What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-18 · 135 added, 132 removed, 232 unchanged (54% of the section changed)

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This section of this Form 10-K generally discusses our financial condition and results of operations as of and for the years ended December 31, 2022 and 2021 and year-to-year comparisons between 2022 and 2021.

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

Discussions of our financial condition and results of operations as of and for the year ended December 31, 2020 and year-to-year comparisons between

2021 and 2020 that are not included in this Form 10-K can be found under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 18, 2022.

Business Overview

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We believe that Nylon 6 end-market growth will continue to generally track global GDP over the long-term.

Carpet is the largest end-use for Nylon 6 in North America and has seen stable to declining demand growth in recent years reflecting shifts in consumer preferences to hard flooring versus soft and the previous substitution to lower-cost polyester.

The housing sector had seen an improving trend in recent years, however, residential construction markets slowed in 2022 reflecting the rise in interest rates.

Nylon 6 has a stronger presence in commercial carpet applications, including hospitality and office, where the material is preferred for its durability and performance characteristics.

We have seen some recovery in commercial construction growth, which had lagged residential in recent years.

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

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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.

As a result of the U.S.

Amines acquisition during the first quarter of 2022, we also produce and sell alkyl and ally amines which are used in agrochemical intermediates, water treatment and pharmaceutical applications.

Our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur, two key crop nutrients.

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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.

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 unplanned 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.

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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.

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

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

Starting in the second half of 2020, and through the end of 2021, demand improved to pre-COVID-19

levels with states, regions and countries in various phases of re-opening and continued administration of vaccines for COVID-19.

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

As the situation surrounding COVID-19 remains fluid and unpredictable, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity.

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

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

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

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

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

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

for approximately $9.5 million.

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

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

Credit Agreement

On October 27, 2021, the Company completed a refinancing of its existing senior secured revolving credit facility under that certain Credit Agreement, dated as of September 30, 2016, among the Company, the guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent (as amended by Amendment No.

1 on February 21, 2018 and Amendment No.

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

For a discussion of the Credit Agreement and Revolving Credit Facility, please refer to "Note 9.

Long-term Debt and Credit Agreement."

Anti-Dumping Duty Petitions

On February 19, 2019, the Company announced that it filed anti-dumping duty petitions covering imports of acetone with the International Trade Commission (“ITC”) and U.S.

Department of Commerce ("Commerce").

The petitions allege that dumped acetone imports into the United States from Belgium, Saudi Arabia, Singapore, South Africa, South Korea, and Spain have caused material injury to the domestic industry.

On April 4, 2019, the ITC voted to continue the anti-dumping duty investigations concerning imports of acetone from all such nations other than Saudi Arabia.

During the third quarter of 2019, Commerce announced its preliminary affirmative dumping determination regarding imports from Singapore, Spain, Belgium, South Africa and South Korea.

On October 21, 2019, Commerce published its final affirmative determination of dumping regarding imports from Singapore and Spain, and on December 10, 2019, the ITC issued its final determination of material injury to the industry by reason of imports from Singapore and Spain.

Effective December 20, 2019, Commerce imposed anti-dumping orders and applicable duties on imports of acetone from Singapore and Spain for a five-year period.

On February 13, 2020, Commerce published its final affirmative determination of dumping regarding imports from Belgium, South Africa and South Korea and on March 17, 2020, the ITC issued its final determination of material injury to the industry by reason of imports from Belgium, South Africa and South Korea.

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

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

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

filed a motion with the U.S.

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

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

On August 13, 2021, the U.S.

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

Ammonium Sulfate

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

During 2022, the Company has declared dividends as follows:

Date of Announcement Date of Record Date Payable Dividend per Share

11/4/2022 11/15/2022 11/29/2022 $0.145

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

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.

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 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.

Anti-Dumping Duty Petition - Ammonium Sulfate

In January 2017, the U.S.

Department of Commerce (“Commerce”) published its final affirmative determinations in the anti-dumping and countervailing duty investigations of imports of ammonium sulfate from the People's Republic of China (the "PRC"), and in March 2017, the ITC issued its final determinations of material injury by reason of dumped and subsidized imports from the PRC.

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

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

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

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

Determinations are expected in the fourth quarter of 2022.

In June 2022, Commerce issued its final determination that revocation of the orders would likely lead to continuation or recurrence of dumping and subsidies.

In January 2023, the ITC made affirmative determinations that revocation of the orders would likely lead to continuation or recurrence of material injury.

As a result of Commerce’s and ITC’s determinations, the orders will be extended for another five years.

Philadelphia Energy Solutions’ Shut Down

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

The Company has assessed the business impact of the June 2019 fire that shut down Philadelphia Energy Solutions’ (“PES”) refinery in Philadelphia, Pennsylvania.

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

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

As of December 31, 2022, the Company has incurred an approximately $43 million unfavorable impact to pre-tax income since the refinery shut down in 2019 and submitted a business interruption insurance claim.

While the Company has received $4.6 million of insurance proceeds through December 31, 2022, it continues to pursue the claim, which is ongoing.

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 necessary and previously disclosed.

Consolidated Results of Operations for the Years Ended December 31, 2022, 2021 and 2020

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Price 22.2 % 38.1 %

Acquisition 3.5 % — %

15.5 % 45.5 %

2022 compared with 2021

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

Sales increased in 2022 compared to 2021 by $261.0 million (approximately 15%) due primarily to (i) favorable market-based pricing (approximately 20%) reflecting strength in our ammonium sulfate and nylon product lines, (ii) the acquisition of U.S.

Amines (approximately 4%) and (iii) higher formula-based pass-through pricing (approximately 2%) offset by lower sales volume (approximately 10%) driven primarily by lower production at our manufacturing sites, resulting primarily from the impact of an extended multi-site third quarter 2022 plant turnaround and delayed ramp up to full production.

Cost of Goods Sold

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2022 compared with 2021

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

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

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

Costs of goods sold increased in 2022 compared to 2021 by $220.7 million (approximately 16%) due primarily to (i) increased prices of raw materials (approximately 12%), (ii) the impact of the U.S.

Amines acquisition (approximately 4%) and (iii) increased plant spend, particularly natural gas utility and turnaround costs (approximately 5%) offset by lower sales volume (approximately 5%) as discussed above.

Gross margin percentage decreased by approximately 0.1% in 2022 compared to 2021 due primarily to the net impact of formula-based pass-through pricing and increased market pricing (approximately 8%) offset by sales volume (approximately 5%) and increased plant spend discussed above (approximately 3%).

Selling, General and Administrative Expenses

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2022 compared with 2021

Selling, general and administrative expenses increased in 2021 compared to 2020 by $12.1 million, or approximately 17%, due primarily to increased incentive and stock-based compensation costs and increased functional support costs, as compared to cost control measures implemented in response to the COVID-19 pandemic in the prior year.

Selling, general and administrative expenses increased in 2022 compared to 2021 by $4.8 million, or approximately 6%, due primarily to the U.S.

Amines acquisition and increased functional support costs partially offset by decreased incentive-based compensation expense.

Interest Expense, Net

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2022 compared with 2021

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

Other Non-operating Expense, Net

Interest expense, net, decreased in 2022 compared to 2021 by $2.2 million, or approximately 45%, due primarily to lower average borrowings.

Other Non-operating Expense (Income), Net

2022 2021 2020

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

Other non-operating expense (income), net $ (1,841) $ 998 $ 53

2022 compared with 2021

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

The decrease in Other non-operating expense, net in 2022 compared to 2021 was due primarily to a decrease in pension and environmental remediation expense.

Income Tax Expense

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The refund was received in the first quarter of 2021.

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

The Company's effective income tax rate for each of 2022 and 2021 was higher compared to the U.S.

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

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

Federal statutory rate of 21% due primarily to the impact of research tax credits as well as an energy tax credit described in more detail in “Note 4.

Income Taxes”.

Federal statutory rate of 21% due primarily to the impact of research and energy tax credits.

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

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

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

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

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

The current U.S.

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

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

Under purchase accounting rules, a net deferred tax liability of approximately $10.1 million was recorded in the period related to the adjustment of the acquired assets and liabilities to fair value.

See "Note 18.

Acquisitions" for further details.

On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law.

This legislation includes significant changes relating to tax, climate change, energy and health care.

Among other provisions, the IRA introduces a book minimum tax assessed on financial statement income of certain large corporations and an excise tax on share repurchases.

The Company does not anticipate these provisions will have a material impact on our results of operations or financial condition, when effective.

The IRA also includes significant extensions, expansions and enhancements related to climate and energy tax credits designed to encourage investment in the adoption and expansion of renewable and alternative energy sources.

The Company is evaluating these provisions of the law.

As of December 31, 2022 and 2021, there were no unrecognized tax benefits recorded by the Company.

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Non-GAAP Measures

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 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 are not considered core to the Company’s operations.

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 the Company's competitors, as the non-GAAP measures exclude items that management believes do not reflect the Company’s ongoing operations.

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

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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:

(Dollars in thousands, except per share amounts or unless otherwise noted)

Years Ended December 31,

Twelve Months Ended

2022 2021 2020

Net income $ 171,886 $ 139,791 $ 46,077

Non-cash stock-based compensation 10,279 11,299 4,902

Non-cash amortization from acquisitions 1,815 239 —

Non-recurring M&A costs 277 172 —

Benefit from income taxes relating to reconciling items (1,996) (1,798) (735)

Adjusted Net Income (non-GAAP) 182,261 149,703 50,244

Interest expense, net 2,781 5,023 7,792

Income tax expense (benefit) 45,325 8,956 12,001

Depreciation and amortization 65,340 60,832 56,826

EBITDA (non-GAAP) 255,479 123,657 115,628

One-time Pottsville restructuring charges (1)

EBITDA excluding one-time Pottsville restructuring charges (non-GAAP) $ 255,479 $ 123,657 $ 126,648

Income tax expense - adjusted 55,901 47,123 9,691

Depreciation and amortization - adjusted 67,538 65,101 60,832

Adjusted EBITDA (non-GAAP) 308,481 266,950 128,559

Sales $ 1,945,640 $ 1,684,625 $ 1,157,917

EBITDA margin % (non-GAAP) 15.2 % 10.7 % 8.9 %

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

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

Adjusted EBITDA Margin* (non-GAAP) 15.9% 15.8% 11.1%

*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:

Twelve Months Ended

2022 2021 2020

Net Income $ 171,886 $ 139,791 $ 46,077

Adjusted Net Income (non-GAAP) 182,261 149,703 50,244

Weighted-average number of common shares outstanding - basic 27,969,436 28,152,876 28,048,726

Dilutive effect of equity awards and other stock-based holdings 1,061,671 892,310 108,336

Weighted-average number of common shares outstanding - diluted 29,031,107 29,045,186 28,157,062

EPS - Basic $ 6.15 $ 4.97 $ 1.64

EPS - Diluted $ 5.92 $ 4.81 $ 1.64

Adjusted EPS - Basic (non-GAAP) $ 6.52 $ 5.32 $ 1.79

Adjusted EPS - Diluted (non-GAAP) $ 6.28 $ 5.15 $ 1.78

Liquidity and Capital Resources

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

On a recurring basis, our primary future cash needs will be centered on operating activities, working capital, and capital expenditures reflecting disciplined capital deployment and following the completion of several high-return growth and cost savings investments.

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 volatility in funding markets, we expect 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, 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, as well as comply with HSE regulations and support sustainability initiatives.

While current macroeconomic conditions create volatility in funding markets, we expect 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 Item 1A, as well as general economic, financial, competitive, regulatory and other factors that are beyond our control.

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

Capital expenditures were approximately $89 million in 2022 compared to $57 million in 2021, driven by a planned increase in replacement maintenance and HSE projects.

As noted in "Note 4.

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

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

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 remaining 50% paid on January 3, 2023.

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

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Interest payments are estimated based on the interest rate applicable as of December 31, 2022 and approximate $6.1 million per year, subject to changes in variable interest rates and additional obligations.

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

Cash contributions of $1.2

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

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

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

The Company made cash contributions to the defined benefit pension plan of $20.0 million during the year ended December 31, 2022 sufficient to satisfy pension funding requirements for 2022 under the AdvanSix Retirement Earnings Plan.

Cash contributions of $0 million, $10.0 million, $5.0 million and $5.0 million were made in each of the four quarters of 2022, respectively.

The Company plans to make cash contributions of between nil to $5.0 million in 2023 and additional contributions in future years sufficient to satisfy pension funding requirements in those periods.

The Company made cash contributions to the defined contribution plan of $5.9 million and $5.9 million for the years ended December 31, 2022 and 2021, respectively.

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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.

On February 17, 2023, 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 previously approved 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.

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As of December 31, 2022, the Company had repurchased 4,531,073 shares of common stock, including 592,976 shares withheld to cover tax withholding obligations in connection with the vesting of equity awards, for an aggregate of $136.1 million at a weighted average market price of $30.04 per share.

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

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

As of December 31, 2022, $28.5 million remained available for repurchase under the previously authorized repurchase program.

During 2022 and the period from January 1, 2023 through February 3, 2023, the Company repurchased an additional 12,710 shares at a weighted average market price of $39.96 per share under the previously authorized repurchase program.

At December 31, 2022, 2021 and 2020, the Company did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K or financing activities with special-purpose entities.

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

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

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

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

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 ($M)

2/17/2023 3/3/2023 3/17/2023 $0.145 $4.0

11/4/2022 11/15/2022 11/29/2022 $0.145 $4.0

8/5/2022 8/16/2022 8/30/2022 $0.145 $4.1

5/6/2022 5/17/2022 5/31/2022 $0.125 $3.5

2/18/2022 3/1/2022 3/15/2022 $0.125 $3.5

9/28/2021 11/9/2021 11/23/2021 $0.125 $3.5

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

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

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

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

Credit Agreement

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

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

The Second Amended and Restated Credit Agreement required the Company to maintain a Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement) of (i) 3.50 to 1.00 or less for the fiscal quarter ending March 31, 2020, (ii) 4.50 to 1.00 or less for the fiscal quarter ending June 30, 2020, (iii) 4.25 to 1.00 or less for the fiscal quarter ending September 30, 2020, (iv) 3.50 to 1.00 or less for the fiscal quarter ending December 31, 2020, (v) 3.25 to 1.00 or less for the fiscal quarter ending March 31, 2021 through and including the fiscal quarter ending December 31, 2021, and (vi) 3.00 to 1.00 or less for the fiscal quarter ending March 31, 2022 and each fiscal quarter thereafter (subject to the Company’s option to elect a Consolidated Leverage Ratio increase in connection with certain acquisitions).

The Consolidated Interest Coverage Ratio financial covenant required the Company to maintain a Consolidated Interest Coverage Ratio (as defined in the Second Amended and Restated Credit Agreement) of not less than 3.00 to

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

Borrowings under the Second Amended and Restated Credit Agreement bore interest at a rate equal to either the sum of a base rate plus a margin ranging from 0.50% to 2.00% or the sum of a Eurodollar rate plus a margin ranging from 1.50% to 3.00%, with either such margin varying according to the Company’s Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement).

The Company was also required to pay a commitment fee in respect of unused commitments under the credit facility, if any, at a rate ranging from 0.20% to 0.50% per annum depending on the Company’s Consolidated Leverage Ratio.

The Second Amended and Restated Credit Agreement contained revisions to various financial ratios, 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.

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.

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”).

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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.

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

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

The Credit Agreement also contains financial covenants that require the Company to maintain a Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) of not less than 3.00 to 1.00 and to maintain a Consolidated Leverage Ratio of (i) 4.00 to 1.00 or less for the fiscal quarter ending December 31, 2021, through and including the fiscal quarter ending September 30, 2023 and (ii) 3.75 to 1.00 or less for each fiscal quarter thereafter (subject to the Company’s option to elect a consolidated leverage ratio increase in connection with certain acquisitions).

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 ended December 31, 2021, through and including the fiscal quarter ending September 30, 2023 and (ii) 3.75 to 1.00 or less for each fiscal quarter thereafter (subject to the Company’s option to elect a consolidated leverage ratio increase in connection with certain acquisitions).

If the Company does not comply with the covenants in the Credit Agreement, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding under the Revolving Credit Facility.

We were in compliance with all of our covenants at December 31, 2022 and through the date of the filing of this Annual Report on Form 10-K.

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 this Annual Report on Form 10-K.

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

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

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

We had a borrowed balance of $135 million under the Revolving Credit Facility as of December 31, 2021.

We repaid an incremental net amount of $20 million during 2022 bringing the balance under the Revolving Credit Facility to $115 million, and available credit for use of $384 million as of December 31, 2022.

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

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2022 compared with 2021

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

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

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

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

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

of approximately $9.5 million.

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

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

Net cash provided by operating activities increased by $54.8 million for the year ended December 31, 2022 versus the prior year due primarily to (i) a $59.4 million favorable 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 favorable cash impact for the year ended December 31, 2022 compared to a $20.8 million unfavorable cash impact in the prior year period and (ii) a $32.1 million increase in net income.

Included within the year-over-year favorability of working capital was a $31.7 million favorable impact due to the resurgence of our typical ammonium sulfate pre-buy cash advances program during the fourth quarter of 2022.

These net favorable impacts were partially offset by (i) a $20.2 million unfavorable cash impact from Taxes receivable (including a $12.3 million cash tax refund received in the first quarter of 2021), (ii) a $17.8 million unfavorable cash impact from Accrued liabilities driven by the timing of payments and (iii) a $13.1 million unfavorable cash impact from Other assets and liabilities including a decrease in pension liability of $5.5 million (primarily reflecting the impact of cash pension contributions), a decrease in a CARES Act liability of $3.2 million and a decrease in Deferred compensation of $3.2 million.

Cash used for investing activities increased by $121.7 million for the year ended December 31, 2022 versus the prior year period due primarily to cash paid for the acquisition of U.S.

Amines for approximately $97.5 million, compared to cash paid of approximately $9.5 million for the acquisition of Commonwealth Industrial Services, and an increase in cash paid for capital expenditures of approximately $32.6 million driven by a planned increase in replacement maintenance and HSE projects

Cash used for financing activities decreased by $78.4 million for the year ended December 31, 2022 versus the prior year due to net payments on the credit facility of $20.0 million for the year ended December 31, 2022 compared to net payments of $140.0 million during the prior year.

During the year ended December 31, 2022, the Company paid dividends of approximately $15.1 million.

Capital Expenditures

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

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 capacity, further improve mix, yield and cost position and comply with environmental and safety regulations and support sustainability initiatives.

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

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Purchases of property, plant and equipment $ 89,449 $ 56,811 $ 82,918

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

Capital expenditures increased $32.6 million from 2021 to 2022 driven by a planned increase in replacement maintenance and HSE projects.

For 2023, we expect our total capital expenditures to be approximately $110 million to $120 million.

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

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

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The Company completed its annual goodwill impairment test as of March 31, 2022 and, based on the results of the Company's assessment of qualitative factors, it was determined that it was not necessary to perform the quantitative goodwill impairment test.

Finite-Lived Intangible Assets – Other intangible assets with determinable lives consist of customer relationships, trademarks, patents and other intangibles and are amortized over their estimated useful lives, ranging from 5 to 20 years.

As described in "Note 18.

Acquisitions" to the consolidated financial statements included in Item 8 of this Form 10-K, in February 2022, the Company acquired U.S.

Amines for a purchase price of approximately $97 million, net of cash acquired.

The acquisition included intangible assets of $34 million consisting primarily of customer relationships, which reflects the value of the benefit derived from incremental revenue and related cash flows that are a direct result of the customer relationships in the amount of approximately $33 million.

The fair value for the customer relationships intangible asset was determined by management using the multi-period excess earnings method.

Management applied significant judgments and assumptions in determining the fair value of the customer relationships including gross margin rates, the discount rate, and customer attrition rate.

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

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

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

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

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

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

the accompanying Notes.

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

Actual results could differ from those estimates.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis