AdvanSix Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company’s financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto contained in this Quarterly Report on Form 10-Q (this "Form 10-Q"), as well as the MD&A section included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on February 18, 2022 (the “2021 Form 10-K”). Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors that can affect our performance in both the near- and long-term, including those incorporated by reference in Item 1A of Part II of this Form 10-Q as such factors may be revised or supplemented in subsequent filings with the SEC, as well as those discussed in the section entitled “Note Regarding Forward-Looking Statements” below. Note Regarding Forward-Looking Statements All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this MD&A regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Form 10-Q, words such as "expect," “anticipate,” "estimate," "outlook," "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should," and “believe,” and other variations or similar terminology and expressions identify forward-looking statements. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and difficult to predict, which may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: general economic and financial conditions in the U.S. 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 including the impact of social and economic restrictions and other containment measures taken to combat virus transmission; the effect on our customers’ demand for our products and our suppliers’ ability to manufacture and deliver our raw materials, including implications of reduced refinery utilization in the U.S.; our ability to sell and provide our goods and services; the ability of our customers to pay for our products; any closures of our and our customers’ offices and facilities; risks associated with increased phishing, compromised business emails and other cybersecurity attacks and disruptions to our technology infrastructure; 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; 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, pandemics and geopolitical conflicts and related events; price fluctuations, cost increases and supply of raw materials; our operations and growth projects requiring substantial capital; growth rates and cyclicality of the industries we serve including global changes in supply and demand; failure to develop and commercialize new products or technologies; loss of significant customer relationships; adverse trade and tax policies; extensive environmental, health and safety laws that apply to our operations; hazards associated with chemical manufacturing, storage and transportation; litigation associated with chemical manufacturing and our business operations generally; inability to acquire and integrate businesses, assets, products or technologies; protection of our intellectual property and proprietary information; prolonged work stoppages as a result of labor difficulties or otherwise; cybersecurity, data privacy incidents and disruptions to our technology infrastructure; failure to maintain effective internal controls; our ability to declare and pay quarterly cash dividends and the amounts and timing of any future dividends; our ability to repurchase our common stock and the amount and timing of any future repurchases; disruptions in supply chain, transportation and logistics; potential for uncertainty regarding qualification for tax treatment of our spin-off; fluctuations in our stock price; and changes in laws or regulations applicable to our business. 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. We do not undertake to update or revise any of our forward-looking statements. Business Overview 18 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. Our four key product lines are as follows: • Nylon – We sell our Nylon 6 resin globally, primarily under the Aegis® brand name. Nylon 6 is a polymer resin which is a synthetic material used by our customers to produce fibers, filaments, engineered plastics and films that, in turn, are used in such end-products as carpets, automotive and electric components, sports apparel, food packaging and other industrial applications. In addition, our Nylon 6 resin is used to produce nylon films which we sell to our customers primarily under the Capran® brand name. • Caprolactam – Caprolactam is the key monomer used in the production of Nylon 6 resin. 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, VA manufacturing facility is one of the world’s largest single-site producers of caprolactam as of June 30, 2022. • Chemical Intermediates – We manufacture, market and sell a number of other chemical intermediate products that are derived from the manufacturing processes within our integrated supply chain. Most significant is acetone which is used by our customers in the production of adhesives, paints, coatings, solvents, herbicides and engineered plastic resins. 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 Limited (“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 June 30, 2022. We market and sell ammonium sulfate primarily to North American and South American distributors, farm cooperatives and retailers to fertilize crops. Global demand for Nylon 6 resin spans a variety of end-uses such as textiles, engineered plastics, industrial filament, food and industrial films, and carpet. The market growth typically tracks global GDP growth over the long-term but varies by end-use. Generally, prices for Nylon 6 resin and caprolactam reflect supply and demand trends in the marketplace as well as the value of the basic raw materials used in the production of caprolactam, consisting primarily of benzene and, depending on the manufacturing process utilized, natural gas and sulfur. The global prices for nylon resin typically track a spread over the price of caprolactam, which in turn tracks as a spread over benzene because the key feedstock materials for caprolactam, phenol or cyclohexane, are derived from benzene. This price spread has historically experienced cyclicality as a result of global changes in supply and demand. Nylon 6 resin prices track the cyclicality of caprolactam prices, although prices set above the average commodity spread are achievable when nylon resin manufacturers, like AdvanSix, formulate and produce differentiated nylon resin products. Our differentiated Nylon 6 products are typically valued at a higher level than commodity resin products. We believe that Nylon 6 end-market growth will continue to generally track global GDP over the long-term. 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 wire and cable and co-polymer offerings, in current and new customer applications. We also manufacture, market and sell a number of chemical intermediate products that are derived from the manufacturing processes within our integrated supply chain. 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. Our ammonium sulfate product is positioned with 19 the added value proposition of sulfur nutrition to increase yields of key crops. 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 as compared to other fertilizers. 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 adjuvants to support crop protection and products for industrial use. 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. The North America planting season runs from July through June. The new season fill typically occurs in the third quarter and proceeds sequentially into the following Spring which is the peak period for fertilizer application for key crops in North America. As a result of this typical pattern, North American ammonium sulfate demand and pricing, particularly for our higher-value granular product, are typically the strongest in the first half of the year through application for the Spring crop and then decline in the second half. Our export sales, primarily into South America, are predominantly of the standard grade product. 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. While our integration, scale and range of product offerings make us one of the most efficient manufacturers in our industry, these attributes also expose us to increased risk associated with material disruptions at any one of our production facilities or logistics operations which could impact the overall manufacturing supply chain. Further, although we believe that our sources of supply for our raw materials, including cumene, natural gas and sulfur, are generally robust, it is difficult to predict the impact that shortages, increased costs and related supply chain logistics considerations may have in the future. In order to mitigate the risk of unplanned interruptions, we schedule planned plant turnarounds each year to conduct routine and major maintenance across our facilities. We also utilize maintenance excellence and mechanical integrity programs, targeted buffer inventory of intermediate chemicals necessary for our manufacturing process, and co-producer swap arrangements, which are intended to mitigate the extent of any production losses as a result of planned and unplanned downtime; however, the mitigation of all or part of any such production impact cannot be assured. Recent Developments COVID-19 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 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. 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, 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 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. Acquisition 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 $97 million, net of cash acquired. U.S. Amines employs approximately 50 people in the United States at manufacturing facilities in Bucks, AL and Portsmouth, VA. The acquisition 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 20 water treatment. U.S. 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. Dividends During 2022, the Company has declared dividends as follows: Date of Announcement Date of Record Date Payable Dividend per Share 8/5/2022 8/16/2022 8/30/2022 $0.145 5/6/2022 5/17/2022 5/31/2022 $0.125 2/18/2022 3/1/2022 3/15/2022 $0.125 Results of Operations (Dollars in thousands, unless otherwise noted) Sales Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Sales $ 583,736 $ 437,682 $ 1,062,809 $ 814,065 % change compared with prior year period 33.4% 30.6% The change in sales compared to the prior year period is attributable to the following: Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 Volume (3.5)% (3.7)% Price 32.1% 30.9% Acquisition 4.8% 3.4% 33.4% 30.6% Sales increased in the three months ended June 30, 2022 compared to the prior year period by $146.1 million (approximately 33%) due primarily to (i) net favorable market-based pricing (approximately 26%) reflecting strength in our ammonium sulfate and nylon product lines partially offset by lower pricing in chemical intermediates (primarily acetone), (ii) favorable raw material pass-through pricing (approximately 6%) as a result of net cost increases in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) the acquisition of U.S. Amines (approximately 5%), partially offset by decreased sales volume (approximately 4%) driven primarily by unfavorable weather conditions driving a reduction of in-season fertilizer demand as well as lower production output limiting supply of nylon resin and chemical intermediates compared to the prior year. Sales increased in the six months ended June 30, 2022 compared to the prior year period by $248.7 million (approximately 31%) due primarily to (i) net favorable market-based pricing (approximately 26%) reflecting strength in our ammonium sulfate and nylon product lines partially offset by lower pricing in chemical intermediates (primarily acetone), (ii) favorable raw material pass-through pricing (approximately 5%) as a result of net cost increases in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) the acquisition of U.S. Amines (approximately 3%), 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 that period to meet a recovery in customer demand and lower production in the second quarter of 2022 compared to the prior year period. Costs of Goods Sold 21 Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Costs of goods sold $ 476,835 $ 356,884 $ 852,482 $ 674,783 % change compared with prior year period 33.6% 26.3% Gross Margin percentage 18.3% 18.5% 19.8% 17.1% Costs of goods sold increased in the three months ended June 30, 2022 compared to the prior year period by $120.0 million (approximately 34%) due primarily to (i) increased prices of raw materials (approximately 23%), (ii) an increase in plant spend, particularly utilities, driven primarily by natural gas prices (approximately 4%), (iii) the impact of the U.S. Amines acquisition (approximately 5%) and the impact of non-raw material inflation (approximately 2%) primarily on transportation costs. Costs of goods sold increased in the six months ended June 30, 2022 compared to the prior year period by $177.7 million (approximately 26%) due primarily to (i) increased prices of raw materials (approximately 21%), (ii) the impact of the U.S. Amines acquisition (approximately 4%), (iii) an increase in plant spend, particularly utilities, driven primarily by natural gas prices (approximately 3%) and (iv) the impact of non-raw material inflation (approximately 2%) primarily on transportation costs. The noted increase was partially offset by lower sales volumes (approximately 2%) across all product lines as discussed above, and an unfavorable non-cash LIFO inventory reserve adjustment in the prior year period (approximately 1%). Gross margin percentage decreased slightly in the three months ended June 30, 2022 compared to the prior year period due primarily to (i) higher plant spend (approximately 2%), (ii) lower sales volume (approximately 2%) and the impact of non-raw material inflation (approximately 1%), mostly offset by the net impact of formula-based pass-through pricing and increased market pricing (approximately 5%). Gross margin percentage increased by approximately 3% in the six months ended June 30, 2022 compared to the prior year period due primarily to (i) the net impact of formula-based pass-through pricing and increased market pricing (approximately 6%) and (ii) an unfavorable non-cash LIFO inventory reserve adjustment in the prior year period (approximately 1%) partially offset by (i) higher plant spend (approximately 2%), (ii) lower sales volume as discussed above (approximately 1%) and (iii) the impact of non-raw material inflation (approximately 1%). Selling, General and Administrative Expenses Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Selling, general and administrative expenses $ 20,841 $ 21,682 $ 42,051 $ 40,990 Percentage of Sales 3.6% 5.0% 4.0% 5.0% Selling, general and administrative expenses decreased by $0.8 million in the three months ended June 30, 2022 compared to the prior year period due primarily to (i) decreased stock-based compensation costs and (ii) a reduction in bad debt expense associated with a cash collection of a previously reserved customer receivable partially offset by increased functional support costs. Selling, general and administrative expenses increased by $1.1 million in the six months ended June 30, 2022 compared to the prior period due primarily to increased functional support costs partially offset by a reduction in bad debt expense associated with a cash collection of a previously reserved customer receivable. Income Tax Expense Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Income tax expense $ 19,962 $ 13,817 $ 39,145 $ 23,088 Effective tax rate 23.5% 23.8% 23.4% 24.2% 22 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 six months ended June 30, 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 and six months ended June 30, 2022 was slightly lower than the prior year periods due primarily to a state rate change recorded as a discrete tax adjustment in the second quarter of 2021. In February 2022, the Company acquired the stock of U.S. Amines. Under purchase accounting rules, a net deferred tax liability of approximately $12.2 million was recorded in the first quarter related to the adjustment of the acquired assets and liabilities to fair value. There was a $0.1 million reduction in the net deferred tax liability recorded in the second quarter. 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. Changes to income tax laws and regulations, or the interpretation of such laws, in any of the jurisdictions in which we operate could increase our effective tax rate and reduce our cash flows from operating activities. The current U.S. administration has released various draft tax reform proposals that, if enacted, would generally increase U.S. federal income taxes on corporations. These proposals, if implemented, could have an unfavorable effect on our business, results of operations and financial condition. As such, we continue to monitor these legislative proposals to evaluate the impact on our business. Net Income Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income $ 65,157 $ 44,131 $ 128,230 $ 72,262 As a result of the factors described above, Net income was $65.2 million and $128.2 million for the three and six months ended June 30, 2022 as compared to $44.1 million and $72.3 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 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. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and performance relative to its competitors, as the non-GAAP measures exclude items that management believes do not reflect the Company’s ongoing operations. These non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with U.S. GAAP. Non-GAAP financial measures should be read only in conjunction with the comparable U.S. GAAP financial measures. 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 Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin to their most directly comparable U.S. GAAP financial measure: 23 Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income $ 65,157 $ 44,131 $ 128,230 $ 72,262 Non-cash stock-based compensation 2,005 3,744 5,379 6,107 Non-cash amortization from acquisitions 551 65 752 109 One-time M&A costs — — 277 172 Benefit from income taxes relating to reconciling items (439) (578) (995) (986) Adjusted Net Income (non-GAAP) 67,274 47,362 133,643 77,664 Interest expense, net 769 1,379 1,332 2,923 Income tax expense - adjusted 20,401 14,395 40,141 24,074 Depreciation and amortization - adjusted 16,982 16,564 33,474 32,624 Adjusted EBITDA (non-GAAP) 105,426 79,700 208,590 137,285 Sales $ 583,736 $ 437,682 $ 1,062,809 $ 814,065 Adjusted EBITDA Margin* (non-GAAP) 18.1% 18.2% 19.6% 16.9% *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 June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net Income $ 65,157 $ 44,131 $ 128,230 $ 72,262 Adjusted Net Income (non-GAAP) 67,274 47,362 133,643 77,664 Weighted-average number of common shares outstanding - basic 28,168,207 28,131,981 28,183,951 28,112,978 Dilutive effect of equity awards and other stock-based holdings 1,094,502 788,196 1,132,841 717,749 Weighted-average number of common shares outstanding - diluted 29,262,709 28,920,177 29,316,792 28,830,727 EPS - Basic $ 2.31 $ 1.57 $ 4.55 $ 2.57 EPS - Diluted $ 2.23 $ 1.53 $ 4.37 $ 2.51 Adjusted EPS - Basic (non-GAAP) $ 2.39 $ 1.68 $ 4.74 $ 2.76 Adjusted EPS - Diluted (non-GAAP) $ 2.30 $ 1.64 $ 4.56 $ 2.69 Liquidity and Capital Resources (Dollars in thousands, unless otherwise noted) Liquidity 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, in our "Note Regarding Forward-Looking Statements" above, and in the risk factors previously disclosed in our 2021 Form 10-K. 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 24 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, as well as customer demand, which in the second quarter of 2020, was materially impacted by the circumstances surrounding COVID-19. 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. We utilize supply chain financing and trade receivables discount arrangements with third-party financial institutions which optimize terms and conditions related to accounts receivable and accounts payable in order to enhance liquidity and enable us to efficiently manage our working capital needs. Although we continue to optimize supply chain financing and trade receivable programs in the ordinary course, our utilization of these arrangements, both prior to and during the COVID-19 pandemic, has not had a material impact on our liquidity. In addition, we monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on the safety of principal and secondarily on maximizing yield on those funds. 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, 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 second quarter of 2022, the Company had approximately $17.3 million of cash on hand with approximately $352 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. 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 International Inc. ("Honeywell") all health, safety and environmental (“HSE”) liabilities and compliance obligations related to the past and future operations of our current business as of the spin-off, as well as all HSE liabilities associated with the three manufacturing locations assumed from Honeywell that are used in our current operations, including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past. Honeywell retained all HSE liabilities related to former business locations or the operation of our former businesses. Although we have ongoing environmental remedial obligations at certain of our facilities, in the past three years, the associated remediation costs have not been material, and we do not expect our known remediation costs to have a material adverse effect on the Company's consolidated financial position or results of operations. 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 $10 million during the six months ended June 30, 2022 with no contributions made in the first quarter of 2022 and $10 million in the second quarter of 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 $15 million to $20 million. We anticipate making contributions in future years sufficient to satisfy pension funding requirements, if any, in those periods. 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 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 25 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 June 30, 2022, the Company has repurchased a total of 3,884,263 shares of common stock, including 592,972 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $112.8 million at a weighted average market price of $29.04 per share. As of June 30, 2022, $51.8 million remained available for share repurchases under the current authorization. During the period from July 1, 2022 through July 29, 2022, we repurchased an additional 70,554 shares at a weighted average market price of $35.30 per share under the currently authorized repurchase program. As of June 30, 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 The Company commenced the declaration of dividends on September 28, 2021. Since commencement of dividends, the Company has declared dividends as follows: Date of Announcement Date of Record Date Payable Dividend per Share Total Approximate Dividend Amount 8/5/2022 8/16/2022 8/30/2022 $0.145 $ 4.1 million 5/6/2022 5/17/2022 5/31/2022 $0.125 $ 3.5 million 2/18/2022 3/1/2022 3/15/2022 $0.125 $ 3.5 million 9/28/2021 11/9/2021 11/23/2021 $0.125 $ 3.5 million The timing, declaration, amount and payment of future dividends to stockholders, if any, will fall within the discretion of our Board. Holders of shares of our common stock will be entitled to receive dividends when, and if, declared by our Board at its discretion out of funds legally available for that purpose, subject to the terms of our indebtedness, the preferential rights of any preferred stock that may be outstanding, legal requirements, regulatory constraints, industry practice and other factors that our Board deems relevant. Credit Agreement 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. 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 26 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 June 30, 2022 and through the date of the filing of this 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 2021 Form 10-K. As of December 31, 2021, we had a balance of $135 million under the Revolving Credit Facility. During the six months ended June 30, 2022, we borrowed an incremental net amount of $12 million to bring the balance under the Revolving Credit Facility to $147 million as of June 30, 2022. As of June 30, 2022, $352 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 Six Months Ended June 30, 2022 2021 Cash provided by (used for): Operating activities $ 145,053 $ 109,035 Investing activities (137,456) (34,483) Financing activities (5,400) (80,907) Net change in cash and cash equivalents $ 2,197 $ (6,355) Cash provided by operating activities increased by $36.0 million for the six months ended June 30, 2022 versus the prior year period due primarily to a $56.0 million increase in net income and a $16.8 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 $11.9 million favorable cash impact from working capital for the six months ended June 30, 2022 compared to a $5.0 million unfavorable cash impact in the prior year period, which included a $12.3 million cash tax refund. These net favorable impacts for the six months ended June 30, 2022 were partially offset by a $13.4 million unfavorable cash 27 impact from Accrued liabilities driven by the timing of payments, a $9.7 million unfavorable cash impact from Income taxes payable, a $5.3 million unfavorable impact from Deferred taxes and a $9.6 million unfavorable impact from Other assets and liabilities compared to the prior year period driven primarily by a reduction in the net pension liability due to cash contributions to the defined benefit pension plan. Cash used for investing activities increased by $103.0 million for the six months ended June 30, 2022 versus the prior year period due primarily to cash paid for the acquisition of U.S. Amines for approximately $97 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 $14.3 million reflecting timing of project execution. Cash provided by financing activities increased by $75.5 million for the six months ended June 30, 2022 versus the prior year period due primarily to net borrowings of $11.5 million for the six months ended June 30, 2022 compared to net repayments of $80.0 million during the prior year period partially offset by payments for share repurchases of $9.8 million and cash paid for dividends of approximately $7.0 million as described above. Capital Expenditures (Dollars in thousands, unless otherwise noted) 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: Six Months Ended June 30, 2022 Capital expenditures in Accounts payable at December 31, 2021 $ 11,720 Purchases of property, plant and equipment 36,266 Less: Capital expenditures in Accounts payable at June 30, 2022 (9,207) Cash paid for capital expenditures $ 38,779 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 and Estimates The preparation of our Condensed Consolidated Financial Statements in accordance with U.S. GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider these accounting policies to be critical to the understanding of our Condensed Consolidated Financial Statements. For a full description of our critical accounting policies, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2021 Form 10-K. 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. Recent Accounting Pronouncements See “Note 2. Recent Accounting Pronouncements” to the Condensed Consolidated Financial Statements included in Part I. Item 1 of this Form 10-Q.