refund was received in the first quarter of 2021.

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

The Company’s effective tax rate for the three months ended March 31, 2022 and 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 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.

The Company’s effective tax rate for the three months ended March 31, 2022 was slightly lower than the prior year period due primarily to a decrease in expected executive compensation deduction limitations and an increase in the expected tax benefit from the deduction for foreign-derived intangible income in 2022 compared to 2021.

In February 2022, the Company acquired the stock of U.S.

Under purchase accounting rules, a net deferred tax liability of approximately $12.2 million was recorded in the quarter related to the adjustment of the acquired assets and liabilities to fair value.

See Note 13 "Acquisitions" for further details.

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

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Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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.

Net income $ 63,073 $ 28,131

As a result of the factors described above, Net income was $63.1 million for the three months ended March 31, 2022 as compared to $28.1 million in the corresponding prior year period.

Non-GAAP Measures

(Dollars in thousands, unless otherwise noted)

The following tables set forth the non-GAAP financial measures of EBITDA and EBITDA Margin.

EBITDA is defined as Net income before Interest, Income taxes and Depreciation and amortization.

EBITDA Margin is equal to EBITDA divided by Sales.

The following tables set forth the non-GAAP financial measures of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Earnings Per Share.

Adjusted EBITDA is defined as Net income before Interest, Income taxes, Depreciation and amortization, Non-cash stock-based compensation, Non-recurring, unusual or extraordinary expenses, Non-cash amortization from acquisitions and One-time merger and acquisition costs.

Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by Sales.

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

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The Company's non-GAAP measures may not be comparable to other companies' non-GAAP measures.

The following is a reconciliation between the non-GAAP financial measures of EBITDA and EBITDA Margin to their most directly comparable U.S.

The following is a reconciliation between the non-GAAP financial measures of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin to their most directly comparable U.S.

GAAP financial measure:

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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

Net income $ 63,073 $ 28,131

Non-cash stock-based compensation 3,374 2,363

Non-recurring, unusual or extraordinary expenses — —

Non-cash amortization from acquisitions 201 44

One-time M&A costs 277 172

Benefit from income taxes relating to reconciling items (556) (408)

Adjusted Net Income (non-GAAP) 66,369 30,302

Interest expense, net 563 1,544

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

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

EBITDA (non-GAAP) 75,188 15,806 206,193 75,158

Income tax expense - adjusted 19,740 9,679

Depreciation and amortization - adjusted 16,491 16,060

Adjusted EBITDA (non-GAAP) 103,163 57,585

Sales $ 479,073 $ 376,383

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

*EBITDA Margin is defined as EBITDA divided by Sales

Adjusted EBITDA Margin* (non-GAAP) 21.5% 15.3%

*Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Sales

The following is a reconciliation between the non-GAAP financial measures of Adjusted Earnings Per Share to its most directly comparable U.S.

GAAP financial measure:

Three Months Ended

Net Income $ 63,073 $ 28,131

Adjusted Net Income (non-GAAP) 66,369 30,302

Weighted-average number of common shares outstanding - basic 28,199,871 28,093,764

Dilutive effect of equity awards and other stock-based holdings 1,171,180 647,302

Weighted-average number of common shares outstanding - diluted 29,371,051 28,741,066

EPS - Basic $ 2.24 $ 1.00

EPS - Diluted $ 2.15 $ 0.98

Adjusted EPS - Basic (non-GAAP) $ 2.35 $ 1.08

Adjusted EPS - Diluted (non-GAAP) $ 2.26 $ 1.05

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, 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.

On a recurring basis, our primary future cash needs will be centered on operating activities, working capital, capital expenditures, dividends and liquidity 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 health, safety and environmental ("HSE") regulations.

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 2021 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.

As of the end of the first quarter of 2022, the Company had approximately $19.3 million of cash on hand with approximately $279 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 $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.

"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% is due by December 31, 2021 and the remainder is due by December 31, 2022.

We assumed from Honeywell all health, safety and environmental (“HSE”) liabilities and compliance obligations related to the past and future operations of our current business, as well as all HSE liabilities associated with our three current manufacturing locations and the other locations used in our current operations including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past.

Capital expenditures are expected to be approximately $95 million to $105 million in 2022 compared to $57 million in 2021, reflecting the timing of maintenance and HSE spend.

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.

Honeywell retained all HSE liabilities related to former business locations or the operation of our former businesses.

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We expect that our primary cash requirements for the remainder of 2022 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 $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 made no cash contributions to the defined benefit pension plan of during the three months ended March 31, 2022.

The Company currently plans to make pension plan contributions during 2022 sufficient to satisfy funding requirements under the AdvanSix Retirement Earnings Plan in an aggregate amount of approximately $5 million to $15 million.

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

We contributed $5 million during April 2022 and anticipate making additional contributions in future periods sufficient to satisfy pension funding requirements.

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

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

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

Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 of 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 repurchase program has no expiration date and may be modified, suspended or discontinued at any time.

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.

During the first quarter of 2022, the Company repurchased 181,536 shares of common stock, including 57,968 shares to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $7.0 million at a weighted average market price of $38.61 per share.

As of March 31, 2022, the Company had repurchased 3,797,012 shares of common stock, including 583,682 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $109.4 million at a weighted average market price of $28.81 per share.

As of March 31, 2022, $54.8 million remained available for share repurchases under the current authorization.

During the period from April 1, 2022 through April 29, 2022, no additional shares were repurchased under the currently authorized repurchase program.

As of March 31, 2022, 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 2021 Form 10-K (see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Liquidity and Capital Resources - Liquidity").

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 each of the first quarter of 2022 and the fourth quarter of 2021.

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

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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 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.

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”).

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 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.

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 March 31, 2022 and through the date of the filing of this Quarterly Report on Form 10-Q.

The situation surrounding COVID-19 remains fluid and unpredictable, and the potential for a material impact on the Company increases if social and economic restrictions are reinstituted or if related economic impacts such as supply chain issues, labor market volatility and inflationary pressures persist.

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 "Risk Factors" in Item 1A of Part I of the 2020 Form 10-K.

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

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 2021 Form 10-K.

As of December 31, 2021, we had a balance of $135 million under the Revolving Credit Facility.

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.

During the three months ended March 31, 2022, we borrowed an incremental net amount of $85 million to bring the balance under the Revolving Credit Facility to $220 million as of March 31, 2022.

As of March 31, 2022, $279 million was available for use out of the total of $500 million under the Revolving Credit Facility.

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

Cash Flow Summary

Nine Months Ended

September 30,

Three Months Ended

Cash provided by (used for):

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Net change in cash and cash equivalents $ 4,206 $ 3,518

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.

Cash provided by operating activities decreased by $7.9 million for the three months ended March 31, 2022 versus the prior year period due primarily to a $43.9 million unfavorable 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 $38.6 million unfavorable cash impact from working capital for the three months ended March 31, 2022 compared to a $5.2 million favorable cash impact in the prior year period, which included a $12.3 million cash tax refund, and a $12.6 million unfavorable cash impact from Accrued liabilities driven by the timing of payments.

This was partially offset by a $34.9 million increase in net income and $17.9 million favorable cash impact from income taxes.

Cash used for investing activities increased by $96.0 million for the three months ended March 31, 2022 versus the prior year period due primarily to cash paid for the acquisition of U.S.

Amines for approximately $98.6 million compared to cash paid of approximately $9.5 million for the acquisition of Commonwealth Industrial Services, and increased cash payments for capital expenditures of approximately $6.8 million reflecting timing of project execution.

Cash provided by financing activities increased by $104.6 million for the three months ended March 31, 2022 versus the prior year period due primarily to net borrowings of $85.0 million for the three months ended March 31, 2022 compared to net repayments of $29.0 million during the prior year period partially offset by payments for share repurchases of $6.6 million and cash paid for dividends of approximately $3.5 million as described above.

Capital Expenditures

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The following table summarizes ongoing and expansion capital expenditures:

Nine Months Ended

September 30, 2021

Three Months Ended

March 31, 2022

Capital expenditures in Accounts payable at December 31, 2021

Purchases of property, plant and equipment 16,634

Capital expenditures in Accounts payable at September 30, 2021

Capital expenditures in Accounts payable at March 31, 2022

Cash paid for capital expenditures $ 21,019

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.

For 2022, we expect our total capital expenditures to be approximately $95 million to $105 million compared to $57 million in 2021, reflecting the timing of maintenance and HSE spend.

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

Critical Accounting Policies

Critical Accounting Policies and Estimates

The preparation of our Condensed Consolidated Financial Statements in accordance with U.S.

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While there have been no material changes to our critical accounting policies, or the methodologies or assumptions we apply under them, we continue to monitor such methodologies and assumptions.

Off-Balance Sheet Arrangements and Contractual Obligations

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.

Recent Accounting Pronouncements

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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