AdvanSix Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS ADVANSIX INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except share and per share amounts) Three Months Ended March 31, 2023 2022 Sales $ 400,544 $ 479,073 Costs, expenses and other: Costs of goods sold 330,042 375,646 Selling, general and administrative expenses 25,114 21,210 Interest expense, net 1,267 563 Other non-operating (income) expense, net ( 108 ) ( 603 ) Total costs, expenses and other 356,315 396,816 Income before taxes 44,229 82,257 Income tax expense 9,275 19,184 Net income $ 34,954 $ 63,073 Earnings per common share Basic $ 1.27 $ 2.24 Diluted $ 1.22 $ 2.15 Weighted average common shares outstanding Basic 27,601,784 28,199,871 Diluted 28,586,563 29,371,051 See accompanying notes to Condensed Consolidated Financial Statements. 3 ADVANSIX INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands) Three Months Ended March 31, 2023 2022 Net income $ 34,954 $ 63,073 Foreign exchange translation adjustment ( 33 ) 57 Cash-flow hedges ( 150 ) 512 Other comprehensive income (loss), net of tax ( 183 ) 569 Comprehensive income $ 34,771 $ 63,642 See accompanying notes to Condensed Consolidated Financial Statements. 4 ADVANSIX INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except share and per share amounts) March 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 1,826 $ 30,985 Accounts and other receivables – net 161,389 175,429 Inventories – net 224,635 215,502 Taxes receivable 1,023 9,771 Other current assets 6,295 9,241 Total current assets 395,168 440,928 Property, plant and equipment – net 812,518 811,065 Operating lease right-of-use assets 113,225 114,688 Goodwill 56,192 56,192 Intangible assets 48,480 49,242 Other assets 23,232 23,216 Total assets $ 1,448,815 $ 1,495,331 LIABILITIES Current liabilities: Accounts payable $ 212,506 $ 272,770 Accrued liabilities 40,611 48,820 Operating lease liabilities – short-term 36,171 37,472 Deferred income and customer advances 25,672 34,430 Total current liabilities 314,960 393,492 Deferred income taxes 160,192 160,409 Operating lease liabilities – long-term 77,418 77,571 Line of credit – long-term 127,000 115,000 Postretirement benefit obligations 1,139 — Other liabilities 10,039 10,679 Total liabilities 690,748 757,151 COMMITMENTS AND CONTINGENCIES (Note 9) STOCKHOLDERS' EQUITY Common stock, par value $ 0.01 ; 200,000,000 shares authorized; 32,532,842 shares issued and 27,668,715 outstanding at March 31, 2023; 31,977,593 shares issued and 27,446,520 outstanding at December 31, 2022 325 320 Preferred stock, par value $ 0.01 ; 50,000,000 shares authorized and 0 shares issued and outstanding at March 31, 2023 and December 31, 2022 — — Treasury stock at par ( 4,864,127 shares at March 31, 2023; 4,531,073 shares at December 31, 2022) ( 48 ) ( 45 ) Additional paid-in capital 163,831 174,585 Retained earnings 598,339 567,517 Accumulated other comprehensive loss ( 4,380 ) ( 4,197 ) Total stockholders' equity 758,067 738,180 Total liabilities and stockholders' equity $ 1,448,815 $ 1,495,331 See accompanying notes to Condensed Consolidated Financial Statements. 5 ADVANSIX INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net income $ 34,954 $ 63,073 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,845 16,692 Loss on disposal of assets 168 359 Deferred income taxes ( 170 ) ( 519 ) Stock-based compensation 2,013 3,374 Amortization of deferred financing fees 155 155 Changes in assets and liabilities, net of business acquisitions: Accounts and other receivables 14,007 ( 28,402 ) Inventories ( 9,133 ) ( 1,889 ) Taxes receivable 8,748 — Accounts payable ( 53,388 ) 9,904 Accrued liabilities ( 8,408 ) ( 11,718 ) Deferred income and customer advances ( 8,758 ) ( 315 ) Other assets and liabilities 3,542 ( 1,552 ) Net cash provided by operating activities 1,575 49,162 Cash flows from investing activities: Expenditures for property, plant and equipment ( 24,603 ) ( 21,019 ) Acquisition of businesses — ( 98,589 ) Other investing activities ( 1,003 ) ( 296 ) Net cash used for investing activities ( 25,606 ) ( 119,904 ) Cash flows from financing activities: Borrowings from line of credit 78,000 148,500 Payments of line of credit ( 66,000 ) ( 63,500 ) Principal payments of finance leases ( 231 ) ( 237 ) Dividend payments ( 4,020 ) ( 3,517 ) Purchase of treasury stock ( 13,499 ) ( 7,012 ) Issuance of common stock 622 714 Net cash (used for) provided by financing activities ( 5,128 ) 74,948 Net change in cash and cash equivalents ( 29,159 ) 4,206 Cash and cash equivalents at beginning of period 30,985 15,100 Cash and cash equivalents at the end of period $ 1,826 $ 19,306 Supplemental non-cash investing activities: Capital expenditures included in accounts payable $ 8,193 $ 7,335 Supplemental cash activities: Cash paid for interest $ 1,191 $ 408 Cash paid for income taxes $ 91 $ 22 See accompanying notes to Condensed Consolidated Financial Statements. 6 ADVANSIX INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Dollars in thousands) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Equity Shares Amount Balance at December 31, 2022 31,977,593 $ 320 $ 174,585 $ 567,517 $ ( 45 ) $ ( 4,197 ) $ 738,180 Net Income — — — 34,954 — — 34,954 Comprehensive income — — — — — — — Foreign exchange translation adjustments — — — — — ( 33 ) ( 33 ) Cash-flow hedges — — — — — ( 150 ) ( 150 ) Pension obligation adjustments — — — — — — — Other comprehensive income (loss), net of tax — — — — — ( 183 ) ( 183 ) Issuance of common stock 555,249 5 617 — — — 622 Purchase of treasury stock ( 333,054 shares) — — ( 13,496 ) — ( 3 ) — ( 13,499 ) Stock-based compensation — — 2,013 — — — 2,013 Dividends — — 112 ( 4,132 ) — — ( 4,020 ) Balance at March 31, 2023 32,532,842 $ 325 $ 163,831 $ 598,339 $ ( 48 ) $ ( 4,380 ) $ 758,067 Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Equity Shares Amount Balance at December 31, 2021 31,755,430 $ 318 $ 195,931 $ 411,516 $ ( 36 ) $ ( 6,539 ) $ 601,190 Net Income — — — 63,073 — — 63,073 Comprehensive income Foreign exchange translation adjustments — — — — — 57 57 Cash-flow hedges — — — — — 512 512 Pension obligation adjustments — — — — — — — Other comprehensive income (loss), net of tax — — — — — 569 569 Issuance of common stock 144,875 1 713 — — — 714 Purchase of treasury stock ( 181,536 shares) — — ( 7,010 ) — ( 2 ) — ( 7,012 ) Stock-based compensation — — 3,374 — — — 3,374 Dividends — — 313 ( 3,830 ) — — ( 3,517 ) Balance at March 31, 2022 31,900,305 $ 319 $ 193,321 $ 470,759 $ ( 38 ) $ ( 5,970 ) $ 658,391 See accompanying notes to Condensed Consolidated Financial Statements. 7 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) 1. Organization, Operations and Basis of Presentation Description of Business AdvanSix Inc. ("AdvanSix," the "Company," "we" or "our") 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. 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. Basis of Presentation The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of March 31, 2023, and its results of operations for the three months ended March 31, 2023 and 2022 and cash flows for the three months ended March 31, 2023 and 2022. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Form 10-K"). All intercompany transactions have been eliminated. Certain prior period amounts have been reclassified for consistency with the current period presentation. It is our practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires our businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on our business processes. Historically, the effects of this practice have generally not been significant to reported results for any quarter and only existed within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, we will provide the appropriate disclosures. Our actual closing dates for the three months ended March 31, 2023 and 2022 were April 1, 2023 and April 2, 2022, respectively. Liabilities to creditors to whom we have issued checks that remained outstanding at March 31, 2023 and December 31, 2022 aggregated to $ 5.2 million and $ 9.0 million, respectively, and were included in Cash and cash equivalents and Accounts payable in the Condensed Consolidated Balance Sheets. 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 (millions) Authorized Amount Remaining as of March 31, 2023 (millions) 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 8 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) 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. 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, 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 April 1, 2023 through April 28, 2023, the Company repurchased an additional 105,573 shares at a weighted average market price of $ 38.95 per share primarily under the current authorized repurchase program. 2. Recent Accounting Pronouncements 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. 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 adopted ASU 2022-04, effective January 1, 2023, which did not have a material impact on the Company's consolidated financial position or results of operations upon adoption. 3. Revenues Revenue Recognition We serve approximately 450 customers annually in more than 40 countries across a wide variety of industries. For the three months ended March 31, 2023 and 2022, the Company's ten largest customers accounted for approximately 37 % of total sales during both periods. We typically sell to customers under master service agreements, with primarily one-year terms, or by purchase orders. We have historically experienced low customer turnover and have long-standing customer relationships, which span decades. Our largest customer is Shaw Industries Group, Inc. (“Shaw”), a significant consumer of caprolactam and Nylon 6 resin, to whom we sell under a long-term agreement. For the three months ended March 31, 2023 and 2022, the Company's sales to Shaw were 10 % and 9 % of our total sales, respectively. The Company's revenue by product line, and related approximate percentage of total sales, for the three months ended March 31, 2023 and 2022 were as follows: 9 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) Three Months Ended March 31, 2023 2022 Nylon $ 99,372 25 % $ 118,609 25 % Caprolactam 72,390 18 % 70,005 15 % Chemical Intermediates 114,564 29 % 135,690 28 % Ammonium Sulfate 114,218 28 % 154,769 32 % Total $ 400,544 100 % $ 479,073 100 % The Company's revenues by geographic area, and related approximate percentage of total sales, for the three months ended March 31, 2023 and 2022 were as follows: Three Months Ended March 31, 2023 2022 United States $ 320,926 80 % $ 403,018 84 % International 79,618 20 % 76,055 16 % Total $ 400,544 100 % $ 479,073 100 % Deferred Income and Customer Advances The Company defers revenues when cash payments are received in advance of our performance. Below is a roll-forward of Deferred income and customer advances for the three months ended March 31, 2023: Opening balance January 1, 2023 $ 34,430 Additional cash advances 5,771 Less amounts recognized in revenues ( 14,529 ) Ending balance March 31, 2023 $ 25,672 The Company expects to recognize as revenue the March 31, 2023 ending balance of Deferred income and customer advances within one year or less. 4. Earnings Per Share The computation of basic and diluted earnings per share ("EPS") is based on Net income divided by the basic weighted average number of common shares outstanding and diluted weighted average number of common shares outstanding, respectively. The details of the basic and diluted EPS calculations for the three months ended March 31, 2023 and 2022 were as follows: Three Months Ended March 31, 2023 2022 Basic Net income $ 34,954 $ 63,073 Weighted average common shares outstanding 27,601,784 28,199,871 EPS – Basic $ 1.27 $ 2.24 Diluted Dilutive effect of equity awards and other stock-based holdings 984,779 1,171,180 Weighted average common shares outstanding 28,586,563 29,371,051 EPS – Diluted $ 1.22 $ 2.15 10 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) Diluted EPS is computed based upon the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the period. The diluted EPS calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price of the common shares during the period. The anti-dilutive common stock equivalents outstanding at the three months ended March 31, 2023 and 2022 were as follows: Three Months Ended March 31, 2023 2022 Options and stock equivalents 266,644 120,316 Dividend activity for the three months ended March 31, 2023 and 2022 was as follows: Three Months Ended March 31, 2023 2022 Cash dividends declared per share $ 0.145 $ 0.125 Aggregate dividends paid to shareholders $ 4,020 $ 3,517 5. Accounts and Other Receivables – Net March 31, 2023 December 31, 2022 Accounts receivables $ 158,193 $ 171,923 Other 4,086 4,100 Total accounts and other receivables 162,279 176,023 Less – allowance for doubtful accounts ( 890 ) ( 594 ) Total accounts and other receivables – net $ 161,389 $ 175,429 6. Inventories March 31, 2023 December 31, 2022 Raw materials $ 142,851 $ 126,060 Work in progress 67,917 64,669 Finished goods 80,819 60,711 Spares and other 29,458 28,892 321,045 280,332 Reduction to LIFO cost basis ( 96,410 ) ( 64,830 ) Total inventories $ 224,635 $ 215,502 Substantially all of the Company’s inventories at March 31, 2023 and December 31, 2022 are valued at the lower of cost or market using the last-in, first-out (“LIFO”) method. However, approximately 5 % was valued at average cost using the first-in, first-out (“FIFO”) method at March 31, 2023. The excess of replacement cost over the carrying value of total inventories subject to LIFO was $ 77.4 million and $ 58.2 million at March 31, 2023 and December 31, 2022, respectively. 7. Leases We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets ("ROU"), Operating lease liabilities – short-term, and Operating lease liabilities – long-term in our Condensed Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment – net, Accounts payable, and Other liabilities in our Condensed Consolidated Balance Sheets. 11 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) The components of lease expense were as follows: Three Months Ended March 31, 2023 2022 Finance lease cost: Amortization of right-of-use asset $ 221 $ 236 Interest on lease liabilities 18 14 Total finance lease cost 239 250 Operating lease cost 11,356 10,339 Short-term lease cost 1,026 1,353 Total lease cost $ 12,621 $ 11,942 As of March 31, 2023, we have additional operating and finance leases that have not yet commenced for approximately $ 0.2 million and approximately $ 0.3 million, respectively. These leases will commence during 2023 with lease terms of up to 7 years. 8. 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. Goodwill There was no change in the carrying amount of goodwill for the three months ended March 31, 2023. Finite-Lived Intangible Assets Intangible assets subject to amortization were as follows: March 31, 2023 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value Customer relationships $ 36,820 $ ( 2,330 ) $ 34,490 $ 36,820 $ ( 1,854 ) $ 34,966 Licenses 18,451 ( 5,305 ) 13,146 18,451 ( 5,074 ) 13,377 Trade names 1,100 ( 256 ) 844 1,100 ( 201 ) 899 Total $ 56,371 $ ( 7,891 ) $ 48,480 $ 56,371 $ ( 7,129 ) $ 49,242 For the three months ended March 31, 2023 and March 31, 2022, the Company recorded amortization expense on intangible assets of $ 0.8 million and $ 0.4 million, respectively. 9. Commitments and Contingencies The Company is subject to a number of lawsuits, investigations and disputes, some of which may involve substantial amounts claimed, arising out of the conduct of the Company or other third-parties in the normal and ordinary course of business. A liability is recognized for any contingency that is probable of occurrence and reasonably estimable. The Company continually assesses the likelihood of adverse judgments or outcomes in these matters, as well as potential ranges of possible losses, based on an analysis of each matter with the assistance of legal counsel and, if applicable, other experts. Given the uncertainty inherent in such lawsuits, investigations and disputes, the Company does not believe it is possible to develop estimates of reasonably possible loss in excess of current accruals for these matters. Considering the Company’s past experience and existing accruals, the Company does not expect the outcome of these matters, either individually or in the 12 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) aggregate, to have a material adverse effect on the Company’s consolidated financial position or results of operations. 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 International Inc. ("Honeywell") all health, safety and environmental (“HSE”) liabilities and compliance obligations related to the past and future operations of our current business as of the spin-off, as well as all HSE liabilities associated with the three manufacturing locations assumed from Honeywell that are used in our current operations, including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past. Honeywell retained all HSE liabilities related to former business locations or the operation of our former businesses. Although we have ongoing environmental remedial obligations at certain of our facilities, in the past three years, the associated remediation costs have not been material, and we do not expect our known remediation costs to have a material adverse effect on the Company's consolidated financial position or results of operations. 10. Income Taxes The provision for income taxes was $ 9.3 million and $ 19.2 million for the three months ended March 31, 2023 and 2022, respectively, resulting in an effective tax rate of 21.0 % and 23.3 %, respectively. The Company’s provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against Income before taxes for the period in addition to recording any tax effects of discrete items for the quarter. 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. 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 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 continues to evaluate these energy credit provisions of the law in relation to our sustainability and environmental, social and governance initiatives. 11. Fair Value Measurements Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. In July 2019, the Company entered into an interest rate swap transaction related to its credit agreement. The interest rate swap, considered a Level 2 liability, expired February 21, 2023. The pension plan assets are invested in collective investment trust funds. These investments are measured at fair value using the net asset value per share as a practical expedient. Investments valued using the net asset value method (NAV) (or its equivalent) practical expedient are excluded from the fair value hierarchy disclosure. The Company’s Condensed Consolidated Balance Sheets also include Cash and cash equivalents, Accounts receivable and Accounts payable all of which are recorded at amounts which approximate fair value. 13 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) The Company also has assets that are required to be recorded at fair value on a non-recurring basis. These assets are evaluated when certain triggering events occur (including a decrease in estimated future cash flows) that indicate the asset should be evaluated for impairment which could result in such assets being measured at fair value. Goodwill must be evaluated at least annually. Our annual evaluation occurred on March 31, 2023 and we concluded that an impairment for goodwill did no t occur. 12. Derivative and Hedging Instruments The specific credit and market, commodity price and interest rate risks to which the Company is exposed in connection with its ongoing business operations are described below. This discussion includes an explanation of any hedging instrument and interest rate swap agreement, used to manage the Company’s interest rate risk associated with a fixed and floating-rate borrowing. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in Other comprehensive income. Those amounts are reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the hedged item affects earnings. Credit and Market Risk – Financial instruments, including derivatives, expose the Company to counterparty credit risk for non-performance and to market risk related to changes in commodity prices, interest rates and foreign currency exchange rates. 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 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. The Company continually monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. The Company did not have any customers with significant concentrations of trade accounts receivable – net at March 31, 2023 or December 31, 2022. Allowance for doubtful accounts is calculated based upon the Company's estimate of expected credit losses over the life of exposure based upon both historical information as well as future expected losses. Commodity Price Risk Management – The Company's exposure to market risk for commodity prices can result in changes in the cost of production. We primarily mitigate our exposure to commodity price risk by using long-term, formula-based price contracts with our suppliers and formula-based price agreements with customers. Our customer agreements provide for price adjustments based on relevant market indices and raw material prices and generally do not include take-or-pay terms. 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. At March 31, 2023 and 2022, we had no financial contracts related to forward commodity agreements. Interest Rate Risk Management – The Company had entered into one interest rate swap agreement for a total notional amount of $ 50 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings. The interest rate swap had a fair value of zero at inception and was effective July 31, 2019 and matured on February 21, 2023. In accordance with ASC 815, the Company designated the interest rate swap as a cash flow hedge of floating-rate borrowings. The interest rate swap converted the Company’s interest rate payments on the first $ 50 million of variable-rate, 1-month LIBOR-based debt to a fixed interest rate. The interest rate swap involved the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the interest rate swap without an exchange of the underlying principal amount. 14 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) Asset (Liability) Derivatives March 31, 2023 December 31, 2022 Balance Sheet Classification Fair Value Balance Sheet Classification Fair Value Derivatives designated as hedging instruments under ASC 815: Interest Rate Contracts Accounts and other receivables, net $ — Accounts and other receivables, net $ 197 Total Derivatives $ — $ 197 The following table summarizes adjustments related to cash flow hedge included in Cash-flow hedges, in the Condensed Consolidated Statements of Comprehensive Income: March 31, 2023 Gain on derivative instruments included in Accumulated other comprehensive loss at December 31, 2022 $ 197 Fair value adjustment ( 197 ) Gain (Loss) on derivative instruments included in Accumulated other comprehensive loss at March 31, 2023 $ — At March 31, 2023, the Company expects no reclassifications of net gains or losses on derivative instruments from Accumulated other comprehensive income ("AOCI") to earnings during the next 12 months as the interest rate swap agreement matured on February 21, 2023. The following table summarizes the reclassification of net (gains) losses on derivative instruments from AOCI into earnings: Amount of (Gain) Loss Recognized in Earnings Three Months Ended March 31, 2023 2022 Derivatives: Interest Rate Contracts $ — $ 12 Total Derivatives $ — $ 12 13. Acquisitions 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 a purchase price of approximately $ 97.5 million, net of cash acquired. 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. 14. Supplier Finance Programs The Company has entered into a supply chain finance program with a financial intermediary providing participating suppliers the option to be paid by the intermediary earlier than the original invoice due date. AdvanSix’s responsibility is limited to making payments to the intermediary based upon payment terms negotiated with the suppliers, regardless of whether the intermediary pays the supplier in advance of the original due date. The Company’s payment terms with suppliers are consistent, 15 ADVANSIX INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts and as otherwise noted) regardless of whether a vendor participates in the supply chain finance program or not. All related agreements are terminable by either party upon at least 30 days’ notice. The total amount due to the financial intermediaries to settle supplier invoices under the supplier finance programs was approximately $ 12 million and approximately $ 17 million as of March 31, 2023 and December 31, 2022, respectively. These amounts outstanding are included in Accounts payable . 15. Subsequent Events As announced on May 5, 2023, the Board declared a quarterly cash dividend of $ 0.145 per share on the Company's common stock, payable on May 30, 2023 to stockholders of record as of the close of business on May 16, 2023. 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. 16