What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-17 compared with 2022-02-18 · 175 added, 122 removed, 1012 unchanged (23% of the section changed)

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded U.S.

Amines from its assessment of internal control over financial reporting as of December 31, 2022 because it was acquired by the Company in a purchase business combination during 2022.

We have also excluded U.S.

Amines from our audit of internal control over financial reporting.

Amines is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 4.1% and 3.0%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

Definition and Limitations of Internal Control over Financial Reporting

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A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Transfer of Control

As described in Notes 2 and 3 to the consolidated financial statements, the Company recorded $1,685 million in sales for the year ended December 31, 2021.

Sales of the Company’s products to customers are made under a purchase order, and in certain cases in accordance with the terms of a master services agreement.

A performance obligation is created when a customer submits a purchase order for a specific product at a specified price.

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

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

The principal considerations for our determination that performing procedures relating to revenue recognition – transfer of control is a critical audit matter are the high degree of auditor subjectivity and effort in performing procedures and evaluating audit evidence relating to the determination of the point in time when control of the product was transferred to the customer and thus revenue was recognized.

Valuation of the Customer Relationships Intangible Asset - Acquisition of U.S.

Amines Limited

As described in Note 2 to the consolidated financial statements, in February 2022, the Company acquired U.S.

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

The acquisition included a customer relationships intangible asset valued at $33 million, which reflects the value of the benefit derived from incremental revenue and related cash flows that are a direct result of the customer relationships.

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 the customer attrition rate.

The principal considerations for our determination that performing procedures relating to the valuation of the customer relationships intangible asset - acquisition of U.S.

Amines Limited is a critical audit matter are (i) the significant judgment by management when determining the fair value of the customer relationships intangible asset;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management's significant assumptions related to the gross margin rates, the discount rate, and the customer attrition rate;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the Company’s revenue recognition process, including controls over the point in time when control of the product was transferred to the customer.

These procedures also included, among others (i) evaluating, on a sample basis, management’s determination of the point in time when control of the product was transferred to the customer based on contractual terms in customer arrangements and the impact of this determination on the timing of revenue recognition;

(ii) testing, on a sample basis, the point in time when control of the product was transferred to the customer by obtaining supporting purchase orders and shipping documents;

and (iii) testing the completeness and accuracy of data provided by management.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including over management's valuation of the customer relationships intangible asset acquired.

These procedures also included, among others, (i) reading the purchase agreement;

(ii) testing management’s process for determining the fair value of the customer relationships intangible asset;

(iii) evaluating the appropriateness of the multi-period excess earnings method;

(iv) testing the completeness and accuracy of the underlying data used in the method;

and (v) evaluating the reasonableness of the significant assumptions used by management related to the gross margin rates, the discount rate, and the customer attrition rate.

Evaluating management’s assumptions related to the gross margin rates and the customer attrition rate involved evaluating whether the assumptions were reasonable considering (i) the current and past performance of U.S.

Amines and AdvanSix’s most similar business unit;

(ii) consistency with external market and industry data;

and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the multi-period excess earnings method and (ii) the discount rate and the customer attrition rate assumptions.

/s/ PricewaterhouseCoopers LLP

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

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

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

Total costs, expenses and other 1,719,849 1,499,509 1,102,884

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Goodwill 56,192 17,592

Intangible assets 49,242 17,980

Other assets 23,216 22,402

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Stock-based compensation 10,279 11,299 4,902

Accretion of deferred financing fees 677 553 427

Restructuring charges — — 11,020

Amortization of deferred financing fees 618 677 553

Changes in assets and liabilities, net of business acquisitions:

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Expenditures for property, plant and equipment ( 89,449 ) ( 56,811 ) ( 82,918 )

Acquisition of business ( 9,523 ) — —

Acquisition of businesses ( 97,456 ) ( 9,523 ) —

Other investing activities ( 2,368 ) ( 1,228 ) ( 1,185 )

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Issuance of common stock 1,304 554 2

Net cash provided by (used for) financing activities ( 146,793 ) ( 24,188 ) 29,982

Net cash used for financing activities ( 68,443 ) ( 146,793 ) ( 24,188 )

Net change in cash and cash equivalents 15,885 4,494 3,556

Cash and cash equivalents at beginning of year 10,606 7,050 9,808

Cash and cash equivalents at the end of year $ 15,100 $ 10,606 $ 7,050

Cash and cash equivalents at beginning of period 15,100 10,606 7,050

Cash and cash equivalents at the end of period $ 30,985 $ 15,100 $ 10,606

Supplemental non-cash investing activities:

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Stock-based compensation — — 11,299 — — — 11,299

Dividends — — — ( 3,518 ) — — ( 3,518 )

Balance at December 31, 2021 31,755,430 318 195,931 411,516 ( 36 ) ( 6,539 ) 601,190

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AdvanSix Inc.

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

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

(“AdvanSix”, the “Company”, “we,” "us" or “our”) 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.

We evaluated segment reporting in accordance with Accounting Standards Codification Topic (“ASC”) 280.

We concluded that AdvanSix is a single operating segment and a single reportable segment based on the operating results available which are evaluated regularly by the chief operating decision maker (“CODM”) to make decisions about resource allocation and performance assessment.

AdvanSix operations are managed as one integrated process spread across three manufacturing sites, including centralized supply chain and procurement functions.

The production process is dependent upon one key raw material, cumene, as the input to the manufacturing of all finished goods produced for sale through the sales channels and end-markets the Company serves.

Production rates and output volumes are managed across all three plants jointly to align with the overall Company operating plan.

The CODM makes operational performance assessments and resource allocation decisions on a consolidated basis, inclusive of all of the Company’s products.

AdvanSix operates through three integrated U.S.-based manufacturing sites located in Frankford, Pennsylvania, and Hopewell and Chesterfield, Virginia.

Our larger manufacturing sites are vertically integrated and leverage cross-plant resources, including centralized supply chain and procurement functions.

This production process uses one key raw material, cumene, as the input to products produced for sale through the sales channels and end-markets the Company serves.

Production rates and output volumes are managed across locations to align with the overall Company operating plan.

AdvanSix operates through five U.S.-based manufacturing sites located in Frankford, Pennsylvania, Chesterfield, Virginia, Hopewell, Virginia, Portsmouth, Virginia and Bucks, Alabama.

The Company's headquarters is located in Parsippany, New Jersey.

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(“Honeywell”) completed the separation of AdvanSix.

The separation was completed by Honeywell distributing (the "Distribution") all of the then outstanding shares of common stock of AdvanSix on October 1, 2016 (the “Distribution Date”) through a dividend in kind of AdvanSix common stock, par value $ 0.01 per share, to holders of Honeywell common stock as of the close of business on the record date of September 16, 2016 who held their shares through the Distribution Date (the “Spin-Off”).

In March 2020, the World Health Organization categorized the novel coronavirus (COVID-19) as a global pandemic with numerous countries around the world declaring national emergencies, including the United States.

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

The spread resulted in authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns.

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

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

The pandemic and related containment measures 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.

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The Company continues to consider the impact of COVID-19 on the estimates and assumptions used for the financial statements.

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.

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.

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.

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Instead, each customer agreement, the majority of which have a term of at least one year, is typically determined by monthly or quarterly volume estimates.

We may also enter into forward commodity contracts with third parties designated as hedges of anticipated purchases of several

We may also enter into forward commodity contracts with third parties designated as hedges of anticipated purchases of several commodities.

Forward commodity contracts are marked-to-market, with the resulting gains and losses recognized in earnings, in the same category as the items being hedged, when the hedged transaction is recognized.

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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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Certain master services agreements (including with respect to our largest customer) may contain minimum purchase volumes which can be satisfied by the customer on a periodic basis by choosing from various products offered by the Company.

In these cases, a performance obligation is created when a customer submits a purchase order for a specific product at a specified price, typically providing for delivery within the next 60 days.

In these cases, a performance obligation is created when a customer submits a purchase order for a

specific product at a specified price, typically providing for delivery within the next 60 days.

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.

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Recent Accounting Pronouncements – The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”).

ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

Any ASUs not currently adopted were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

On December 21, 2022, the FASB issued ASU No.

2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.

When the FASB issued ASU No.

2020-04 in 2020, the Board included a sunset provision within Topic 848 based on the expectation that LIBOR would cease being published on December 31, 2021 and thus, the board set a sunset provision date for December 31, 2022 - 12 months after the expected cessation date of LIBOR.

However, in March 2021, the Board accounted the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of LIBOR would be June 30, 2023, which is beyond the previously established sunset provision date of December 31.

Therefore, the amendments in ASU 2022-06 address this, and defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

The amendments in ASU 2022-06 apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The guidance is effective for all entities upon issuance of this update.

The Company adopted ASU 2022-06 effective December 21, 2022, which did not have any impact on the Company's consolidated financial position or results of operations upon adoption.

In September 2022, the FASB issued ASU No.

2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations.

The amendments in this ASU require that a buyer in a supplier finance program disclose sufficient quantitative and qualitative information about its supplier finance programs to allow a user of the financial statements to understand the program’s nature, activity during the period, changes from period to period and potential magnitude.

On a retrospective basis, for each annual reporting period, an entity should disclose the key terms of the program, including a description of the payment terms, assets pledged as security or other forms of guarantees, the confirmed amount outstanding that remains unpaid, a description of where the obligations are presented in the balance sheet and a roll-forward of those obligations confirmed as well as the amount of obligations subsequently paid.

In each interim reporting period, an entity should disclose the amount of confirmed obligations outstanding.

The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023.

Early adoption of the amendments in this update is permitted.

The Company will adopt ASU 2022-04, effective January 1, 2023, and does not expect adoption to have a material impact on the Company's consolidated financial position or results of operations upon adoption.

On August 5, 2020, the FASB issued ASU No.

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Early adoption of the amendments in this update is permitted, but no earlier than fiscal years, including interim periods within those fiscal years, beginning after December 15, 2020.

The Company adopted ASU 2020-06 effective January 1, 2022, which did not have any impact on the Company's consolidated financial position or results of operations upon adoption.

adopted ASU 2020-06 effective January 1, 2022, which did not have any impact on the Company's consolidated financial position or results of operations upon adoption.

In March 2020, the FASB issued ASU No.

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("Shaw"), a significant consumer of caprolactam and Nylon 6 resin.

We sell caprolactam and

Nylon 6 resin to Shaw under a long-term agreement.

We sell caprolactam and Nylon 6 resin to Shaw under a long-term agreement.

Sales to Shaw were 12 % of our total sales for the year ended December 31, 2022, 12 % for the year ended December 31, 2021 and 14 % for the year ended December 31, 2020.

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Less amounts recognized in revenues ( 3,725 )

Ending balance December 31, 2021 $ 2,749

Ending balance September 30, 2022 $ 34,430

The Company expects to recognize as revenue the December 31, 2022 ending balance of Deferred income and customer advances within one year or less.

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23.9 % 24.5 % 16.3 %

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

The Company's effective income tax rate for 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.

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

The refund was received in the first quarter of 2021.

Although the carryback claim generated a $ 12.3 million refund, it also resulted in the loss of prior year permanent tax benefits, the impact of which, is reflected in the above table under "Other, net" above.

On March 11, 2021, the American Rescue Plan Act ("ARPA") was signed into law.

The ARPA is aimed at addressing the continuing economic and health impacts of the COVID-19 pandemic.

This legislative relief, along with the previous governmental relief packages, provide for numerous changes to current tax law.

The ARPA did not have a material impact on our financial statements for the year ended December 31, 2021.

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 below.

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.

As of December 31, 2021, 2020 and 2019, there were no unrecognized tax benefits recorded by the Company (see below for further information on unrecognized tax benefits).

The refund was received in the first quarter of 2021.

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.

Although there are no unrecognized income tax benefits, when applicable, the Company’s policy is to report interest expense and penalties related to unrecognized income tax benefits in the income tax provision.

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The Company is subject to taxation in the United States and various states and foreign jurisdictions.

The Company is currently under a federal tax examination for the tax years ended December 31, 2017 through December 31, 2019.

There are no material examinations by state tax authorities;

The company closed its federal tax examination for periods 2017 through 2019 in January 2023.

There are no current examinations by state or foreign tax authorities;

however, tax years 2018 through 2022 generally remain open under the statute of limitations and are subject to examination by the tax authorities.

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

Deferred tax assets (liabilities)

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Accruals and reserves 4,197 7,040

Capitalization of research expenses 4,234 —

Inventory 1,094 5,934

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Equity compensation 2,800 2,584

Other 421 900

Total gross deferred tax assets 39,920 51,432

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The net deferred taxes are primarily related to U.S.

The federal net operating loss ("NOL") generated as of December 31, 2019 was carried back to previous tax periods under the CARES Act and the amount was fully utilized in the carryback claim.

As of 2022, we recognized a state NOL carryforward in Illinois for $ 0.6 million which begins to expire in 2031.

The Company fully utilized its foreign NOL as of December 31, 2021.

The Company has no material federal or state tax credit carryforwards remaining as of December 31, 2022.

We believe that the state NOL carryforward, tax credit carryforwards and other deferred tax assets are more likely than not to be realized and we have no t recorded a valuation allowance against the deferred tax assets.

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.

As of December 31, 2022, there was an increase of $ 4.2 million in our Deferred tax assets noted in the table above as Capitalization of research expenses.

This relates to a provision within the Tax Cuts and Jobs Act, which requires, for tax purposes, the capitalization and amortization of research and development expenses effective for years beginning after December 31, 2021.

The Company's accounting policy is to record the tax impacts of Global intangible low-taxed income as a period cost.

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subsidiaries and, as such, we have not provided a deferred tax liability for undistributed earnings.

Unrecognized tax benefits

The following table sets forth the change in the Company's unrecognized tax benefits (UTBs) for year ended December 31, 2021 and 2020.

There are no unrecognized tax benefits in 2019.

Unrecognized tax benefits - January 1 $ — $ —

Gross amounts of decreases in UTBs for tax positions related to the prior year — ( 3,804 )

Gross amounts of increases in UTBs for tax positions related to the prior year — 3,804

Gross amounts of increases and decreases in UTBs for tax positions taken during the current period — —

Unrecognized tax benefits - December 31 $ — $ —

At the end of fiscal 2019, it was unclear whether we qualified for a certain energy tax credit.

After performing a detailed review during the second quarter of 2020, we concluded it was appropriate to recognize a tax benefit (credit) of $ 3.8 million.

However, based on information available at the time, we also recorded a corresponding unrecognized tax benefit reserve for the same amount.

A portion of this credit which was claimed on the 2019 U.S.

federal income tax return of approximately $ 2.2 million was utilized in the carryback claim under the CARES Act and the remaining was utilized in 2020.

In the fourth quarter of 2020, based on a thorough evaluation of new information and applicable technical guidance, the Company reassessed its position which resulted in the reversal of the unrecognized tax benefit as reflected in the above table.

As such, the full amount of the energy credit is reflected in the effective income tax rate reconciliation table above for the year ended December 31, 2020.

Accounts and Other Receivables – Net

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The roll-forward of allowance for doubtful accounts are summarized in the table below:

Charged / (Credited) to

Bad Debt Write-Offs (1)

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$ 215,502 $ 149,570

Substantially all of the Company’s inventories at December 31, 2022 and December 31, 2021 are valued at the lower of cost or market using the last-in, first-out (“LIFO”) method.

However, approximately 6 % was valued at average cost using the first-in, first-out (“FIFO”) method at December 31, 2022.

The excess of replacement cost over the carrying value of total inventories subject to LIFO was $ 58.2 million and $ 29.4 million at December 31, 2022 and December 31, 2021, respectively.

Property, Plant, Equipment – Net

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Total $ 115,043 $ 1,758

As of December 31, 2021, we have additional operating leases that have not yet commenced for $ 3.4 million.

As of December 31, 2022, we have additional operating and finance leases that have not yet commenced for approximately $ 5.8 million and $ 0.7 million, respectively.

These leases will commence during 2023 with lease terms of up to 7 years.

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

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

The Consolidated Interest Coverage Ratio financial covenant required the Company to maintain a Consolidated Interest Coverage Ratio (as defined in the Second Amended and Restated Credit Agreement) of not less than 3.00 to 1.00.

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

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

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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.

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Total $ 20,000 $ 17,530 $ 8,100

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

The Company plans to make pension plan contributions during 2023 sufficient to satisfy pension funding requirements of nil to $ 5.0 million as well as additional contributions in future years sufficient to satisfy pension funding requirements in those periods.

The pension plan assets are invested through a master trust fund.

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In July 2019, the Company entered into an interest rate swap transaction related to its credit agreement.

The fair value of the interest rate swaps at December 31, 2021, 2020 and 2019 was a loss of approximately $ 0.7 million, $ 3.1 million and $ 1.7 million, respectively, and is considered a Level 2 liability.

The fair value of the interest rate swaps at December 31, 2022, 2021 and 2020 was a gain of approximately $ 0.2 million, and losses of approximately $ 0.7 million and $ 3.1 million, respectively, and is considered a Level 2 liability.

The pension plan assets are invested in collective investment trust funds.

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The Company manages its exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk.

The Company’s counterparties in derivative transactions are substantial investment and commercial banks with significant experience using such derivative instruments.

The Company’s counterparties in derivative transactions are

substantial investment and commercial banks with significant experience using such derivative instruments.

The Company monitors the impact of market risk on the fair value and cash flows of its derivative and other financial instruments considering reasonably possible changes in commodity prices, interest rates and foreign currency exchange rates and restricts the use of derivative financial instruments to hedging activities.

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Derivatives designated as hedging instruments under ASC 815:

Interest Rate Contracts Accrued liabilities and Other liabilities $ ( 708 ) Accrued liabilities and Other liabilities $ ( 3,063 ) Accrued liabilities and Other liabilities $ ( 1,718 )

Interest Rate Contracts Accounts and other receivables, net $ 197 Accrued liabilities and Other liabilities $ ( 708 ) Accrued liabilities and Other liabilities $ ( 3,063 )

Total Derivatives $ 197 $ ( 708 ) $ ( 3,063 )

The following table summarizes adjustments related to cash flow hedge included in “Cash flow hedges”, in the Consolidated Statements of Comprehensive Income:

December 31, 2021

Loss on derivative instruments included in Accumulated other comprehensive loss at December 31, 2021 $ ( 708 )

Fair value adjustment 905

Loss on derivative instruments included in Accumulated other comprehensive loss at December 31, 2021 $ ( 708 )

Gain on derivative instruments included in Accumulated other comprehensive loss at December 31, 2022 $ 197

At December 31, 2022, the Company expects to reclassify approximately $ 0.2 million of net losses on derivative instruments from Accumulated other comprehensive income ("AOCI") to earnings during the next 12 months due to the payment of variable interest associated with the floating rate debt with the remainder recognized in future periods through the expiration date.

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Potential liabilities are subject to change due to new developments, changes in settlement strategy or the impact of evidentiary requirements, which could cause the Company to pay damage awards or settlements (or become subject to equitable remedies) that could have a material adverse effect on the Company’s consolidated results of operations, balance sheet and/or operating cash flows in the periods recognized or paid.

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

have occurred at such locations in the past.

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

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Unconditional Purchase Obligations

In the normal course of business, the Company makes commitments to purchase goods with various vendors in the normal course of business which are consistent with our expected requirements and primarily relate to cumene, oleum, sulfur and natural gas as well as a long-term agreement for loading, unloading and the handling of a portion of our ammonium sulfate export volumes.

In the normal course of business, the Company makes commitments to purchase goods with various vendors in the normal course of business which are consistent with our expected requirements and primarily relate to cumene, sulfur and natural gas as well as a long-term agreement for loading, unloading and the handling of a portion of our ammonium sulfate export volumes.

Future minimum payments for these unconditional purchase obligations as of December 31, 2022 are as follows (dollars in thousands):

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comprehensive income (loss)

— — 2,240 2,240

Income tax expense (benefit)

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The par value of the shares repurchased is applied to Treasury stock and the excess of the purchase price over par value is applied to Additional paid in capital.

During 2021, the Company had repurchased 21,564 shares of common stock to cover the tax withholding obligations in connection with the vesting awards, for an aggregate of $ 651,875 at a weighted average market price of $ 30.23 per share.

During 2022, the Company had repurchased 915,597 shares of common stock, including 67,262 shares withheld to cover the tax withholding obligations in connection with the vesting awards, for an aggregate of $ 33.7 million at a weighted average market price of $ 36.84 per share.

The purchase of shares reduces the weighted average number of shares outstanding in the basic and diluted earnings per share calculations.

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The Original Plan was amended and restated as the 2016 Stock Incentive Plan of AdvanSix Inc.

and its Affiliates, as Amended and Restated, which was approved by stockholders of the Company at the Annual Meeting of Stockholders held on June 23, 2020 (the “Equity Plan”).

and its Affiliates, as Amended and Restated, which was approved by stockholders of the Company at the Annual Meetings of Stockholders held on June 23, 2020 and subsequently on June 15, 2022 (the “Equity Plan”).

As a result, no further grants will be made under the Original Plan.

The Equity Plan provides for the grant of stock options, stock

appreciation rights, performance awards, restricted stock units, restricted stock, other stock-based awards and non-share-based awards.

The Equity Plan provides for the grant of stock options, stock appreciation rights, performance awards, restricted stock units, restricted stock, other stock-based awards and non-share-based awards.

The maximum aggregate number of shares of our common stock that may be issued under all stock-based awards granted under the Equity Plan is 2,615,100 , subject to adjustment in accordance with the terms of the Equity Plan.

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Forfeited ( 21 ) 27.81

Expired ( 56 ) 30.94

Outstanding at December 31, 2022 883 27.97 6.81 $ 8,870

Exercisable at December 31, 2022 578 $ 27.49 6.06 $ 6,082

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year and the exercise price, multiplied by the number of in-the-money options) that

would have been received had all option holders exercised their in-the-money options at year-end.

The amount changes based on the fair market value of the Company’s stock.

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Granted 248 13.99

Vested ( 91 ) 26.66

Forfeited ( 40 ) 35.72

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Future income tax benefit recognized $ 840 $ 667 $ 327

We actively target potential acquisitions that build on our competitive advantage and core capabilities and create opportunities for broader expansion, value chain integration, portfolio diversification, increased exposure to attractive end markets and the potential for long-term value creation.

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.

The Company also expects the addition of packaging and warehousing capabilities to bolster logistics and operational efficiency across its Richmond, Virginia area plants.

The Company did not make any acquisitions during the three or twelve months ended December 31, 2020 or 2019.

Goodwill and Intangible Assets

Intangible assets with finite lives acquired through a business combination are recorded at fair value, less accumulated amortization.

Customer relationships and trade-names are amortized on a straight-line basis over their expected useful lives of 15 to 20 years and 5 years, respectively.

The change in the carrying amount of goodwill was as follows:

Balance at December 31, 2021 $ 17,592

Acquisition of U.S.

Amines 38,600

Balance at December 31, 2022 $ 56,192

Finite-Lived Intangible Assets

Intangible assets subject to amortization were as follows:

December 31, 2022 December 31, 2021

Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value

Customer relationships $ 36,820 $ ( 1,854 ) $ 34,966 $ 3,920 $ ( 240 ) $ 3,680

Licenses 18,451 ( 5,074 ) 13,377 18,451 ( 4,151 ) 14,300

Trade names 1,100 ( 201 ) 899 — — —

Total $ 56,371 $ ( 7,129 ) $ 49,242 $ 22,371 $ ( 4,391 ) $ 17,980

For the twelve months ended December 31, 2022 and 2021, the Company recorded amortization expense on intangible assets of $ 2.7 million and $ 1.2 million, respectively.

The estimated aggregate amortization expense for each of the next five years is as follows:

In February 2022, the Company acquired the stock of 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.

In accordance with ASC 805, this transaction has been accounted for as a business combination.

The Company used its best estimates and assumptions to assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date based on the information that was available as of the acquisition date.

The transaction resulted in the Company acquiring tangible assets and a finite-lived intangible asset, comprised of customer relationships which reflects the value of the benefit derived from incremental revenue and related cash flows as a direct result of the customer relationships.

This intangible asset is being amortized on a straight-line basis over its estimated useful life of 15 years.

The Company used its best estimates and assumptions for items including, but not limited to, corporate name recognition, strong, long-lasting customer relationships and potential revenue growth from existing customers to assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date based on the information that was available as of the acquisition date.

The transaction resulted in the Company acquiring tangible assets and finite-lived intangible assets, comprised of customer relationships (approximately $ 33 million) and trademarks (approximately $ 1 million) which reflect the value of the benefit derived from incremental revenue and related cash flows as a direct result of the customer relationships and name brand.

These intangible assets are being amortized on a straight-line basis over their estimated useful lives of 20 years and 5 years, respectively.

The residual amount of the purchase price in excess of the value of the tangible and definite-lived intangible assets was allocated to goodwill.

Pro forma financial information related to the acquisition has not been included as the impact on the Company's consolidated results of operations was below the reporting thresholds of the significance test.

The following table summarizes the allocation of the purchase price consideration as of the acquisition date:

Twelve months ended December 31, 2021

Factors considered when identifying goodwill included, but are not limited to, a complementary business model and formula pricing mechanisms with a business that is adjacent to our ammonium sulfate adjuvant and solvent businesses, the enhancement of the Company’s value chain through internal supply of products and raw materials, a new unique platform in the agrochemicals space as well as a number of opportunities to support further penetration into high-value applications.

Amines acquisition was not significant to our Consolidated Financial Statements, therefore, pro forma and post-acquisition results of operations have not been presented.

The following table summarizes the allocation of the purchase price consideration as of the acquisition date for the transaction noted above:

Initially Reported as of March 31, 2022 (Preliminary) Measurement Period Adjustment December 31, 2022

Cash $ 22,887 $ — $ 22,887

Accounts receivable 15,117 — 15,117

Inventories 11,937 ( 3,048 ) 8,889

Other current assets 1,876 ( 167 ) 1,709

Property, plant and equipment 13,600 ( 8 ) 13,592

Intangible assets 31,400 2,600 34,000

Accounts payable and accrued liabilities ( 429 )

Accounts payable ( 1,487 ) ( 88 ) ( 1,575 )

Accrued liabilities ( 2,760 ) — ( 2,760 )

Deferred income taxes ( 12,243 ) 2,127 ( 10,116 )

Net tangible and intangible assets 80,327 1,416 81,743

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Total purchase price $ 120,598 $ ( 255 ) $ 120,343

Cash paid to date $ 9,523

Due to seller —

Total purchase price $ 120,598 $ ( 255 ) $ 120,343

Cash acquired ( 22,887 ) — ( 22,887 )

Total purchase price, net of cash received 97,711 ( 255 ) 97,456

Estimated working capital adjustment due from seller 878 ( 878 ) —

Net cash paid $ 98,589 $ ( 1,133 ) $ 97,456

Goodwill deductible for tax purposes $ — $ — $ —

The preliminary amounts presented in the table above pertained to the preliminary purchase price allocation reported in the Company's Form 10-Q for the first quarter ended March 31, 2022.

The measurement period adjustment was primarily associated with the inventory valuation and a change to the deferred income tax liability.

The Company does not believe that the measurement period adjustment had a material impact on its consolidated statements of operations, balance sheets or cash flows in the prior period previously reported.

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

("CIS") for approximately $ 9.5 million.

Subsequent Events

As announced on February 17, 2023, the Board declared a quarterly cash dividend of $ 0.145 per share on the Company's common stock, payable on March 17, 2023 to stockholders of record as of the close of business on March 3, 2023.

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.

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.

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

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

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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 8. Financial Statements and Supplementary Data