What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2023-11-03 · 76 added, 155 removed, 204 unchanged (53% of the section changed)

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risks associated with increased phishing, compromised business emails and other cybersecurity attacks, data privacy incidents and disruptions to our technology infrastructure;

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

risks associated with operating with a reduced workforce;

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

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

price fluctuations, cost increases and supply of raw materials;

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Business Overview

construction, fertilizers, agrochemicals, plastics, solvents, packaging, paints, coatings, adhesives and electronics.

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

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

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.

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 as follows:

• Nylon Solutions

◦ Nylon – We sell our Nylon 6 resin globally, primarily under the Aegis® brand name.

Nylon 6 is a polymer resin which is a synthetic material used by our customers to produce fibers, filaments, engineered plastics and films that, in turn, are used in such end-products as carpets, automotive and electric components, sports apparel, food packaging and other industrial applications.

In addition, our Nylon 6 resin is used to produce nylon films which we sell to our customers primarily under the Capran® brand name.

◦ Caprolactam – Caprolactam is the key monomer used in the production of Nylon 6 resin.

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

Our Hopewell, VA manufacturing facility is one of the world’s largest single-site producers of caprolactam as of September 30, 2023.

Our Hopewell, VA manufacturing facility is one of the world’s largest single-site producers of caprolactam as of March 31, 2024.

• Ammonium Sulfate – Our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur, two key plant nutrients.

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

Because of our Hopewell facility’s size, scale and technology design, we are the world’s largest single-site producer of ammonium sulfate fertilizer as of March 31, 2024.

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

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

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Amines”), we now produce alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals.

• Ammonium Sulfate – Our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur, two key plant nutrients.

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

Because of our Hopewell facility’s size, scale and technology design, we are the world’s largest single-site producer of ammonium sulfate fertilizer as of September 30, 2023.

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

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.

Generally, prices for Nylon 6 resin and caprolactam reflect supply and demand trends in the marketplace as well as the value of the basic raw materials used in the production of caprolactam, consisting primarily of benzene and, depending on the manufacturing process utilized, natural gas and sulfur.

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.

Our results of operations are primarily driven by production volume and the spread between the sales prices of our products and the costs of the underlying raw materials built into market-based and value-based pricing models.

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

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

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

Our differentiated Nylon 6 products, such as our wire and cable and co-polymer offerings, are typically valued at a higher level than commodity resin products.

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.

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.

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 for current and new customer applications, such as our wire and cable and co-polymer offerings.

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

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

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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 diversified and optimized our offerings to include spray-grade adjuvants to support crop protection, as well as other specialty fertilizers and products for industrial use.

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

The North America planting season runs from July through June.

The new season fill typically occurs in the third quarter and proceeds sequentially into the following spring which is the peak period for fertilizer application for key crops in North America.

As a result of this typical pattern, North American ammonium sulfate demand and pricing, particularly for our higher-value granular product, are typically the strongest in the first half of the year through application for the spring crop and then decline in the second half.

Our export sales, primarily into South America, are predominantly of the standard grade product.

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.

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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.

In order to mitigate the risk of unplanned interruptions, we schedule planned plant turnarounds each year to conduct routine and major maintenance across our facilities.

In order to mitigate the risk of unplanned interruptions, we schedule several planned plant turnarounds each year to conduct routine and major maintenance across our facilities.

We also utilize maintenance excellence and mechanical integrity programs, targeted buffer inventory of intermediate chemicals necessary for our manufacturing process, and co-producer swap arrangements, which are intended to mitigate the extent of any production losses as a result of planned and unplanned downtime;

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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 products in the oximes family.

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.

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.

During 2023, the Company has declared dividends as follows:

Date of Announcement Date of Record Date Payable Dividend per Share

11/3/2023 11/14/2023 11/28/2023 $0.160

8/4/2023 8/15/2023 8/29/2023 $0.160

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

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

In January 2024, 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 targeted utilization rates, the Company recognized an unfavorable impact to pre-tax income in the first quarter 2024 of approximately $27 million, comprised of the impact of lost sales and other additional costs including purchases of replacement product and incremental plant spend.

The Company returned to targeted utilization rates at its Frankford, Pennsylvania manufacturing site, as well as across its value chain, prior to quarter end.

Results of Operations

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Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Sales $ 336,829 $ 400,544

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Three Months Ended

September 30, 2023 Nine Months Ended

September 30, 2023

March 31, 2024

Volume (6.7)%

Price (31.6)% (22.5)%

Acquisition —% 0.8%

(32.6)% (25.3)%

Sales decreased in the three months ended September 30, 2023 compared to the prior year period by $155.9 million (approximately 33%) due to (i) net unfavorable market-based pricing (approximately 24%) primarily reflecting reduced ammonium sulfate pricing amid lower raw material input costs and a more stable global nitrogen supply environment, as well as lower nylon pricing due to unfavorable supply and demand conditions, (ii) lower raw material pass-through pricing (approximately 8%) as a result of a net cost decrease in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) a decrease in sales volume (approximately 1%).

Sales decreased in the nine months ended September 30, 2023 compared to the prior year period by $390.2 million (approximately 25%) due to (i) net unfavorable market-based pricing (approximately 16%) primarily reflecting reduced ammonium sulfate pricing amid lower raw material input costs and a more stable global nitrogen supply environment, as well as lower nylon pricing due to unfavorable supply and demand conditions, (ii) unfavorable raw material pass-through pricing

(approximately 6%) as a result of a net cost decrease in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) decreased sales volume (approximately 3%) driven primarily by chemical intermediates, partially offset by the acquisition of U.S.

Amines (approximately 1%).

Sales decreased in the three months ended March 31, 2024 compared to the prior year period by $63.7 million (approximately 16%) due to (i) net unfavorable market-based pricing (approximately 9%) primarily reflecting reduced ammonium sulfate pricing amid lower raw material input costs and a more stable global nitrogen supply environment, as well as lower nylon pricing due to unfavorable supply and demand conditions, and (ii) a decrease in sales volume (approximately 7%) primarily driven by lost sales resulting from the first quarter operational disruption.

Costs of Goods Sold

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Costs of goods sold $ 333,864 $ 330,042

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Gross Margin percentage 0.9% 17.6%

Costs of goods sold decreased in the three months ended September 30, 2023 compared to the prior year period by $128.9 million (approximately 29%) due to (i) decreased prices of raw materials (approximately 24%) and (ii) a decrease in plant spend driven primarily by lower planned plant turnaround expenses and natural gas utility costs (approximately 5%).

Costs of goods sold decreased in the nine months ended September 30, 2023 compared to the prior year period by $291.3 million (approximately 22%) due to (i) decreased prices of raw materials (approximately 20%), (ii) lower sales volume (approximately 3%) and (iii) a decrease due to lower planned plant turnaround expenses (approximately 1%), partially offset by the impact of the U.S.

Amines acquisition (approximately 1%).

Gross margin percentage decreased in the three months ended September 30, 2023 compared to the prior year period (approximately 5%) due primarily to (i) the impact of market-based pricing, net of raw material costs (approximately 10%) and (ii) the net impact of lower sales volume and changes in sales mix (approximately 2%) partially offset by (i) lower planned plant turnaround expenses and natural gas utility costs (approximately 6%) and (ii) lower functional support costs (approximately 1%).

Gross margin percentage decreased in the nine months ended September 30, 2023 compared to the prior year period (approximately 3%) due primarily to the impact of market-based pricing, net of raw material costs (approximately 3%).

Costs of goods sold increased in the three months ended March 31, 2024 compared to the prior year period by $3.8 million (approximately 1%) due to the net impact of lower production volumes and incremental costs primarily driven by the process-based operational disruption at the Frankford, Pennsylvania manufacturing site (approximately 4%), partially offset by decreased prices of raw materials (approximately 3%).

Gross margin percentage decreased in the three months ended March 31, 2024 compared to the prior year period (approximately 17%) due primarily to (i) the net impact of lower sales volume and changes in sales mix (approximately 7%) as well as lower production volumes and incremental costs (approximately 4%), both which were driven primarily by the process-based operational disruption at the Frankford, Pennsylvania manufacturing site and (ii) the impact of market-based pricing, net of raw material costs (approximately 6%).

Selling, General and Administrative Expenses

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Selling, general and administrative expenses $ 23,593 $ 25,114

Percentage of Sales 7.0% 6.3%

Selling, general and administrative expenses decreased by $1.5 million in the three months ended September 30, 2023 compared to the prior year period due to lower incentive-based compensation expense and reduction in IT and other functional support costs.

Selling, general and administrative expenses increased by $5.6 million in the nine months ended September 30, 2023 compared to the prior year period 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 reduction in bad debt expense in the prior year period associated with a cash collection of a previously reserved customer receivable partially offset by lower incentive-based compensation costs.

Selling, general and administrative expenses decreased by $1.5 million in the three months ended March 31, 2024 compared to the prior year period due to lower functional support costs.

Income Tax Expense

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Income tax expense (benefit) $ (6,021) $ 9,275

Effective tax rate 25.7% 21.0%

The Company’s effective tax rate for the three and nine months ended September 30, 2023 and 2022 differed from the U.S.

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

Additionally in 2023, discrete tax adjustments relating to the vesting of equity compensation, changes in state tax legislation and return to provision adjustments related to the filing of the Company's 2022 U.S.

federal income tax return resulted in a net 4.4% increase to the quarterly effective tax rate and a net 1.6% decrease to the year-to-date effective tax rate.

The Company's effective tax rate for the three months ended September 30, 2023 slightly differed from the prior period due primarily to changes in state taxes, including the impact of state rate changes, additional tax credits, and a decrease in the foreign-derived intangible income deduction.

The Company's effective tax rate for the nine months ended September 30, 2023 approximated the prior year.

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 of 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.

The Company’s effective tax rate for the three months ended March 31, 2024 was higher than the U.S.

federal statutory rate, due to the impacts of state taxes and executive compensation deduction limitations, partially offset by tax credits.

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 discrete tax adjustment was recorded in the first quarter of 2023 related 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, 2024 was higher than the prior year period due primarily to the larger impact of equity compensation vestings in the prior year period versus the current year period.

Additionally, the Company is not currently anticipating a benefit in 2024 related to the foreign-derived intangible income deduction.

On January 31, 2024, the U.S.

House of Representatives approved a tax bill, which among other provisions, aims to reinstate 100% bonus depreciation for property placed in service after December 31, 2022 until January 1, 2026 and to allow taxpayers to expense domestic research costs retroactively back to 2022 and prospectively through tax years beginning before 2026.

Enactment remains highly uncertain, but the Company continues to monitor for ongoing developments in the proposed legislation.

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net Income (Loss) $ (17,396) $ 34,954

As a result of the factors described above, Net income (loss) was ($8.0) million and $59.7 million for the three and nine months ended September 30, 2023 as compared to $10.0 million and $138.3 million in the corresponding prior year period.

As a result of the factors described above, Net Income (Loss) was ($17.4) million for the three months ended March 31, 2024 as compared to $35.0 million in the corresponding prior year period.

Non-GAAP Measures

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

Non-GAAP financial measures should be read only in

conjunction with the comparable U.S.

Non-GAAP financial measures should be read only in conjunction with the comparable U.S.

GAAP financial measures.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net Income (Loss) $ (17,396) $ 34,954

Non-cash stock-based compensation 2,211 2,013

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

Non-recurring, unusual or extraordinary income — —

Non-cash amortization from acquisitions 532 532

Non-recurring M&A costs — —

Expense (benefit) from income taxes relating to reconciling items 776 (466) (157) (1,461)

Benefit from income taxes relating to reconciling items (465) (435)

Adjusted Net Income (Loss) (non-GAAP) (15,118) 37,064

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Adjusted EBITDA Margin* (non-GAAP) 0.2% 16.3%

* 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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Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net Income (Loss) $ (17,396) $ 34,954

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(Dollars in thousands, unless otherwise noted)

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

We believe that cash balances and operating cash flows, together with available capacity under our credit agreement, as utilized in the first quarter of 2024, will provide adequate funds to support our current short-term operating objectives as well as our longer-term strategic plans, subject to the risks and uncertainties outlined below, in our "Note Regarding Forward-Looking Statements" above, and in the risk factors previously disclosed in Item 1A of Part I of our 2023 Form 10-K.

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

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

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.

We believe that our future cash from operations, cash on hand and available capacity under our credit agreement, as well as 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 of Part I of our 2023 Form 10-K, as well as general economic, financial, competitive, regulatory and other factors that are beyond our control.

As of the end of the third quarter of 2023, the Company had approximately $22.1 million of cash on hand with approximately $329 million of additional capacity available under the revolving credit facility.

As of the end of the first quarter of 2024, the Company had approximately $20.6 million of cash on hand with approximately $254 million of additional capacity available under the revolving credit facility.

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

Capital expenditures are expected to be approximately $115 million in 2023 compared to $89 million in 2022, reflecting increased spend due to critical infrastructure, other maintenance, and growth and cost savings projects.

Capital expenditures are expected to be approximately $140 million to $150 million in 2024 compared to $107 million in 2023, reflecting increased spend due to replacement maintenance, growth and cost savings projects and enterprise programs.

We assumed from Honeywell International Inc.

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

The Company made no cash contributions to the defined benefit pension plan during the nine months ended September 30, 2023 and does not expect to make cash contributions during the fourth quarter of 2023.

Additional contributions may be made 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 three months ended March 31, 2024.

The Company expects aggregate cash contributions of $0 to $5 million in 2024 and additional contributions in future years sufficient to satisfy pension funding requirements in those periods.

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

Date of Authorization Authorized Amount

Authorized Amount Remaining as of September 30, 2023

Authorized Amount Remaining as of March 31, 2024

May 4, 2018 $ 75.0 $ —

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

As of September 30, 2023, the Company has repurchased a total of 5,541,948 shares of common stock life-to-date, including 854,340 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $173.6 million at a weighted average market price of $31.33 per share.

As of September 30, 2023, $76.6 million remained available for share repurchases under the current authorization.

During the period from October 1, 2023 through October 27, 2023, we repurchased an additional 101,387 shares at a weighted average market price of $29.07 per share primarily under the currently authorized repurchase program.

As of September 30, 2023, the Company did not have any off-balance sheet arrangements as described in Instruction 8 to Item 303(b) of Regulation S-K and did not have any material changes in the commitments or contractual obligations detailed in the Company's 2022 Form 10-K (see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Liquidity and Capital Resources - Liquidity").

As of March 31, 2024, the Company has repurchased a total of 6,108,939 shares of common stock life-to-date, including 999,111 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $189.0 million at a weighted average market price of $30.94 per share.

As of March 31, 2024, $65.2 million remained available for share repurchases under the current authorization.

During the period from April 1, 2024 through April 26, 2024, the Company repurchased 2,865 shares covering tax withholding obligations in connection with the vesting of equity awards at a weighted average market price of $27.15, and no additional shares were repurchased under the currently authorized repurchase program.

As of March 31, 2024, the Company did not have any off-balance sheet arrangements as described in Instruction 8 to Item 303(b) of Regulation S-K and did not have any material changes in the commitments or contractual obligations detailed in the Company's 2023 Form 10-K (see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Liquidity and Capital Resources - Liquidity").

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

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

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

Dividends announced during 2024 are as follows:

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

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2/16/2024 3/4/2024 3/18/2024 $0.160 $4.3

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

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

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

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

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

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

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

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

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

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

The Credit Agreement also contains financial covenants that require the Company to maintain a Consolidated Interest Coverage Ratio (as

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

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

We were in compliance with all of our covenants at September 30, 2023 and through the date of the filing of this Form 10-Q.

We were in compliance with all of our covenants at March 31, 2024 and through the date of the filing of this Form 10-Q.

We had a borrowed balance of $170 million under the Revolving Credit Facility at December 31, 2023.

We borrowed an incremental net amount of $55 million during the nine months ended September 30, 2023, bringing the balance under the Revolving Credit Facility to $170 million, and available credit for use of approximately $329 million as of September 30, 2023.

We borrowed an incremental net amount of $75 million during the three months ended March 31, 2024, bringing the balance under the Revolving Credit Facility to $245 million, and available credit for use of approximately $254 million as of March 31, 2024.

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

Cash Flow Summary

Nine Months Ended

September 30,

Three Months Ended

Cash provided by (used for):

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Net change in cash and cash equivalents $ (9,135) $ (29,159)

Cash provided by operating activities decreased by $146.6 million for the nine months ended September 30, 2023 versus the prior year period due primarily to (i) a $92.9 million unfavorable cash impact from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) with a $51.9 million unfavorable cash impact from working capital for the nine months ended September 30, 2023 compared to a $41.0 million favorable cash impact in the prior year period, primarily due to the timing of payments and lower raw material prices in accounts payable of $81.8 million and the unfavorable impact of customer advances of $32.0 million driven by the unwinding of ammonium sulfate pre-buy advances and (ii) a $78.6 million decrease in net income.

This was partially offset by (i) a $22.3 million favorable cash impact from Taxes receivable and (ii) a $14.4 million favorable cash impact from Other assets and liabilities driven primarily by a reduction in the net pension liability due to previous year cash contributions to the defined benefit pension plan during the nine months ended September 30, 2023 compared to the prior year period.

Cash used for investing activities decreased by $88.6 million for the nine months ended September 30, 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 prior year period offset by increased cash payments for capital expenditures of approximately $8.0 million during the current year period due primarily to increased spend for critical infrastructure, other maintenance, and growth and cost savings projects.

Cash used for financing activities decreased by $39.5 million for the nine months ended September 30, 2023 versus the prior year period due primarily to payments for share repurchases of $37.7 million and cash paid for dividends of approximately $12.4 million during the nine months ended September 30, 2023 compared to $23.6 million and $11.1 million during the prior year period, respectively, partially offset by net borrowings of $55.0 million during the nine months ended September 30, 2023 compared to net borrowings of $0, where incremental borrowings equaled incremental repayments, during the prior year period.

Cash provided by operating activities decreased by $37.8 million for the three months ended March 31, 2024 versus the prior year period due primarily to a $52.4 million decrease in net income partially offset by a $16.1 million cash impact from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) with a $42.3 million unfavorable cash impact from working capital for the three months ended March 31, 2024 compared to a $58.4 million unfavorable cash impact in the prior year period.

The favorable cash change in working capital was primarily due to the favorable impact of inventory partially offset by Accounts and other receivables.

Accrued liabilities were also a source of cash of $10.6 million year-over-year.

Cash used for investing activities increased by $11.2 million for the three months ended March 31, 2024 versus the prior year period due primarily to cash payments for capital expenditures of approximately $10.8 million during the current year period reflecting increased spend due to replacement maintenance, growth and cost savings projects and enterprise programs.

Cash provided by financing activities increased by $69.0 million for the three months ended March 31, 2024 versus the prior year period due primarily to net borrowings of $75.0 million during the three months ended March 31, 2024 compared to net borrowings of $12.0 million during the prior year period, partially offset by payments for share repurchases of $7.0 million and cash paid for dividends of approximately $4.3 million during the three months ended March 31, 2024 compared to $13.5 million and $4.0 million during the prior year period, respectively.

Capital Expenditures

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The following table summarizes ongoing and expansion capital expenditures:

Nine Months Ended

September 30, 2023

Three Months Ended

March 31, 2024

Capital expenditures in Accounts payable at December 31, 2023

Purchases of property, plant and equipment 26,170

Capital expenditures in Accounts payable at September 30, 2023

Capital expenditures in Accounts payable at March 31, 2024

Cash paid for capital expenditures $ 35,388

For 2023, we expect our total capital expenditures to be approximately $115 million compared to $89 million in 2022, reflecting increased spend due to critical infrastructure, other maintenance, and growth and cost savings projects.

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

For 2024, we expect our total capital expenditures to be approximately $140 million to $150 million compared to $107 million in 2023, 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

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

GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters

that are inherently uncertain.

GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain.

We consider these accounting policies to be critical to the understanding of our Condensed Consolidated Financial Statements.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis