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Item 7. Management’s Discussion and Analysis

2024-02-16 compared with 2023-02-17 · 157 added, 122 removed, 245 unchanged (53% of the section changed)

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Business Overview

AdvanSix Inc.

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, plant nutrients and chemical intermediates, guided by our core values of Safety, Integrity, Accountability and Respect.

Our four key product lines are Nylon, Caprolactam, Ammonium Sulfate and Chemical Intermediates.

Global demand for Nylon 6 resin spans a variety of end-uses such as textiles, engineered plastics, industrial filament, food and industrial films, and carpet.

The market growth typically tracks global GDP growth over the long-term but varies by end-use.

We produce and sell caprolactam as a commodity product and produce and sell our Nylon 6 resin as both a commoditized and differentiated resin product.

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

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

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

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

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

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

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

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

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

Additionally, we continue to execute against our strategic focus on developing and commercializing select higher-value, differentiated Nylon 6 products, such as our wire and cable, Post-Industrial Recycled resins and films and co-polymer offerings, in current and new customer applications.

We also manufacture, market and sell a number of chemical intermediate products that are derived from the chemical processes within our integrated supply chain.

Most significant is acetone, which is used by our customers in the production of adhesives, paints, coatings and solvents.

Prices for acetone are influenced by its own supply and demand dynamics but can also be influenced by the underlying move in propylene input costs.

We continue to invest in and grow our differentiated product offerings in high-purity applications and high-value intermediates including our oximes-based EZ-Blox® anti-skinning agent used in paints and Nadone® cyclohexanone, which is a solvent used in various high-value applications.

As a result of the U.S.

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

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

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 the price of 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 than other fertilizers.

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 also directly supply packaged ammonium sulfate to customers, primarily in North and South America, and have 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, but quarterly sales fluctuate reflecting both geographical and product sales mix considerations based on the timing and length of the growing seasons in North and South America.

North American ammonium sulfate demand and pricing, particularly for our higher-value granular product, are typically strongest during second quarter fertilizer application and then typically decline seasonally with new season fill in the third quarter.

Ammonium sulfate industry prices in the corn belt have declined approximately 10% from the second quarter to the third quarter, on average, since 2016.

Due to the ammonium sulfate fertilizer sales cycle, we occasionally build up higher inventory balances because our production is continuous and not tied to seasonal demand for fertilizers.

Sales of most of our other products have generally been subject to minimal, or no, seasonality.

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

Most significant is acetone, the price of which is influenced by its own supply and demand dynamics but can also be influenced by the underlying move in propylene input costs.

Our differentiated product offerings include high-purity applications and high-value intermediates including our U.S.

Amines portfolio as well as our oximes-based EZ-Blox™ anti-skinning agent used in paints and Nadone® cyclohexanone, which is a solvent used in various high-value applications.

We seek to run our production facilities on a nearly continuous basis for maximum efficiency as several of our intermediate products are key feedstock materials for other products in our integrated manufacturing chain.

While our integration, scale and range of product offerings make us one of the most efficient manufacturers in our industry, these attributes also expose us to increased risk associated with material unplanned disruptions at any one of our production facilities or logistics operations which could impact the overall manufacturing supply chain.

While our integration, scale and range of product offerings make us one of the most efficient manufacturers in our industry, these attributes also expose us to increased risk associated with material disruptions at any one of our production facilities or logistics operations which could impact the overall manufacturing supply chain.

Further, although we believe that our sources of supply for our raw materials, including cumene, natural gas and sulfur, are generally robust, it is difficult to predict the impact that shortages, increased costs and related supply chain logistics considerations may have in the future.

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Recent Developments

During 2022, the Company has declared dividends as follows:

Date of Announcement Date of Record Date Payable Dividend per Share

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

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

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

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

In February 2022, the Company acquired U.S.

Amines, a leading North American producer of alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals for an estimated purchase price of approximately $97 million, net of cash acquired.

Amines employs approximately 50 people in the United States at manufacturing facilities in Bucks, AL and Portsmouth, VA.

The acquisition provides a unique platform in the agrochemicals space as well as a number of opportunities to support further penetration into high-value applications including electronics, pharmaceuticals and water treatment.

Amines has a complementary business model with long-tenured customer relationships and formula pricing mechanisms with a business that is adjacent to both our ammonium sulfate adjuvant and solvent businesses.

Business Operations

In the second quarter of 2019, the Company entered into an alliance with Oben Holding Group S.A.

(“Oben”), a third-party producer of films for the flexible packaging industry.

On September 8, 2023, the Company entered into an agreement to exit its alliance with Oben.

The exit of the alliance provides a termination fee payable by Oben to AdvanSix in exchange for full transition of AdvanSix’s share of the alliance.

The Company recorded a gain of $11.4 million in the third quarter of 2023.

The gain represents management’s estimate of the value of the termination fee, which is calculated based upon a formula that takes into account a combination of historical and future performance, and is included as a component of Other non-operating (income) expense, net.

Approximately 60% of the termination fee is subject to change as it is based on an estimate of future performance.

This fee is payable in 3 installments, with the first installment of $4.4 million received in the fourth quarter of 2023.

Subsequent installments are expected to be paid in the third quarters of 2024 and 2025.

On September 21, 2023, the Company was notified by a licensee of certain legacy ammonium sulfate fertilizer technology assets operated at the licensee's fertilizer manufacturing facility that it intends to close its facility no later than August 2024.

As a result, the Company recognized a non-cash, pre-tax charge related to the assets located at the licensee's facility of approximately $4.5 million in the third quarter of 2023.

The charge is included as a component of Other non-operating (income) expense, net.

The remaining asset balance of $2.6 million, an amount equal to the cash-flows expected to be received through the end of the contract, will be depreciated through August 2024.

During the third quarter of 2023, the Company made a strategic decision to cease production of certain low-margin oximes products.

The Company incurred an approximately $2.4 million unfavorable impact to pre-tax income during the third quarter of 2023 primarily as a result of a non-cash write-down of the assets associated with these products.

In January 2024, as previously announced, the Company experienced a process-based operational disruption at its Frankford, Pennsylvania manufacturing site temporarily reducing phenol and acetone production at the facility, as well as production at its Hopewell and Chesterfield, Virginia facilities.

As a result of a delayed ramp to planned utilization rates, the Company is now anticipating a total unfavorable impact to pre-tax income in the first quarter 2024 of $23 to $27 million, comprised of the impact of lost sales and other additional costs including purchases of replacement product and incremental plant spend.

The unplanned interruption did not have a material impact on fourth quarter 2023 results.

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, VA Collective Bargaining Agreements

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 had robust contingency measures in place and was well prepared to support safe, stable and sustainable operations during this period.

On May 8, 2023, the Company announced that the Hopewell South bargaining unit voted to ratify a new five-year collective bargaining agreement and that Hopewell South employees would return to work on May 10, 2023.

The strike did not have a material impact on the Company’s results of operations.

On September 29, 2023, the Company’s Hopewell North bargaining unit, represented by the United Steelworkers, ratified a new five-year labor agreement in advance of the prior agreement’s anticipated expiration date of October 4, 2023.

The ratified labor agreement affects approximately 130 workers at the Company’s manufacturing facility in Hopewell, Virginia.

Anti-Dumping Duty Petition - Ammonium Sulfate

In January 2017, the U.S.

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

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

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

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As of December 31, 2023, the Company has incurred an approximately $66 million unfavorable impact to pre-tax income since the refinery shut down in 2019 and submitted a business interruption insurance claim.

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

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

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

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

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

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

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

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.

During 2023, the Company entered into a settlement with one of its insurers and continues to pursue the claim with the other insurers, which is ongoing.

Consolidated Results of Operations for the Years Ended December 31, 2023, 2022 and 2021

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2023 compared with 2022

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

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

Sales decreased in 2023 compared to 2022 by $412.0 million (approximately 21%) due to (i) net unfavorable market-based pricing (approximately 17%) primarily reflecting reduced ammonium sulfate pricing amid lower raw material input costs and a more stable global nitrogen fertilizer supply environment, as well as lower nylon pricing due to unfavorable supply and demand conditions and (ii) unfavorable raw material pass-through pricing (approximately 5%) as a result of a net cost decrease in benzene and propylene (inputs to cumene which is a key feedstock to our products).

This was partially offset by the acquisition of U.S.

Amines (approximately 1%).

Cost of Goods Sold

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2023 compared with 2022

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

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

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

Costs of goods sold decreased in 2023 compared to 2022 by $262.6 million (approximately 16%) due primarily to decreased prices of raw materials including natural gas, sulfur, benzene and propylene (inputs to cumene which is a key feedstock to our products) (approximately 17%) partially offset by the impact of the U.S.

Amines acquisition (approximately 1%).

Gross margin percentage decreased by approximately 5% in 2023 compared to 2022 due primarily to the net impact of lower market pricing and formula-based raw material pass-through pricing (approximately 5%).

Selling, General and Administrative Expenses

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2023 compared with 2022

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

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

Selling, general and administrative expenses increased in 2023 compared to 2022 by $7.8 million, or approximately 9%, due primarily to increased functional support costs including upgrades to our enterprise resource planning system, costs associated with pursuing the business interruption insurance claim in connection with the June 2019 shutdown of cumene supplier, Philadelphia Energy Solutions, and a cash recovery in 2022 of a previously written off receivable.

These increases were partially offset by lower incentive-based compensation costs.

Interest Expense, Net

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2023 compared with 2022

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

Other Non-operating Expense (Income), Net

Interest expense, net, increased in 2023 compared to 2022 by $4.7 million, or approximately 169%, due primarily to higher interest rates.

Other Non-operating (Income) Expense, Net

2023 2022 2021

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

Other non-operating (income) expense, net $ (7,158) $ (1,841) $ 998

2023 compared with 2022

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

Other non-operating income, net, increased in 2023 compared to 2022 by $5.3 million, or approximately 289%, due primarily to the exit from its alliance with Oben (approximately $11.4 million) offset by (i) the exit from a licensing agreement of certain legacy ammonium sulfate technology assets operated at the licensee's fertilizer manufacturing facility, that it intends to close its facilities no later than August 2024 (approximately $4.5 million) and (ii) the exit of production from certain low-margin oximes products.

Income Tax Expense

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Effective tax rate 21.1 % 23.9 % 24.5 %

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.

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

The Company's effective income tax rate for 2023 approximated the U.S.

Federal statutory rate of 21%.

Increases to the effective income tax rate, due primarily to state taxes and executive compensation limitations, were materially offset by research tax credits, excess tax benefits of equity compensation and the foreign-derived intangible income deduction.

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.

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 and energy tax credits.

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

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

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

See "Note 18.

Acquisitions" for further details.

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

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

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

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

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

The Company is evaluating these provisions of the law.

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 of operations, and this provision of the law does not currently 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.

As of December 31, 2023 and 2022, there were no unrecognized tax benefits recorded by the Company.

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Non-cash stock-based compensation 8,313 10,279 11,299

Non-recurring, unusual or extraordinary income* (4,472) — —

Non-cash amortization from acquisitions 2,126 1,815 239

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Adjusted EBITDA Margin** (non-GAAP) 10.0% 15.9% 15.8%

* Includes a pre-tax gain of approximately $11.4 million related to the Company's exit from the Oben alliance, the unfavorable impact to pre-tax income of approximately $4.5 million associated with a licensee of certain legacy ammonium sulfate fertilizer technology assets closing its facility, and the unfavorable impact to pre-tax income of approximately $2.4 million from the exit of certain low-margin oximes products.

**Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Sales

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Liquidity and Capital Resources

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 and in the risk factors as previously disclosed in in Item 1A, Risk Factors.

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 for the next twelve months and beyond.

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, general economic and industry trends and customer demand.

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 for the next twelve months and beyond.

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, 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 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.

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

On a recurring basis, our primary future cash needs will be centered on operating activities, working capital, and capital expenditures reflecting disciplined capital deployment.

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

While current macroeconomic conditions create volatility in funding markets, we expect that our future cash from operations, together with cash on hand and our access to credit and capital markets, will provide adequate resources to fund our expected operating and financing needs and obligations.

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

On a recurring basis, our primary future cash needs will be centered on operating activities, working capital, capital expenditures, dividends and liquidity reflecting disciplined capital deployment.

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

While various macroeconomic conditions have created and could continue to create volatility in funding markets, we believe that our future cash from operations, together with cash on hand and our access to credit and capital markets, will provide adequate resources to fund our expected operating and financing needs and obligations.

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

At December 31, 2023, the Company had approximately $30 million of cash on hand with approximately $329 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 were approximately $89 million in 2022 compared to $57 million in 2021, driven by a planned increase in replacement maintenance and HSE projects.

As noted in "Note 4.

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

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

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

Capital expenditures were approximately $107 million in 2023 compared to $89 million in 2022, reflecting increased spend due to replacement maintenance, growth and cost savings projects and enterprise programs.

We assumed from 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 our three current 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 our consolidated financial position and results of operations.

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 and results of operations.

We expect that our primary cash requirements for 2024 will be to fund costs associated with ongoing operations, capital expenditures and amounts related to contractual obligations.

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Interest payments are estimated based on the interest rate applicable as of December 31, 2023 and approximate $9.7 million per year, subject to changes in variable interest rates and additional obligations.

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

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

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

The Company made no cash contributions to the defined benefit pension plan during the year ended December 31, 2023.

Additional contributions may be made in future years sufficient to satisfy pension funding requirements in those periods.

The Company made cash contributions to the defined contribution plan of $6.0 million and $5.9 million for the years ended December 31, 2023 and 2022, respectively.

On May 4, 2018, the Company announced that 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, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act.

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 December 31, 2023

May 4, 2018 $ 75.0 $ —

February 22, 2019 75.0 —

February 17, 2023 75.0 68.2

Totals $ 225.0 $ 68.2

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

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As of December 31, 2023, the Company had repurchased 5,848,475 shares of common stock, including 854,340 shares withheld to cover tax withholding obligations in connection with the vesting of equity awards, for an aggregate of $182.0 million at a weighted average market price of $31.12 per share.

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

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

As of December 31, 2023, $68.2 million remained available for repurchase under the currently authorized repurchase program.

During the period from January 1, 2024 through February 2, 2024, the Company repurchased an additional 64,678 shares at a weighted average market price of $26.39 per share under the currently authorized repurchase program.

At December 31, 2023, 2022 and 2021, the Company did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K or financing activities with special-purpose entities.

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

The Company commenced the declaration of dividends on September 28, 2021.

Since commencement of dividends, the Company has declared dividends as follows:

The Company commenced the declaration of dividends on September 28, 2021 and has since declared and paid a dividend on a quarterly basis.

The Company increased its quarterly dividend by 10% ($0.145 to $0.160) and 16% ($0.125 to $0.145) during the third quarter of 2023 and 2022, respectively.

Dividends paid during 2023 and announced on the date of this filing are as follows:

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

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

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

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

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

The Company paid dividends of approximately $16.7 million, $15.1 million and $3.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Credit Agreement

On September 30, 2016, the Company as the borrower, entered into a Credit Agreement with Bank of America, as administrative agent (the "Original Credit Agreement"), which was amended on February 21, 2018 pursuant to Amendment No.

1 to the Original Credit Agreement (the "First Amended and Restated Credit Agreement"), and further amended on February 19, 2020 pursuant to, Amendment No.

1 to the Original

Credit Agreement (the "First Amended and Restated Credit Agreement"), and further amended on February 19, 2020 pursuant to, Amendment No.

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

The Second Amended and Restated Credit Agreement 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.

On October 27, 2021, the Company completed a refinancing of the Second Amended and Restated Credit Agreement by entering into a new Credit Agreement (the “Credit Agreement”), among the Company, the lenders party thereto, the swing line lenders party thereto, the letter of credit issuers party thereto and Truist Bank, as administrative agent, which provides for a new senior secured revolving credit facility in an aggregate principal amount of $500 million (the “Revolving Credit Facility”).

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

On October 27, 2021, the Company completed a refinancing of the Second Amended and Restated Credit Agreement by entering into a new Credit Agreement (the “Credit Agreement”), among the Company, the lenders party thereto, the swing line lenders party thereto, the letter of credit issuers party thereto and Truist Bank, as administrative agent, which provides for a senior secured revolving credit facility in an aggregate principal amount of $500 million (the “Revolving Credit Facility”).

The Revolving Credit Facility has a scheduled maturity date of October 27, 2026.

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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).

With the cessation of LIBOR on June 30, 2023 and subject to the First Amendment to the Credit Agreement, dated as of June 27, 2023, the Eurodollar Rate was replaced with the Adjusted Term SOFR as an alternative benchmark rate for purposes of the Credit Agreement.

The transition was effective July 1, 2023.

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 an Adjusted Term SOFR rate plus a margin ranging from 1.25% to 2.25%, with either such margin varying according to the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement).

The Company is also required to pay a commitment fee in respect of unused commitments under the Revolving Credit Facility, if any, at a rate ranging from 0.15% to 0.35% per annum depending on the Company’s Consolidated Leverage Ratio.

As of October 27, 2021, the applicable margin under the Credit Agreement was 0.375% for base rate loans and 1.375% for Eurodollar loans and the applicable commitment fee rate was 0.175% per annum.

The Revolving Credit Facility also contains certain administrative provisions regarding alternative rates of interest for LIBOR, as applicable.

In conjunction with the cessation of LIBOR, as of July 1, 2023, the applicable margin under the Credit Agreement was 0.25% for base rate loans and 1.25% for Adjusted Term SOFR loans and the applicable commitment fee rate was 0.15% per annum.

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.

As of October 27, 2021, the Company borrowed $150 million under the Revolving Credit Facility.

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.

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We were in compliance with all of our covenants at December 31, 2023 and through the date of the filing of this Annual Report on Form 10-K.

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

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

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

We borrowed an incremental net amount of $55 million during 2023 bringing the balance under the Revolving Credit Facility to $170 million, and available credit for use of $329 million as of December 31, 2023.

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

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2023 compared with 2022

Net cash provided by operating activities increased by $54.8 million for the year ended December 31, 2022 versus the prior year due primarily to (i) a $59.4 million favorable impact from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) year-over-year, with a $38.6 million favorable cash impact for the year ended December 31, 2022 compared to a $20.8 million unfavorable cash impact in the prior year period and (ii) a $32.1 million increase in net income.

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

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

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

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

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

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

Net cash provided by operating activities decreased by $156.1 million for the year ended December 31, 2023 versus the prior year due primarily to (i) a $117.3 million decrease in net income and (ii) a $63.1 million unfavorable impact from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) year-over-year, with a $14.7 million unfavorable cash impact for the year ended December 31, 2023 compared to a $48.3 million favorable cash impact in the prior year period due primarily to the timing of payments, the unfavorable impact of customer advances and favorable inventory fluctuation, and (iii) a $25.6 million unfavorable impact from Deferred income taxes.

These net unfavorable impacts were partially offset by (i) a $20.5 million favorable cash impact from Other assets and liabilities driven primarily by a reduction in the net pension liability due to contributions to the defined benefit pension plan in the prior year, and (ii) the favorable cash impact of $17.7 million and $17.2 million from Taxes payable and Taxes receivable, respectively, driven by the timing of income tax payments.

Cash used for investing activities decreased by $78.4 million for the year ended December 31, 2023 versus the prior year period due primarily to cash paid for the acquisition of U.S.

Amines for approximately $97.5 million during the year ended December 31, 2022, compared to no acquisitions made during the year ended December 31, 2023 partially offset by an increase in cash paid for capital expenditures of approximately $17.9 million driven by an increase in replacement maintenance, growth and cost savings projects, and enterprise programs.

Cash used for financing activities decreased by $60.6 million for the year ended December 31, 2023 versus the prior year due to net borrowings on the credit facility of $55.0 million for the year ended December 31, 2023 compared to net payments of $20.0 million during the prior year.

These net borrowings were partially offset by payments for share repurchases of $46.2 million and cash paid for dividends of approximately $16.7 million during the year ended December 31, 2023 compared to $33.7 million and $15.1 million during the prior year period, respectively.

Capital Expenditures

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Purchases of property, plant and equipment $ 107,377 $ 89,449 $ 56,811

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

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

Capital expenditures increased $17.9 million from 2022 to 2023 reflecting increased spend due to replacement maintenance, growth and cost savings projects, and enterprise programs.

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

For 2024, we expect our total capital expenditures to be approximately $140 million to $150 million reflecting increased spend to address critical enterprise risk mitigation and growth projects including our SUSTAIN (Sustainable U.S.

Sulfate To Accelerate Increased Nutrition) program.

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

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Summary of Significant Accounting Policies" to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Management believes that the application of these policies on a consistent basis enables the Company to provide the users of the financial statements with useful and reliable information about the Company’s operating results and financial condition.

Management believes that the application of these

policies on a consistent basis enables the Company to provide the users of the financial statements with useful and reliable information about the Company’s operating results and financial condition.

The preparation of our Consolidated Financial Statements in conformity with U.S.

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The Company reviews these matters and reflects changes in estimates as appropriate.

Management believes that the following represents some of the more critical judgment areas in the applications of the Company’s accounting policies which could have a material effect on the Company’s financial position, results of operations or cash flows.

Management believes that the following represent some of the more critical judgment areas in the applications of the Company’s accounting policies which could have a material effect on the Company’s financial position, results of operations or cash flows.

Inventories – Substantially all of the Company's inventories are valued at the lower of cost or market using the last-in, first-out (“LIFO”) method.

The Company includes spare and other parts in inventory which are used in support of production or production facilities operations and are valued based on weighted average cost.

Inventories valued at LIFO amounted to $215.5 million and $149.6 million at December 31, 2022 and 2021.

Inventories valued at LIFO amounted to $195.6 million and $202.9 million at December 31, 2023 and 2022, respectively.

Had such LIFO inventories been valued at current costs, their carrying values would have been approximately $95.2 million and $64.8 million higher at December 31, 2023 and 2022.

Goodwill – The Company had goodwill of $56.2 million and $17.6 million as of December 31, 2022 and 2021, respectively.

Goodwill is subject to impairment testing annually as of March 31, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.

Inventories valued at FIFO amounted to $16.2 million and $12.6 million at December 31, 2023 and 2022, respectively.

Goodwill – The Company had goodwill of $56.2 million at December 31, 2023 and 2022.

Goodwill is subject to impairment testing annually and has historically been tested as of March 31, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.

Management first assesses qualitative factors as described in ASC 350 to determine whether it is necessary to perform the quantitative goodwill impairment test.

Potential impairment is identified by comparing the fair value of a reporting unit to the carrying value, including goodwill.

The Company completed its annual goodwill impairment test as of March 31, 2023 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.

Beginning in the fourth quarter of 2023, and for subsequent annual periods thereafter, the Company voluntarily changed the annual impairment assessment date to the last day of our October close, and thus performed an additional impairment test during 2023 as of October 28, 2023.

We believe this measurement date, which represents a change in the method of applying an accounting principle, better aligns with the timing of our strategic business planning process and financial forecasts, which are key components of the annual impairment tests and are typically completed in the fourth quarter of our fiscal year.

Based on share price and current market trend, the Company determined it would not qualify for a qualitative analysis and thus performed a quantitative analysis.

If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is recorded based on the difference between the fair value and the carrying amount, not to exceed the associated carrying value of goodwill.

Fair value for the reporting unit was determined based on a combination of the discounted future cash flow model (income approach) and the application of current market multiples for comparable publicly-traded companies (market approach).

Under the income approach, the fair value of the reporting unit is estimated based on the discounted present value of the projected future cash flows.

Management's cash flow projections for the reporting unit included significant judgements and assumptions, including revenue growth rate, EBITDA margin and weighted average cost of capital ("WACC") rate.

Under the market approach, management uses selected financial information of publicly-traded companies that compare to the reporting unit to derive a market-based multiple.

The Company completed its annual goodwill impairment test as of October 28, 2023 and, based on the results of the Company's assessment, it concluded that the estimated fair value of the reporting unit was in excess of its carrying value resulting in no impairment.

Although management believes its estimate of fair value is reasonable, it is dependent on numerous economic and business assumptions and reflects management’s best estimates at a particular point in time.

Changes in the factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized.

If future financial performance falls below the Company's expectations including prolonged unfavorable economic conditions, or there are negative revisions to significant assumptions, or if the Company's market capitalization declines, and if such a decline becomes indicative that the fair value of our reporting unit has declined below its carrying value, the Company may need to record a material, non-cash goodwill impairment charge in a future period.

We performed a sensitivity analysis around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair value.

Based on the sensitivity analysis performed for the reporting unit, a 50 basis point increase in the WACC or a 50 basis point decrease in the long-term growth rate, without any other changes to the valuation, would not result in the carrying value of the reporting unit being greater than the fair value.

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.

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

Amines Limited ("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 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.

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The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted.

A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized.

A valuation allowance is provided when it is more likely than not that a portion or all

of a deferred tax asset will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.

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The benefit of tax positions taken or expected to be taken in our income tax returns are recognized in the financial statements if such positions are more likely than not of being sustained upon examination by taxing authorities.

Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”.

A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

Interest costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis