What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-04 · 90 added, 131 removed, 221 unchanged (50% of the section changed)

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

the scope, shape and pace of recovery of the pandemic including the impact of social and economic restrictions and other containment measures taken to combat virus transmission;

the effect on our customers’ demand for our products and our suppliers’ ability to manufacture and deliver our raw materials, including implications of reduced refinery utilization in the U.S.;

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

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

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

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Business Overview

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

AdvanSix is a diversified chemistry company playing 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.

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We internally polymerize caprolactam into Aegis® Nylon 6 Resins, and we also market and sell the caprolactam that is not consumed internally to customers who use it to manufacture polymer resins to produce nylon fibers, films and other nylon products.

Our Hopewell, VA manufacturing facility is one of the world’s largest single-site producers of caprolactam as of September 30, 2022.

Our Hopewell, VA manufacturing facility is one of the world’s largest single-site producers of caprolactam as of March 31, 2023.

• Chemical Intermediates – We manufacture, market and sell a number of other chemical intermediate products that are derived from the manufacturing processes within our integrated supply chain.

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Ammonium sulfate fertilizer is derived from the integrated operations at the Hopewell manufacturing facility.

Because of our Hopewell facility’s size, scale and technology design, we are the world’s largest single-site producer of ammonium sulfate fertilizer as of September 30, 2022.

Because of our Hopewell facility’s size, scale and technology design, we are the world’s largest single-site producer of ammonium sulfate fertilizer as of March 31, 2023.

We market and sell ammonium sulfate primarily to North American and South American distributors, farm cooperatives and retailers to fertilize crops.

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The global prices for nylon resin typically track a spread over the price of caprolactam, which in turn tracks as a spread over benzene because the key feedstock materials for caprolactam, phenol or cyclohexane, are derived from benzene.

This price spread has historically experienced cyclicality as a result of global changes in supply and demand.

Nylon 6 resin prices track the cyclicality of caprolactam prices, although prices set above the average commodity spread are achievable when nylon resin manufacturers, like AdvanSix, formulate and produce differentiated nylon resin products.

This price spread has historically experienced variation as a result of global changes in supply and demand.

Nylon 6 resin prices generally track caprolactam prices, although prices set above the average commodity spread are achievable when nylon resin manufacturers, like AdvanSix, formulate and produce differentiated nylon resin products.

Our differentiated Nylon 6 products are typically valued at a higher level than commodity resin products.

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Global prices for ammonium sulfate fertilizer are influenced by several factors including the price of urea, which is the most widely used source of nitrogen-based fertilizer in the world.

Other global factors driving ammonium sulfate fertilizer demand are general agriculture trends, including planted acres and the price of crops.

Our ammonium sulfate product is positioned with

the added value proposition of sulfur nutrition to increase yields of key crops.

Other global factors driving ammonium sulfate fertilizer demand

are general agriculture trends, including planted acres and the price of crops.

Our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition to increase yields of key crops.

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

We recently expanded our offering to directly supply packaged ammonium sulfate to customers, primarily in North and South America, and diversified and optimized our offerings to include spray-grade adjuvants to support crop protection and products for industrial use.

We also directly supply packaged ammonium sulfate to customers, primarily in North and South America, and diversified and optimized our offerings to include spray-grade adjuvants to support crop protection, as well as other specialty fertilizers and products for industrial use.

We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, however, quarterly sales experience seasonality reflecting both geographical and product sales mix considerations based on the timing and length of the growing seasons in North and South America.

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Recent Developments

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

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

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

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

Starting in the second half of 2020, demand improved to pre-COVID-19 levels with states, regions and countries in various phases of re-opening and continued administration of vaccines for COVID-19.

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

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

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.

Share Repurchase Authorization

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 in accordance with Rule 10b-18 of the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act.

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

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

Hopewell South Collective Bargaining Agreement

On April 7, 2023, the Company issued a press release announcing that a labor strike had been initiated by the Hopewell South bargaining unit, consisting of the International Chemical Workers Union Council/the United Food and Commercial Workers, Local 591-C, the International Brotherhood of Electrical Workers, Local 666, the International Association of Machinists and Aerospace Workers, Local No.

10, and the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry, Local 851, affecting approximately 340 workers at the Company's manufacturing facility in Hopewell, Virginia.

The Company has robust contingency measures in place and is well prepared to support safe, stable and sustainable operations during this period.

While AdvanSix continues to operate, we do not currently have an estimate of timing for completion of negotiations with the Hopewell South bargaining unit.

The strike is not expected to have a material impact on the Company's financial condition.

During 2023, the Company has declared dividends as follows:

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

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

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

Results of Operations

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Sales $ 400,544 $ 479,073

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Three Months Ended

September 30, 2022 Nine Months Ended

September 30, 2022

March 31, 2023

Volume (8.8)%

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Acquisition 2.5%

Sales increased in the three months ended September 30, 2022 compared to the prior year period by $32.3 million (approximately 7%) due primarily to (i) net favorable market-based pricing (approximately 18%) reflecting strength in our ammonium sulfate and nylon product lines, (ii) favorable raw material pass-through pricing (approximately 4%) as a result of net cost increases in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) the acquisition of U.S.

Amines (approximately 3%), partially offset by decreased sales volume (approximately 18%) driven primarily by lower production due to an extended multi-site third quarter 2022 plant turnaround and delayed ramp to full production rates at our manufacturing sites.

Sales increased in the nine months ended September 30, 2022 compared to the prior year period by $281.0 million (approximately 22%) due primarily to (i) net favorable market-based pricing (approximately 23%) reflecting strength in our ammonium sulfate and nylon product lines partially offset by lower pricing in chemical intermediates (primarily acetone), (ii) favorable raw material pass-through pricing (approximately 5%) as a result of net cost increases in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) the acquisition of U.S.

Amines (approximately 3%), partially offset by decreased sales volume (approximately 9%) driven primarily by unfavorable weather conditions resulting in a reduction of in-season fertilizer demand during the second quarter of 2022 and lower production during the third quarter of 2022, as discussed above.

Sales decreased in the three months ended March 31, 2023 compared to the prior year period by $78.5 million (approximately 16%) due primarily to (i) decreased sales volume (approximately 9%) driven primarily by soft end market demand, (ii) net unfavorable market-based pricing (approximately 6%) reflecting lower pricing across our ammonium sulfate and nylon product lines, and (iii) lower raw material pass-through pricing (approximately 4%) as a result of net cost decreases in benzene and propylene (inputs to cumene which is a key feedstock to our products), partially offset by the acquisition of U.S.

Amines (approximately 3%).

Costs of Goods Sold

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Costs of goods sold $ 330,042 $ 375,646

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Gross Margin percentage 17.6% 21.6%

Costs of goods sold increased in the three months ended September 30, 2022 compared to the prior year period by $77.5 million (approximately 21%) due primarily to (i) increased prices of raw materials (approximately 14%), (ii) increased spend associated with the planned multi-site plant turnaround (approximately 10%), (iii) the impact of the U.S.

Amines acquisition (approximately 4%) and (iv) increased plant spend, particularly natural gas utility costs (approximately 4%).

The noted increase was partially offset by lower sales volume (approximately 12%), as discussed above.

Costs of goods sold increased in the nine months ended September 30, 2022 compared to the prior year period by $255.2 million (approximately 25%) due primarily to (i) increased prices of raw materials (approximately 19%), (ii) the impact of the U.S.

Amines acquisition (approximately 4%), (iii) an increase in plant spend, particularly natural gas utility costs (approximately 3%) and (iv) increased spending from the planned multi-site turnaround (approximately 3%).

The noted increase was partially offset by lower sales volumes (approximately 6%), as discussed above.

Gross margin percentage decreased in the three months ended September 30, 2022 compared to the prior year period by approximately 11% due primarily to (i) higher plant spend primarily due to the multi-site plant turnaround and natural gas utility costs (approximately 11%) and (ii) lower sales volume (approximately 5%).

These increases were partially offset by the impact of increased pricing, net of raw material cost escalations (approximately 6%), across the ammonium sulfate, caprolactam and nylon product lines.

Gross margin percentage decreased by approximately 2% in the nine months ended September 30, 2022 compared to the prior year period due primarily to (i) higher plant spend due to the multi-site plant turnaround and higher natural gas utility costs (approximately 4%), (ii) lower sales volume as discussed above (approximately 2%) and (iii) the impact of non-raw material inflation (approximately 2%).

These increases were partially offset by the impact of increased pricing (approximately 6%), net of raw material costs driven primarily by the ammonium sulfate and nylon product lines.

Costs of goods sold decreased in the three months ended March 31, 2023 compared to the prior year period by $45.6 million (approximately 12%) due primarily to decreased prices of raw materials (approximately 12%) and lower sales volume (approximately 7%), including the impact of lower production, partially offset by an increase in plant spend related to additional maintenance and operational enhancements (approximately 4%) and the impact of the U.S.

Amines acquisition (approximately 3%).

Gross margin percentage decreased in the three months ended March 31, 2023 compared to the prior year period by approximately 4% due primarily to (i) lower sales volume including the impact of lower production (approximately 2%) and (ii) increased plant spend related to additional maintenance and operational enhancements (approximately 3%), partially offset by the impact of market-based pricing, net of raw material costs (approximately 1%).

Selling, General and Administrative Expenses

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Selling, general and administrative expenses $ 25,114 $ 21,210

Percentage of Sales 6.3% 4.4%

Selling, general and administrative expenses increased by $1.9 million in the three months ended September 30, 2022 compared to the prior year period due primarily to increased functional support costs partially offset by decreased incentive-based compensation expense.

Selling, general and administrative expenses increased by $3.0 million in the nine months ended September 30, 2022 compared to the prior period due primarily to increased functional support costs partially offset by (i) decreased incentive-based compensation costs and (ii) a reduction in bad debt expense associated with a cash collection of a previously reserved customer receivable.

Selling, general and administrative expenses increased by $3.9 million in the three months ended March 31, 2023 compared to the prior year period due primarily to upgrades to our enterprise resource planning systems and other functional support costs.

Income Tax Expense

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Income tax expense $ 9,275 $ 19,184

Effective tax rate 21.0% 23.3%

The Company filed a Federal net operating loss (NOL) carryback claim under the CARES Act in July 2020 which generated a refund of previously paid taxes in the amount of $12.3 million.

The refund was received in the first quarter of 2021.

The Company’s effective tax rate for the three and nine months ended September 30, 2022 and 2021 was higher compared to the U.S.

federal statutory rate, due primarily to state taxes and executive compensation deduction limitations, partially offset by tax credits and the deduction for foreign-derived intangible income.

The Company’s effective tax rate for the three months ended September 30, 2022 was lower than the prior year period due primarily to the lower Income before taxes recorded in the third quarter of 2022 compared to the third quarter of 2021 and therefore the tax adjustments in this quarter had a greater impact on the effective tax rate than the prior year period.

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

Amines Limited.

Under purchase accounting rules, during the first and second quarter of 2022, a net deferred tax liability of approximately $12.1 million was recorded related to the adjustment of the acquired assets and liabilities to fair value.

In the third quarter, the Company recorded a measurement period adjustment which resulted in a $2.0 million reduction to the net deferred tax liability with a corresponding reduction to Goodwill acquired.

See Note 13 "Acquisitions" for further details.

The Company’s effective tax rate for the three months ended March 31, 2023 approximated the U.S.

federal statutory rate, due to the impacts of state taxes and executive compensation deduction limitations which generally increase the tax rate, offset by tax credits and the foreign-derived intangible income deduction which generally decrease the tax rate.

Additionally, a current period discrete tax adjustment was recorded relating to the vesting of equity compensation that resulted in a 2.3% decrease to the Company's quarterly effective tax rate.

The Company's effective tax rate for the three months ended March 31, 2022 differed from the U.S.

federal statutory rate, due primarily to state taxes and executive compensation deduction limitations which generally increase the tax rate, partially offset by tax credits and the foreign-derived intangible income deduction which generally decrease the tax rate.

The Company's effective tax rate for the three months ended March 31, 2023 was lower than the prior year period due primarily to the vesting of equity compensation that resulted in a 2.3% decrease to the Company's quarterly effective tax rate in the current period.

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.

Among other provisions, the IRA introduces a corporate alternative minimum tax (CAMT) on adjusted financial statement income of certain large corporations and a 1% excise tax on share repurchases.

The Company is not currently subject to the CAMT which became effective for tax years beginning after December 31, 2022.

The 1% excise tax is generally applicable to publicly traded corporations for the net value of certain stock that the corporation repurchases during the year and is also effective for tax years beginning after December 31, 2022.

The impact of any excise tax imposed on the Company for share repurchases is generally accounted for as an equity transaction with no consequences to the Company's results in operations, and this provision of the law is not expected to have a material impact on the Company's financial condition.

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.

The Company continues to evaluate these energy credit provisions of the law in relation to our sustainability and environmental, social and governance initiatives.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income $ 34,954 $ 63,073

As a result of the factors described above, Net income was $10.0 million and $138.3 million for the three and nine months ended September 30, 2022 as compared to $43.9 million and $116.2 million in the corresponding prior year period.

As a result of the factors described above, Net income was $35.0 million for the three months ended March 31, 2023 as compared to $63.1 million in the corresponding prior year period.

Non-GAAP Measures

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

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

The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and performance relative to its competitors, as the non-GAAP measures exclude items that management believes do not reflect the Company’s ongoing operations.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income $ 34,954 $ 63,073

Non-cash stock-based compensation 2,013 3,374

Non-recurring, unusual or extraordinary expenses — —

Non-cash amortization from acquisitions 532 201

One-time M&A costs — — 277 172

Non-recurring M&A costs — 277

Benefit from income taxes relating to reconciling items (435) (556)

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net Income $ 34,954 $ 63,073

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We believe that cash balances and operating cash flows, together with available capacity under our credit agreement, will provide adequate funds to support our current short-term operating objectives as well as our longer-term strategic plans, subject to the risks and uncertainties outlined below, in our "Note Regarding Forward-Looking Statements" above, and in the risk factors previously disclosed in Item 1A of Part I of our 2022 Form 10-K.

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

funding requirements.

Our cash flows are affected by capital requirements and production volume, which may be materially impacted by unanticipated events such as unplanned downtime, material disruptions at our production facilities as well as the prices of our raw materials and general economic and industry trends, as well as customer demand, which in the second quarter of 2020, was materially impacted by the circumstances surrounding COVID-19.

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

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

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

We utilize supply chain financing and trade receivables discount arrangements with third-party financial institutions which optimize terms and conditions related to accounts receivable and accounts payable in order to enhance liquidity and enable us to efficiently manage our working capital needs.

Although we continue to optimize supply chain financing and trade receivable programs in the ordinary course, our utilization of these arrangements, both prior to and during the COVID-19 pandemic, has not had a material impact on our liquidity.

Although we continue to optimize supply chain financing and trade receivable programs in the ordinary course, our utilization of these arrangements has not had a material impact on our liquidity.

In addition, we monitor the third-party depository institutions that hold our cash and cash equivalents.

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Our ability to fund our capital needs, however, will depend on our ongoing ability to generate cash from operations and access to credit and capital markets, both of which are subject to the risk factors previously disclosed in Item 1A of Part I of our 2022 Form 10-K, as well as general economic, financial, competitive, regulatory and other factors that are beyond our control.

As of the end of the third quarter of 2022, the Company had approximately $24.7 million of cash on hand with approximately $364 million of additional capacity available under the revolving credit facility.

As of the end of the first quarter of 2023, the Company had approximately $1.8 million of cash on hand with approximately $372 million of additional capacity available under the revolving credit facility.

The Company’s Consolidated Leverage Ratio financial covenant of its credit facility allows it to net up to $75 million of cash with debt.

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

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

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

Capital expenditures are expected to

be approximately $110 million to $120 million in 2023 compared to $89 million in 2022, reflecting increased spend due to critical infrastructure, other maintenance, and growth and cost savings projects.

We assumed from Honeywell International Inc.

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

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

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

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

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

The Company made cash contributions to the defined benefit pension plan of $15 million during the nine months ended September 30, 2022 with no contributions made in the first quarter of 2022, $10 million in the second quarter of 2022 and $5 million in the third quarter of 2022.

The Company currently plans to make pension plan contributions during 2022 sufficient to satisfy funding requirements under the AdvanSix Retirement Earnings Plan in an aggregate amount of approximately $20 million.

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

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

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

Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act, including through the use of trading plans intended to

qualify under Rule 10b5-1 of the Exchange Act.

We expect that our primary cash requirements for 2023 will be to fund costs associated with ongoing operations, capital expenditures, and amounts related to other contractual obligations.

The Company made no cash contributions to the defined benefit pension plan during the three months ended March 31, 2023.

The Company plans to make cash contributions of between nil to $5 million in 2023 and additional contributions in future years sufficient to satisfy pension funding requirements in those periods.

The Company's Board of Directors (the "Board") has authorized share repurchase programs to repurchase shares of the Company's common stock as follows:

Date of Authorization Authorized Amount

Authorized Amount Remaining as of March 31, 2023

May 4, 2018 $ 75.0 $ —

February 22, 2019 75.0 25.2

February 17, 2023 75.0 75.0

Totals $ 225.0 $ 100.2

Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act.

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

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

As of September 30, 2022, the Company has repurchased a total of 4,246,872 shares of common stock, including 592,976 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $125.9 million at a weighted average market price of $29.66 per share.

As of September 30, 2022, $38.6 million remained available for share repurchases under the current authorization.

During the period from October 1, 2022 through October 28, 2022, we repurchased an additional 148,700 shares at a weighted average market price of $33.36 per share under the currently authorized repurchase program.

As of September 30, 2022, the Company did not have any off-balance sheet arrangements as described in Instruction 8 to Item 303(b) of Regulation S-K and did not have any material changes in the commitments or contractual obligations detailed in the Company's 2021 Form 10-K (see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Liquidity and Capital Resources - Liquidity").

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

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.

As of March 31, 2023, the Company has repurchased a total of 4,864,127 shares of common stock life-to-date, including 841,354 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $149.6 million at a weighted average market price of $30.75 per share.

As of March 31, 2023, $100.2 million remained available for share repurchases under the current authorization.

During the period from April 1, 2023 through April 28, 2023, we repurchased an additional 105,573 shares at a weighted average market price of $38.95 per share primarily under the currently authorized repurchase program.

As of March 31, 2023, the Company did not have any off-balance sheet arrangements as described in Instruction 8 to Item 303(b) of Regulation S-K and did not have any material changes in the commitments or contractual obligations detailed in the Company's 2022 Form 10-K (see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Liquidity and Capital Resources - Liquidity").

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

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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

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

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

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

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

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

Date of Announcement Date of Record Date Payable Dividend per Share Total Approximate Dividend Amount ($M)

5/5/2023 5/16/2023 5/30/2023 $0.145 $ 4.0

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 fall within the discretion of our Board.

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

Facility of up to the sum of (x) $175 million plus (y) an amount such that the Company’s Consolidated First Lien Secured Leverage Ratio (as defined in the Credit Agreement) would not be greater than 2.75 to 1.00, in each case, to the extent that any one or more lenders, whether or not currently party to the Credit Agreement, commits to be a lender for such amount or any portion thereof.

The Company has the option to establish a new class of term loans and/or increase the amount of the Revolving Credit Facility in an aggregate principal amount for all such incremental term loans and increases of the Revolving Credit Facility of up to the sum of (x) $175 million plus (y) an amount such that the Company’s Consolidated First Lien Secured Leverage Ratio (as defined in the Credit Agreement) would not be greater than 2.75 to 1.00, in each case, to the extent that any one or more lenders, whether or not currently party to the Credit Agreement, commits to be a lender for such amount or any portion thereof.

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

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

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

affiliates, make investments, make capital expenditures, merge or consolidate with others or dispose of assets.

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

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

We were in compliance with all of our covenants at September 30, 2022 and through the date of the filing of this Form 10-Q.

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

For this reason, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity.

For further information regarding risk and the impact COVID-19 could have on our business, financial condition, results of operations and liquidity, including our ability to comply with financial covenants in our credit facility and our access to, and cost of, capital, see "Risk Factors" in Item 1A of Part I of the 2021 Form 10-K.

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

During the nine months ended September 30, 2022, the Company's incremental borrowings equaled the incremental payments maintaining the balance under the Revolving Credit Facility at $135 million as of September 30, 2022.

As of September 30, 2022, approximately $364 million was available for use out of the total of $500 million under the Revolving Credit Facility.

We were in compliance with all of our covenants at March 31, 2023 and through the date of the filing of this Form 10-Q.

We had a borrowed balance of $115 million under the Revolving Credit Facility at December 31, 2022.

We borrowed an incremental net amount of $12 million during the three months ended March 31, 2023, bringing the balance under the Revolving Credit Facility to $127 million, and available credit for use of approximately $372 million as of March 31, 2023.

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

Cash Flow Summary

Nine Months Ended

September 30,

Three Months Ended

Cash provided by (used for):

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Net change in cash and cash equivalents $ (29,159) $ 4,206

Cash provided by operating activities increased by $18.5 million for the nine months ended September 30, 2022 versus the prior year period due primarily to a $55.5 million favorable cash impact from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) year-over-year with a $50.7 million favorable cash impact from working capital for the nine months ended September 30, 2022 compared to a $4.9 million

unfavorable cash impact in the prior year period and a $22.1 million increase in net income.

These net favorable impacts for the nine months ended September 30, 2022 were partially offset by (i) a $25.9 million unfavorable cash impact from Taxes receivable (including a $12.3 million cash tax refund received in the first quarter of 2021), (ii) a $14.1 million unfavorable cash impact from Accrued liabilities driven by the timing of payments, (iii) a $9.7 million unfavorable cash impact from Income taxes payable and (iv) a $9.2 million unfavorable impact from Other assets and liabilities compared to the prior year period driven primarily by a reduction in the net pension liability due to cash contributions to the defined benefit pension plan.

Cash used for investing activities increased by $112.1 million for the nine months ended September 30, 2022 versus the prior year period due primarily to cash paid for the acquisition of U.S.

Amines for approximately $97 million compared to cash paid of approximately $9.5 million for the acquisition of Commonwealth Industrial Services, and increased cash payments for capital expenditures of approximately $23.5 million reflecting timing of project execution.

Cash used for financing activities decreased by $106.6 million for the nine months ended September 30, 2022 versus the prior year period as incremental borrowings equaled the incremental payments during the nine months ended September 30, 2022 compared to net repayments of $140.0 million during the prior year period partially offset by payments for share repurchases of $23.0 million and cash paid for dividends of approximately $11.1 million as described above.

Cash provided by operating activities decreased by $47.6 million for the three months ended March 31, 2023 versus the prior year period due primarily to a $28.1 million decrease in net income and a $36.6 million unfavorable cash impact from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) year-over-year with a $57.3 million unfavorable cash impact from working capital for the three months ended March 31, 2023 compared to a $20.7 million unfavorable cash impact in the prior year period.

This was partially offset by (i) a $8.7 million favorable cash impact from Taxes receivable, (ii) a $5.1 million favorable cash impact from Other assets and liabilities primarily related to the timing of payments and (iii) a $3.3 million favorable cash impact primarily from lower short-term incentive payments during the three months ended March 31, 2023 compared to the prior year period.

Cash used for investing activities decreased by $94.3 million for the three months ended March 31, 2023 versus the prior year period due primarily to cash paid for the acquisition of U.S.

Amines for approximately $98.6 million during the prior year period, and increased cash payments for capital expenditures of approximately $3.6 million during the prior year period due primarily to increased spend for critical infrastructure, other maintenance, and growth and cost savings projects.

Cash used for financing activities increased by $80.1 million for the three months ended March 31, 2023 versus the prior year period due primarily to net borrowings of $12.0 million during the three months ended March 31, 2023 compared to net borrowings of $85.0 million during the prior year period partially offset by payments for share repurchases of $13.5 million and cash paid for dividends of approximately $4.0 million during the three months ended March 31, 2023 compared to $7.0 million and $3.5 million during the prior year period, respectively.

Capital Expenditures

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The following table summarizes ongoing and expansion capital expenditures:

Nine Months Ended

September 30, 2022

Three Months Ended

March 31, 2023

Capital expenditures in Accounts payable at December 31, 2022

Purchases of property, plant and equipment 17,917

Capital expenditures in Accounts payable at September 30, 2022

Capital expenditures in Accounts payable at March 31, 2023

Cash paid for capital expenditures $ 24,603

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

For 2023, we expect our total capital expenditures to be approximately $110 million to $120 million to compared to $89 million in 2022, reflecting increased spend due to critical infrastructure, other maintenance, and growth and cost savings projects.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis