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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 1-37774
 AdvanSix Inc.
(Exact name of registrant as specified in its charter)
Delaware
81-2525089
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
300 Kimball Drive, Suite 101, Parsippany, New Jersey
 07054
(Address of principal executive offices)
(Zip Code)
(973) 526-1800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.01 per share ASIX New York Stock Exchange


Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer ý
Non-accelerated filer o
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ý

The Registrant had 28,132,446 shares of common stock, $0.01 par value, outstanding at October 22, 2021.

ADVANSIX INC.
FORM 10-Q
 
TABLE OF CONTENTS


 
3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited)
3
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)
4
Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (unaudited)
5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)
6
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2021 and 2020 (unaudited)
7
9



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share and per share amounts)
 
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Sales $ 446,495  $ 281,910  $ 1,260,561  $ 817,644 
Costs, expenses and other:
Costs of goods sold 366,180  265,758  1,040,965  736,504 
Selling, general and administrative expenses 21,121  16,177  62,112  50,827 
Interest expense, net 1,174  1,981  4,096  5,827 
Other non-operating expense (income), net 331  (334) 349  216 
Total costs, expenses and other 388,806  283,582  1,107,522  793,374 
Income (loss) before taxes 57,689  (1,672) 153,039  24,270 
Income tax expense (benefit) 13,747  (980) 36,835  4,957 
Net income (loss) $ 43,942  $ (692) $ 116,204  $ 19,313 
Earnings (loss) per common share
Basic $ 1.56  $ (0.02) $ 4.13  $ 0.69 
Diluted $ 1.51  $ (0.02) $ 4.02  $ 0.69 
Weighted average common shares outstanding
Basic 28,182,810  28,079,937  28,136,511  28,037,651 
Diluted 29,100,276  28,079,937  28,920,832  28,092,712 
 

See accompanying notes to Condensed Consolidated Financial Statements.
3
ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)

 
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Net income (loss) $ 43,942  $ (692) $ 116,204  $ 19,313 
Foreign exchange translation adjustment (15) (10) (20) (67)
Cash-flow hedges 415  346  1,300  (1,563)
Other comprehensive income (loss), net of tax 400  336  1,280  (1,630)
Comprehensive income $ 44,342  $ (356) $ 117,484  $ 17,683 

See accompanying notes to Condensed Consolidated Financial Statements.
4
ADVANSIX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share and per share amounts)

September 30,
2021		 December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents $ 7,239  $ 10,606 
Accounts and other receivables – net 170,941  123,554 
Inventories – net 142,911  180,085 
Taxes receivable 337  12,289 
Other current assets 11,654  6,969 
Total current assets 333,082  333,503 
Property, plant and equipment – net 759,373  765,469 
Operating lease right-of-use assets 142,931  114,484 
Goodwill 17,592  15,005 
Other assets 37,384  34,946 
Total assets $ 1,290,362  $ 1,263,407 
LIABILITIES
Current liabilities:
Accounts payable $ 217,993  $ 190,227 
Accrued liabilities 48,315  41,152 
Operating lease liabilities – short-term 36,694  29,279 
Deferred income and customer advances 3,138  26,379 
Total current liabilities 306,140  287,037 
Deferred income taxes 137,241  125,575 
Operating lease liabilities – long-term 106,773  85,605 
Line of credit – long-term 135,000  275,000 
Postretirement benefit obligations 27,119  39,168 
Other liabilities 11,778  6,899 
Total liabilities 724,051  819,284 
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; 200,000,000 shares authorized; 31,738,648 shares issued and 28,124,446 outstanding at September 30, 2021; 31,627,139 shares issued and 28,033,227 outstanding at December 31, 2020
 317  316 
Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at September 30, 2021 and December 31, 2020
 —  — 
Treasury stock at par (3,614,202 shares at September 30, 2021; 3,593,912 shares at December 31, 2020)
 (36) (36)
Additional paid-in capital 192,950  184,732 
Retained earnings 387,932  275,243 
Accumulated other comprehensive loss (14,852) (16,132)
Total stockholders' equity 566,311  444,123 
Total liabilities and stockholders' equity $ 1,290,362  $ 1,263,407 
See accompanying notes to Condensed Consolidated Financial Statements.
5
ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 

Nine Months Ended
September 30,
2021 2020
Cash flows from operating activities:
Net income $ 116,204  $ 19,313 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 49,058  45,061 
Loss on disposal of assets 842  143 
Deferred income taxes 11,235  11,895 
Stock-based compensation 8,606  3,503 
Accretion of deferred financing fees 424  412 
Changes in assets and liabilities, net of business acquisitions:
Accounts and other receivables (46,549) 7,445 
Inventories 37,885  (2,163)
Taxes receivable 11,952  (11,760)
Accounts payable 27,047  (9,939)
Accrued liabilities 6,418  7,776 
Deferred income and customer advances (23,241) (13,520)
Other assets and liabilities (14,358) 5,920 
Net cash provided by operating activities 185,523  64,086 
Cash flows from investing activities:
Expenditures for property, plant and equipment (37,471) (67,563)
Acquisition of business (9,523) — 
Other investing activities (975) (898)
Net cash used for investing activities (47,969) (68,461)
Cash flows from financing activities:
Borrowings from line of credit 133,500  268,500 
Payments of line of credit (273,500) (252,500)
Payment of line of credit facility fees —  (425)
Principal payments of finance leases (534) (534)
Purchase of treasury stock (589) (1,032)
Issuance of common stock 202  2 
Net cash provided by (used for) financing activities (140,921) 14,011 
Net change in cash and cash equivalents (3,367) 9,636 
Cash and cash equivalents at beginning of period 10,606  7,050 
Cash and cash equivalents at the end of period $ 7,239  $ 16,686 
Supplemental non-cash investing activities:
Capital expenditures included in accounts payable $ 6,783  $ 5,802 
Supplemental cash activities:
Cash paid for interest $ 3,785  $ 4,493 
Cash paid for income taxes $ 23,051  $ 1,501 
See accompanying notes to Condensed Consolidated Financial Statements.
6
ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Equity
Shares Amount
Balance at December 31, 2020 31,627,139  $ 316  $ 184,732  $ 275,243  $ (36) $ (16,132) $ 444,123 
Net Income —  —  —  28,131  —  —  28,131 
Comprehensive income
Foreign exchange translation adjustments —  —  —  —  —  (70) (70)
Cash-flow hedges —  —  —  —  —  483  483 
Pension obligation adjustments —  —  —  —  —  —  — 
Other comprehensive income (loss), net of tax —  —  —  —  —  413  413 
Issuance of common stock 33,200  1  —  —  —  —  1 
Purchase of treasury stock (15,371 shares)
 —  —  (443) —  —  —  (443)
Stock-based compensation —  —  2,363  —  —  —  2,363 
Balance at March 31, 2021 31,660,339  317  186,652  303,374  (36) (15,719) 474,588 
Net Income —  —  —  44,131  —  —  44,131 
Comprehensive income
Foreign exchange translation adjustments —  —  —  —  —  65  65 
Cash-flow hedges —  —  —  —  —  402  402 
Pension obligation adjustments —  —  —  —  —  —  — 
Other comprehensive income (loss), net of tax —  —  —  —  —  467  467 
Issuance of common stock 72,450  —  45  —  —  —  45 
Purchase of treasury stock (4,919 shares)
 —  —  (146) —  —  —  (146)
Stock-based compensation —  —  3,744  —  —  —  3,744 
Balance at June 30, 2021 31,732,789  317  190,295  347,505  (36) (15,252) 522,829 
Net Income —  —  —  43,942  —  —  43,942 
Comprehensive income
Foreign exchange translation adjustments —  —  —  —  —  (15) (15)
Cash-flow hedges —  —  —  —  —  415  415 
Pension obligation adjustments —  —  —  —  —  —  — 
Other comprehensive income (loss), net of tax —  —  —  —  —  400  400 
Issuance of common stock 5,859  —  156  —  —  —  156 
Purchase of treasury stock (0 shares)
 —  —  —  —  —  —  — 
Stock-based compensation —  —  2,499  —  —  —  2,499 
Dividends —  —  —  (3,515) —  —  (3,515)
Balance at September 30, 2021 31,738,648  $ 317  $ 192,950  $ 387,932  $ (36) $ (14,852) $ 566,311 

7
ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Equity
Shares Amount
Balance at December 31, 2019 31,423,898  $ 314  $ 180,884  $ 229,166  $ (35) $ (9,451) $ 400,878 
Net Income —  —  —  8,576  —  —  8,576 
Comprehensive income
Foreign exchange translation adjustments —  —  —  —  —  (57) (57)
Cash-flow hedges —  —  —  —  —  (1,836) (1,836)
Pension obligation adjustments —  —  —  —  —  —  — 
Other comprehensive income (loss), net of tax —  —  —  —  —  (1,893) (1,893)
Issuance of common stock 154,495  2  —  —  —  —  2 
Purchase of treasury stock (73,157 shares)
 —  —  (924) —  (1) —  (925)
Stock-based compensation —  —  1,198  —  —  —  1,198 
Balance at March 31, 2020 31,578,393  316  181,158  237,742  (36) (11,344) 407,836 
Net Income —  —  —  11,429  —  —  11,429 
Comprehensive income
Foreign exchange translation adjustments —  —  —  —  —  —  — 
Cash-flow hedges —  —  —  —  —  (73) (73)
Pension obligation adjustments —  —  —  —  —  —  — 
Other comprehensive income (loss), net of tax —  —  —  —  —  (73) (73)
Issuance of common stock 44,517  —  —  —  —  —  — 
Purchase of treasury stock (10,361 shares)
 —  —  (107) —  —  —  (107)
Stock-based compensation —  —  1,702  —  —  —  1,702 
Balance at June 30, 2020 31,622,910  316  182,753  249,171  (36) (11,417) 420,787 
Net loss —  —  —  (692) —  —  (692)
Comprehensive income
Foreign exchange translation adjustments —  —  —  —  —  (10) (10)
Cash-flow hedges —  —  —  —  —  346  346 
Pension obligation adjustments —  —  —  —  —  —  — 
Other comprehensive income (loss), net of tax —  —  —  —  —  336  336 
Issuance of common stock —  —  —  —  —  —  — 
Purchase of treasury stock (0 shares)
 —  —  —  —  —  —  — 
Stock-based compensation —  —  603  —  —  —  603 
Balance at September 30, 2020 31,622,910  $ 316  $ 183,356  $ 248,479  $ (36) $ (11,081) $ 421,034 



See accompanying notes to Condensed Consolidated Financial Statements.
8
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)




1. Organization, Operations and Basis of Presentation
 
Description of Business
 
AdvanSix Inc. ("AdvanSix," the "Company," "we" or "our") plays a critical role in global supply chains, innovating and delivering essential products for our customers in a wide variety of end markets and applications that touch people’s lives, such as building and construction, fertilizers, plastics, solvents, packaging, paints, coatings, adhesives and electronics. Our reliable and sustainable supply of quality products emerges from the vertically integrated value chain of our three U.S.-based manufacturing facilities. AdvanSix 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.

COVID-19

In March 2020, the World Health Organization categorized the novel coronavirus (COVID-19) as a global pandemic with numerous countries around the world declaring national emergencies, including the United States. Since early 2020, COVID-19 has continued to spread, with confirmed cases worldwide, and with certain jurisdictions experiencing resurgences, including as a result of variant strains. The spread resulted in authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. The pandemic and these containment measures have had a substantial impact on businesses around the world and on global, regional and national economies, including disruptions to supply chains, volatility in demand, production and sales across most industries, volatility within global financial markets, inflationary pressures in commodity pricing and an increasingly dynamic workforce environment. 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’s Condensed Consolidated Financial Statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and reported amounts of revenue and expenses during the reporting periods presented. The Company continues to consider the impact of COVID-19 on the estimates and assumptions used for the financial statements. As previously disclosed, the Company experienced a material impact on its second quarter 2020 results of operations associated with lower demand, particularly in nylon, caprolactam and phenol, and a decrease in overall sales volume related to global markets and the economic impact of COVID-19. Starting in the second half of 2020, and through the third quarter of 2021, demand improved to pre-COVID-19 levels with states, regions and countries in various phases of re-opening and continued administration of vaccines for COVID-19. The Company will continue to monitor developments and execute our operational and safety mitigation plans as previously disclosed.

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.

Basis of Presentation

The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of September 30, 2021, and its results of operations for the three and nine months ended September 30, 2021 and 2020 and cash flows for the nine months ended September 30, 2021 and 2020. The year-end Condensed Consolidated Balance Sheet data were derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"). All intercompany transactions have been eliminated.
 
Certain prior period amounts have been reclassified for consistency with the current period presentation.
9
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)




It is our practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires our businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on our business processes. Historically, the effects of this practice were generally not significant to reported results for any quarter and only existed within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, we will provide the appropriate disclosures. Our actual closing dates for the three and nine months ended September 30, 2021 and 2020 were October 2, 2021 and September 26, 2020, respectively.

Liabilities to creditors to whom we have issued checks that remained outstanding at September 30, 2021 and December 31, 2020 aggregated to $2.3 million and $7.2 million, respectively, and were included in Cash and cash equivalents and Accounts payable in the Condensed Consolidated Balance Sheets.

On May 4, 2018, the Company announced that its Board of Directors (the “Board”) authorized a share repurchase program of up to $75 million of the Company’s common stock. On February 22, 2019, the Company announced that the Board authorized a share repurchase program of up to an additional $75 million of the Company's common stock, which was in addition to the remaining capacity available under the May 2018 share repurchase program. Repurchases may be made from time to time on the open market, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The share repurchase program has no expiration date and may be modified, suspended or discontinued at any time. The par value of the shares repurchased is applied to Treasury stock and the excess of the purchase price over par value is applied to Additional paid-in capital.

As of September 30, 2021, the Company had repurchased 3,614,202 shares of common stock, including 524,440 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $102.3 million at a weighted average market price of $28.31 per share. As of September 30, 2021, $59.6 million remained available for share repurchases under the current authorization. During the period October 1, 2021 through October 22, 2021, no additional shares were repurchased under the currently authorized repurchase program.

2. Recent Accounting Pronouncements
 
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not discussed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments of ASU No. 2020-04 are effective for companies as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The amendments in this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The Company adopted ASU 2020-04 effective September 30, 2021, which did not have a material impact on the Company's consolidated financial position or results of operations upon adoption.

On December 18, 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes the exception to the general principles in FASB Accounting Standards Codification ("ASC") 740, Income Taxes, associated with the incremental approach for intra-period tax allocation, accounting for basis differences when there are ownership changes in foreign investments and interim-period income tax accounting for year-to-date losses that exceed anticipated losses. In addition, the ASU improves the application of income tax related guidance and simplifies U.S. GAAP when accounting for franchise taxes that are partially based on income, transactions with government resulting in a step-up in tax basis goodwill, separate financial statements of legal entities not subject to tax, and enacted changes in tax laws in interim periods. Different transition approaches, retrospective, modified retrospective, or prospective, will apply to each income tax simplification provision. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments in this update is permitted, including
10
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



adoption in any interim period. The Company adopted ASU 2019-12 effective January 1, 2021, which did not have a material impact on the Company’s consolidated financial position or results of operations upon adoption.

3. Revenues

Revenue Recognition

We serve approximately 400 customers annually in approximately 50 countries and across a wide variety of industries. For the three months ended September 30, 2021 and 2020, the Company's ten largest customers accounted for approximately 43% and 48% of total sales, respectively. For the nine months ended September 30, 2021 and 2020, the Company's ten largest customers accounted for approximately 41% and 43% of total sales, respectively.

We typically sell to customers under master service agreements, with primarily one-year terms, or by purchase orders. We have historically experienced low customer turnover and have long-standing customer relationships, which span decades. Our largest customer is Shaw Industries Group Inc. (“Shaw”), a significant consumer of caprolactam and Nylon 6 resin, to whom we sell under a long-term agreement. For the three months ended September 30, 2021 and 2020, our sales to Shaw were 13% and 14%, respectively, of our total sales. For the nine months ended September 30, 2021 and 2020, our sales to Shaw were 12% and 13%, respectively, of our total sales.

The Company's revenue by product line, and related approximate percentage of total sales, for the three and nine months ended September 30, 2021 and 2020 were as follows:
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Nylon $ 122,110  27% $ 73,555  26% $ 317,608  25% $ 204,742  25%
Caprolactam 80,265  18% 52,409  18% 242,460  19% 152,594  18%
Chemical Intermediates 130,920  29% 94,770  34% 416,482  33% 250,299  31%
Ammonium Sulfate 113,200  26% 61,176  22% 284,011  23% 210,009  26%
$ 446,495  100% $ 281,910  100% $ 1,260,561  100% $ 817,644  100%
The Company's revenues by geographic area, and related approximate percentage of total sales, for the three and nine months ended September 30, 2021 and 2020 were as follows:
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
United States $ 365,210  82  % $ 217,062  77  % $ 1,039,291  82  % $ 623,817  76  %
International 81,285  18  % 64,848  23  % 221,270  18  % 193,827  24  %
Total $ 446,495  100  % $ 281,910  100  % $ 1,260,561  100  % $ 817,644  100  %
Deferred Income and Customer Advances
The Company defers revenues when cash payments are received in advance of our performance. Customer advances relate primarily to sales from the ammonium sulfate business. Below is a roll-forward of Deferred income and customer advances for the nine months ended September 30, 2021:
Opening balance January 1, 2021 $ 26,379 
Additional cash advances 3,734 
Less amounts recognized in revenues (26,975)
Ending balance September 30, 2021 $ 3,138 
The Company expects to recognize as revenue the September 30, 2021 ending balance of Deferred income and customer advances within one year or less.

11
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



4. Earnings Per Share
 
The computation of basic and diluted earnings per share ("EPS") is based on Net income divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively. The details of the basic and diluted EPS calculations for the three and nine months ended September 30, 2021 and 2020 were as follows:
 
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Basic
Net income (loss) $ 43,942  $ (692) $ 116,204  $ 19,313 
Weighted average common shares outstanding 28,182,810  28,079,937  28,136,511  28,037,651 
EPS – Basic $ 1.56  $ (0.02) $ 4.13  $ 0.69 
Diluted
Dilutive effect of equity awards and other stock-based holdings 917,466  —  784,321  55,061 
Weighted average common shares outstanding 29,100,276  28,079,937  28,920,832  28,092,712 
EPS – Diluted $ 1.51  $ (0.02) $ 4.02  $ 0.69 

Diluted EPS is computed based upon the weighted average number of common shares outstanding for the period plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the period.

The diluted EPS calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price of the common shares during the period. The anti-dilutive common stock equivalents outstanding at the three and nine months ended September 30, 2021 and 2020 were as follows:
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Options and stock equivalents 318,706  890,484  535,299  1,042,020 

Dividend activity for the three and nine months ended September 30, 2021 and 2020 was as follows:
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Cash dividends declared per share $ 0.125  $ —  $ 0.125  $ — 
Aggregate dividends paid to shareholders $ —  $ —  $ —  $ — 

5. Accounts and Other Receivables – Net
September 30,
2021		 December 31,
2020
Accounts receivables $ 168,096  $ 122,357 
Other 4,389  2,668 
Total accounts and other receivables 172,485  125,025 
Less – allowance for doubtful accounts (1,544) (1,471)
Total accounts and other receivables – net $ 170,941  $ 123,554 

6. Inventories
12
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



September 30,
2021		 December 31,
2020
Raw materials $ 45,969  $ 88,612 
Work in progress 44,155  54,291 
Finished goods 32,533  45,345 
Spares and other 27,793  27,198 
150,450  215,446 
Reduction to LIFO cost basis (7,539) (35,361)
Total inventories $ 142,911  $ 180,085 

7. Postretirement Benefit Cost
 
The components of Net periodic benefit cost of the Company’s pension plan are as follows:
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Service cost $ 1,954  $ 2,005  $ 5,863  $ 6,016 
Interest cost 518  544  1,553  1,631 
Expected return on plan assets (731) (524) (2,193) (1,573)
Amortization of actuarial net losses 86  —  259  — 
Net periodic benefit cost $ 1,827  $ 2,025  $ 5,482  $ 6,074 

The Company made cash contributions to the defined benefit pension plan of $17.5 million during the nine months ended September 30, 2021 with $1.2 million in the first quarter of 2021, $3.6 million in the second quarter of 2021 and $12.7 million in the third quarter of 2021. The Company currently plans to make pension plan contributions during 2021 sufficient to satisfy funding requirements under the AdvanSix Retirement Earnings Plan in an aggregate amount of approximately $18 million to $23 million. We anticipate making additional contributions in future years sufficient to satisfy pension funding requirements in those periods.

The pension plan assets are invested through a master trust fund. The strategic asset allocation for the trust fund is selected by the Company's Investment Committee reflecting the results of comprehensive asset and liability modeling. The Investment Committee establishes strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk.

8. Leases

We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets ("ROU"), Operating lease liabilities – short-term, and Operating lease liabilities – long-term in our Condensed Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment – net, Accounts payable, and Other liabilities in our Condensed Consolidated Balance Sheets.

The components of lease expense were as follows:
13
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Finance lease cost:
Amortization of right-of-use asset $ 185  $ 172  $ 527  $ 527 
Interest on lease liabilities 8  11  24  39 
Total finance lease cost 193  183  551  566 
Operating lease cost 10,072  11,087  30,142  33,157 
Short-term lease cost 2,743  2,126  9,379  5,846 
Total lease cost $ 13,008  $ 13,396  $ 40,072  $ 39,569 

As of September 30, 2021, we have additional operating leases that have not yet commenced for approximately $3.7 million. These leases commence during 2021 with lease terms of up to 5 years.

9. Commitments and Contingencies
 
The Company is subject to a number of lawsuits, investigations and disputes, some of which may involve substantial amounts claimed, arising out of the conduct of the Company or other third-parties in the normal and ordinary course of business. A liability is recognized for any contingency that is probable of occurrence and reasonably estimable. The Company continually assesses the likelihood of adverse judgments or outcomes in these matters, as well as potential ranges of possible losses, based on an analysis of each matter with the assistance of legal counsel and, if applicable, other experts.
 
Given the uncertainty inherent in such lawsuits, investigations and disputes, the Company does not believe it is possible to develop estimates of reasonably possible loss in excess of current accruals for these matters. Considering the Company’s past experience and existing accruals, the Company does not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on the Company’s consolidated financial position or results of operations. Potential liabilities are subject to change due to new developments, changes in settlement strategy or the impact of evidentiary requirements, which could cause the Company to pay damage awards or settlements (or become subject to equitable remedies) that could have a material adverse effect on the Company’s consolidated results of operations, balance sheet and/or operating cash flows in the periods recognized or paid.

We assumed from Honeywell all health, safety and environmental (“HSE”) liabilities and compliance obligations related to the past and future operations of our current business, as well as all HSE liabilities associated with our manufacturing locations used in our current operations, including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past. Honeywell retained all HSE liabilities related to former business locations or the operation of our former businesses. Although we have ongoing environmental remedial obligations at certain of our facilities, in the past three years, the associated remediation costs have not been material, and we do not expect our known remediation costs to have a material adverse effect on the Company's consolidated financial position or results of operations.

10. Income Taxes

The provision for income taxes was $13.7 million and $(1.0) million for the three months ended September 30, 2021 and 2020, respectively, resulting in an effective tax rate of 23.8% and 58.6%, respectively. The provision for income taxes was $36.8 million and $5.0 million for the nine months ended September 30, 2021 and 2020, respectively, resulting in an effective tax rate of 24.1% and 20.4%, respectively.

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 provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against Income (Loss) before taxes for the period in addition to recording any tax effects of discrete items for the quarter. The Company’s estimated annual effective tax rate applied against the three and nine months ended September 30, 2021 and 2020 differed from the U.S. federal statutory rate, due primarily to state taxes and executive compensation deduction limitations
14
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



which generally increase the tax rate, partially offset by tax credits which generally decrease the tax rate. Additionally, the deduction for foreign-derived intangible income further decreased the tax rate for the three and nine months ended September 30, 2021. The Company’s effective tax rate for the nine months ended September 30, 2020 was also further decreased by discrete tax adjustments related to 2019 return-to-provision tax credits and the impact of changes in the Company’s geographical sales mix on state tax. The Company's effective tax rate of 58.6% recorded in the third quarter of 2020 was mainly driven by research tax credits and the 2019 state return-to-provision adjustments which increased the effective tax rate by approximately 30% mainly due to the nominal Loss before taxes recorded in that quarter which resulted in these adjustments having a larger than normal impact on the effective tax rate.

On March 11, 2021, the American Rescue Plan Act ("ARPA") was signed into law. The ARPA is aimed at addressing the continuing economic and health impacts of the COVID-19 pandemic. This legislative relief, along with the previous governmental relief packages, provide for numerous changes to current tax law. The ARPA did not have a material impact on our financial statements for the three and nine months ended September 30, 2021, and we do not anticipate that it will have a material impact on our financial statements throughout the remainder of 2021.

We are subject to income taxes in the United States and to a lesser extent several foreign jurisdictions. Changes to income tax laws and regulations, or the interpretation of such laws, in any of the jurisdictions in which we operate could increase our effective tax rate and reduce our cash flows from operating activities. The current U.S. administration has released various draft tax reform proposals that, if enacted, would generally increase U.S. federal income taxes on corporations. These proposals, if implemented, could have an unfavorable effect on our business, results of operations and financial condition. As such, we continue to monitor these legislative proposals to evaluate the impact on our business.

11. Fair Value Measurements

Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. In November 2018 and July 2019, the Company entered into two interest rate swap transactions related to its credit agreement. The fair value of the interest rate swaps at September 30, 2021 was a loss of approximately $1.3 million and is considered a Level 2 liability.

The pension plan assets are invested in collective investment trust funds. These investments are measured at fair value using the net asset value per share as a practical expedient. Investments valued using the net asset value method (NAV) (or its equivalent) practical expedient are excluded from the fair value hierarchy disclosure.

The Company’s Condensed Consolidated Balance Sheets also include Cash and cash equivalents, Accounts receivable and Accounts payable all of which are recorded at amounts which approximate fair value.

The Company also has assets that are required to be recorded at fair value on a non-recurring basis. These assets are evaluated when certain triggering events occur (including a decrease in estimated future cash flows) that indicate the asset should be evaluated for impairment which could result in such assets being measured at fair value. Goodwill must be evaluated at least annually. Our annual evaluation occurred on March 31, 2021 and we concluded that an impairment for goodwill did not occur.

12. Derivative and Hedging Instruments

The specific credit and market, commodity price and interest rate risks to which the Company is exposed in connection with its ongoing business operations are described below. This discussion includes an explanation of the hedging instrument, interest rate swap agreements, used to manage the Company’s interest rate risk associated with a fixed and floating-rate borrowing.

For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in Other comprehensive income. Those amounts are reclassified to earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the hedged item affects earnings.

Credit and Market Risk – Financial instruments, including derivatives, expose the Company to counterparty credit risk for non-performance and to market risk related to changes in commodity prices, interest rates and foreign currency exchange rates. The Company manages its exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. The Company’s counterparties in derivative transactions are substantial investment and commercial banks with significant experience using such derivative instruments. The Company monitors the impact of market risk on the fair value and cash flows of its derivative and other financial instruments considering
15
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



reasonably possible changes in commodity prices, interest rates and foreign currency exchange rates and restricts the use of derivative financial instruments to hedging activities.

The Company continually monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. The Company did not have any customers with significant concentrations of trade accounts receivable – net at September 30, 2021 or December 31, 2020. Allowance for doubtful accounts is calculated based upon the Company's estimate of expected credit losses over the life of exposure based upon both historical information as well as future expected losses.

Commodity Price Risk Management – The Company's exposure to market risk for commodity prices can result in changes in the cost of production. We primarily mitigate our exposure to commodity price risk by using long-term, formula-based price contracts with our suppliers and formula-based price agreements with customers. Our customer agreements provide for price adjustments based on relevant market indices and raw material prices and generally do not include take-or-pay terms. We may also enter into forward commodity contracts with third-parties designated as hedges of anticipated purchases of several commodities. Forward commodity contracts are marked-to-market, with the resulting gains and losses recognized in earnings, in the same category as the items being hedged, when the hedged transaction is recognized. At September 30, 2021 and 2020, we had no financial contracts related to forward commodity agreements.

Interest Rate Risk Management – The Company has entered into two interest rate swap agreements for a total notional amount of $100 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings. These interest rate swaps had a fair value of zero at inception and were effective November 30, 2018 and July 31, 2019 with respective maturity dates of November 30, 2021 and February 21, 2023. In accordance with ASC 815, the Company designated the interest rate swaps as cash flow hedges of floating-rate borrowings. The interest rate swaps convert the Company’s interest rate payments on the first $100 million of variable-rate, 1-month LIBOR-based debt to a fixed interest rate. These interest rate swaps involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the interest rate swap without an exchange of the underlying principal amount.
Liability Derivatives
September 30, 2021 December 31, 2020
Balance Sheet Classification Fair Value Balance Sheet Classification Fair Value
Derivatives designated as hedging instruments under ASC 815:
Interest Rate Contracts Accrued liabilities and Other liabilities $ (1,332) Accrued liabilities and Other liabilities $ (3,063)
Total Derivatives $ (1,332) $ (3,063)

The following table summarizes adjustments related to cash flow hedge included in Cash-flow hedges, in the Condensed Consolidated Statements of Comprehensive Income:
September 30,
2021
Loss on derivative instruments included in Accumulated other comprehensive loss at December 31, 2020 $ (3,063)
Fair value adjustment 1,731 
Loss on derivative instruments included in Accumulated other comprehensive loss at September 30, 2021 $ (1,332)

At September 30, 2021, the Company expects to reclassify approximately $1.0 million of net losses on derivative instruments from Accumulated other comprehensive income ("AOCI") to earnings during the next 12 months due to the payment of variable interest associated with the floating rate debt with the remainder recognized in future periods through the expiration date. The following table summarizes the reclassification of net losses on derivative instruments from AOCI into earnings:
16
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



Amount of Loss Recognized in Earnings
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Derivatives:
Interest Rate Contracts $ 565  $ 595  $ 1,684  $ 1,675 
Total Derivatives $ 565  $ 595  $ 1,684  $ 1,675 

13. Acquisitions

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

In January 2021, the Company acquired certain assets associated with ammonium sulfate packaging, warehousing and logistics services in Virginia from Commonwealth Industrial Services, Inc. for approximately $9.5 million. This acquisition enables the Company to expand its product offerings by directly supplying packaged ammonium sulfate to customers, primarily in North and South America. It diversifies and optimizes our product offerings to include spray-grade adjuvant to support crop protection and products for industrial use. The Company also expects the addition of packaging and warehousing capabilities to bolster logistics and operational efficiency across its Richmond, Virginia area plants. The Company did not make any acquisitions during the three or nine months ended September 30, 2020.

In accordance with ASC 805, this transaction has been accounted for as a business combination. The Company used its best estimates and assumptions to assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date based on the information that was available as of the acquisition date. The transaction resulted in the Company acquiring tangible assets and a finite-lived intangible asset, comprised of customer relationships which reflects the value of the benefit derived from incremental revenue and related cash flows as a direct result of the customer relationships. This intangible asset is being amortized on a straight-line basis over its estimated useful life of 15 years. The residual amount of the purchase price in excess of the value of the tangible and definite-lived intangible assets was allocated to goodwill. Pro forma financial information related to the acquisition has not been included as the impact on the Company's consolidated results of operations was below the reporting thresholds of the significance test.

Although the Company believes the measurements of fair value set forth herein to be substantially complete, they are subject to change within one year from the acquisition date. The following table summarizes the allocation of the purchase price consideration as of the acquisition date:
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ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



Nine months ended September 30, 2021
Accounts receivable $ 858 
Inventories 712 
Property, plant and equipment 1,875 
Intangible assets 3,920 
Accounts payable and accrued liabilities (429)
Net tangible and intangible assets 6,936 
Goodwill 2,587 
Total purchase price $ 9,523 
Cash paid to date $ 9,523 
Due to seller — 
Total purchase price $ 9,523 
Goodwill deductible for tax purposes $ 2,587 

14. Subsequent Events

Credit Agreement

On October 27, 2021, the Company completed a refinancing of its existing senior secured revolving credit facility under that certain Credit Agreement, dated as of September 30, 2016, among the Company, the guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent (as amended by Amendment No. 1 on February 21, 2018 and Amendment No. 2 on February 19, 2020), 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 Revolving Credit Facility has a scheduled maturity date of October 27, 2026. The Credit Agreement permits the Company to utilize up to $40 million of the Revolving Credit Facility for the issuance of letters of credit and up to $40 million for swing line loans. 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 0.250% to 1.25% or the sum of a LIBOR 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 is 0.375% for base rate loans and 1.375% for LIBOR loans and the applicable commitment fee rate is 0.175% 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 has borrowed $150 million under the Revolving Credit Facility. The Company expects to use the Revolving Credit Facility to meet any ongoing cash needs in excess of internally generated or available cash flows and to issue letters of credit in the ordinary course of its business. Future borrowings under the Revolving Credit Facility will be subject to customary borrowing conditions.

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ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



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









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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto contained in this Form 10-Q, as well as the MD&A section included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on February 19, 2021 (the “2020 Form 10-K”). Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors that can affect our performance in both the near- and long-term, including those incorporated by reference in Item 1A of Part II of this Form 10-Q as such factors may be revised or supplemented in subsequent filings with the SEC, as well as those discussed in the section entitled “Note Regarding Forward-Looking Statements” below.
 
Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this MD&A regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Form 10-Q, words such as "expect," “anticipate,” "estimate," "outlook," "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should," and “believe,” and other variations or similar terminology and expressions identify forward-looking statements. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and difficult to predict, which may cause the actual results or performance of the Company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: general economic and financial conditions in the U.S. and globally, including the impact of the coronavirus (COVID-19) pandemic and any resurgences; the scope, shape and pace of recovery of the pandemic; the timing of the distribution and the efficacy of vaccines or treatments for COVID-19 that are currently available or may be available in the future and related vaccination rates; the severity and transmissibility of newly identified strains of COVID-19; governmental, business and individuals’ actions in response to the pandemic, including our business continuity and cash optimization plans that have been, and may in the future be, implemented; the impact of social and economic restrictions and other containment measures taken to combat virus transmission; the effect on our customers’ demand for our products and our suppliers’ ability to manufacture and deliver our raw materials, including implications of reduced refinery utilization in the U.S.; our ability to sell and provide our goods and services, including as a result of travel and other COVID-19-related restrictions; the ability of our customers to pay for our products; any closures of our and our customers’ offices and facilities; risks associated with increased phishing, compromised business emails and other cybersecurity attacks and disruptions to our technology infrastructure; risks associated with employees working remotely or operating with a reduced workforce; risks associated with our indebtedness including compliance with financial and restrictive covenants, and our ability to access capital on reasonable terms, at a reasonable cost, or at all, due to economic conditions resulting from COVID-19 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 and pandemics; price fluctuations, cost increases and supply of raw materials; our operations and growth projects requiring substantial capital; growth rates and cyclicality of the industries we serve including global changes in supply and demand; failure to develop and commercialize new products or technologies; loss of significant customer relationships; adverse trade and tax policies; extensive environmental, health and safety laws that apply to our operations; hazards associated with chemical manufacturing, storage and transportation; litigation associated with chemical manufacturing and our business operations generally; inability to acquire and integrate businesses, assets, products or technologies; protection of our intellectual property and proprietary information; prolonged work stoppages as a result of labor difficulties or otherwise; cybersecurity, data privacy incidents and disruptions to our technology infrastructure; failure to maintain effective internal controls; our ability to declare and pay quarterly cash dividends and the amounts and timing of any future dividends; our ability to repurchase our common stock and the amount and timing of any future repurchases; disruptions in supply chain, transportation and logistics; potential for uncertainty regarding qualification for tax treatment of our spin-off; fluctuations in our stock price; and changes in laws or regulations applicable to our business. Forward-looking statements are not guarantees of future performance and actual results could differ materially from those contemplated by the forward-looking statements as a result of a number of risks, uncertainties and other factors including those noted above and those detailed in Item 1A of Part I and elsewhere in our 2020 Form 10-K, and subsequent reports filed with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph. We do not undertake to update or revise any of our forward-looking statements.
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Business Overview
AdvanSix plays a critical role in global supply chains, innovating and delivering essential products for our customers in a wide variety of end markets and applications that touch people’s lives, such as building and construction, fertilizers, plastics, solvents, packaging, paints, coatings, adhesives and electronics. Our reliable and sustainable supply of quality products emerges from the vertically integrated value chain of our three U.S.-based manufacturing facilities. AdvanSix 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. Our four key product lines are as follows: 

•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 manufacturing facility is one of the world’s largest single-site producers of caprolactam as of September 30, 2021.

•Chemical Intermediates – We manufacture, market and sell a number of other chemical 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, solvents, herbicides and engineered plastic resins. Other intermediate chemicals that we manufacture, market and sell include phenol, alpha-methylstyrene (“AMS”), cyclohexanone, oximes (methyl ethyl ketoxime, acetaldehyde oxime and 2-pentanone oxime), cyclohexanol, sulfuric acid, ammonia and carbon dioxide.

•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, 2021. 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 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. The global prices for nylon resin typically track a spread over the price of caprolactam, which in turn tracks as a spread over benzene because the key feedstock materials for caprolactam, phenol or cyclohexane, are derived from benzene. This price spread has historically experienced cyclicality as a result of global changes in supply and demand. Nylon 6 resin prices track the cyclicality of caprolactam prices, although prices set above the average commodity spread are achievable when nylon resin manufacturers, like AdvanSix, formulate and produce differentiated nylon resin products. 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. Applications such as engineered plastics and packaging have potential to grow at faster rates given certain macrotrends. Additionally, one of our strategies is to continue developing higher-value, differentiated Nylon 6 products, such as our wire and cable 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.

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
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are general agriculture trends, including planted acres and the price of crops. Our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition to increase yields of key crops. In addition, due to its nutrient density, the typical ammonium sulfate product delivers pound for pound the most readily available sulfur and nitrogen to crops as compared to other fertilizers. We recently expanded our offering to directly supply packaged ammonium sulfate to customers, primarily in North and South America, and diversified and optimized our offerings to include spray-grade adjuvant to support crop protection and products for industrial use.

We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, but 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. North America ammonium sulfate prices are typically strongest during second quarter fertilizer application, where we sell a higher mix of granular product domestically, and then typically decline seasonally with new season fill in the third quarter, where we generally drive a higher mix of standard grade product sales into export markets. 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 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 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. 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. 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; however, the mitigation of all or part of any such production impact cannot be assured.

Recent Developments

COVID-19

In March 2020, the World Health Organization categorized the novel coronavirus (COVID-19) as a global pandemic with numerous countries around the world declaring national emergencies, including the United States. Since early 2020, COVID-19 has continued to spread, with confirmed cases worldwide, and with certain jurisdictions experiencing resurgences, including as a result of variant strains. The spread resulted in authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns. The pandemic and these containment measures have had a substantial impact on businesses around the world and on global, regional and national economies, including disruptions to supply chains, volatility in demand, production and sales across most industries, volatility within global financial markets, inflationary pressures in commodity pricing and an increasingly dynamic workforce environment. 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.

As previously disclosed, the Company experienced a material impact on its second quarter 2020 results of operations associated with lower demand, particularly in nylon, caprolactam and phenol, and a decrease in overall sales volume related to global markets and the economic impact of COVID-19. Starting in the second half of 2020, and through the third quarter of 2021, demand improved to pre-COVID-19 levels with states, regions and countries in various phases of re-opening and continued administration of vaccines for COVID-19. The Company will continue to monitor developments and execute our operational and safety mitigation plans as previously disclosed.

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.

Credit Agreement

On October 27, 2021, the Company completed a refinancing of its existing senior secured revolving credit facility under that certain Credit Agreement, dated as of September 30, 2016, among the Company, the guarantors, the lenders party thereto and
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Bank of America, N.A., as administrative agent (as amended by Amendment No. 1 on February 21, 2018 and Amendment No. 2 on February 19, 2020), 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”). For a discussion of the Credit Agreement and Revolving Credit Facility, please refer to "Note 14. Subsequent Events."

Dividend

As announced on September 28, 2021, the Board declared a quarterly cash dividend of $0.125 per share on the Company's common stock, payable on November 23, 2021 to stockholders of record as of the close of business on November 9, 2021.

Results of Operations
(Dollars in thousands, unless otherwise noted)
 
Sales
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Sales $ 446,495  $ 281,910  $ 1,260,561  $ 817,644 
% change compared with prior year period 58.4% 54.2%

The change in sales compared to the prior year period is attributable to the following:
Three Months Ended
September 30, 2021		 Nine Months Ended
September 30, 2021
Volume 7.9% 15.3%
Price 50.5% 38.9%
58.4% 54.2%

Sales increased in the three months ended September 30, 2021 compared to the prior year period by $164.6 million (approximately 58%) due primarily to higher formula-based pass-through pricing (approximately 22%) as a result of net cost increases in benzene and propylene (inputs to cumene which is a key feedstock to our products), favorable market-based pricing (approximately 28%) and higher sales volume (approximately 8%) driven primarily by improved end market demand across our ammonium sulfate, nylon and caprolactam product lines.

Sales increased in the nine months ended September 30, 2021 compared to the prior year period by $442.9 million (approximately 54%) due primarily to higher formula-based pass-through pricing (approximately 21%) as a result of net cost increases in benzene and propylene, favorable market-based pricing (approximately 18%) and higher sales volume (approximately 15%) driven primarily by improved end market demand across all product lines.

Costs of Goods Sold
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Costs of goods sold $ 366,180  $ 265,758  $ 1,040,965  $ 736,504 
% change compared with prior year period 37.8% 41.3%
Gross Margin percentage 18.0% 5.7% 17.4% 9.9%

Costs of goods sold increased in the three months ended September 30, 2021 compared to the prior year period by $100.4 million (approximately 38%) due primarily to increased prices of raw materials (approximately 38%) and higher sales volumes as discussed above (approximately 6%), which was partially offset by a net favorable impact of plant turnarounds year-over-year (approximately 6%).

Costs of goods sold increased in the nine months ended September 30, 2021 compared to the prior year period by $304.5 million (approximately 41%) due primarily to (i) increased prices of raw materials (approximately 32%), (ii) higher sales
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volumes (approximately 10%) and (iii) an unfavorable non-cash LIFO inventory reserve adjustment (approximately 1%). The noted increase was partially offset by a net favorable impact of plant turnarounds year-over-year (approximately 2%).

Gross margin percentage increased by approximately 12% in the three months ended September 30, 2021 compared to the prior year period due primarily to the (i) impact of formula-based pass-through pricing and increased market pricing (approximately 7%), (ii) net favorable impact of plant turnarounds year-over-year (approximately 4%), (iii) higher sales volume (approximately 2%) and (iv) the collection of additional insurance proceeds related to the 2019 shut-down of cumene supplier Philadelphia Energy Solutions (approximately 1%). The noted increase was partially offset by increased plant spend and sales freight to support higher sales volume (approximately 2%).

Gross margin percentage increased by approximately 8% in the nine months ended September 30, 2021 compared to the prior year period due primarily to (i) the impact of formula-based pass-through pricing and increased market pricing (approximately 4%), (ii) higher sales volume (approximately 4%) and (iii) net favorable impact of plant turnarounds year-over-year (approximately 1%). The noted increase was partially offset by an unfavorable non-cash LIFO inventory reserve adjustment (approximately 1%).

Selling, General and Administrative Expenses
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Selling, general and administrative expenses $ 21,121  $ 16,177  $ 62,112  $ 50,827 
Percentage of Sales 4.7% 5.7% 4.9% 6.2%

Selling, general and administrative expenses increased by $4.9 million in the three months ended September 30, 2021 compared to the prior year period due primarily to increased incentive and stock-based compensation costs and increased functional support costs as compared to cost control measures implemented in response to the COVID-19 pandemic in the prior year.

Selling, general and administrative expenses increased by $11.3 million in the nine months ended September 30, 2021 compared to the prior period due primarily to increased incentive and stock-based compensation costs and increased functional support costs as compared to cost control measure implemented in response to the COVID-19 pandemic in the prior year.

Income Tax Expense
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Income tax expense (benefit) $ 13,747  $ (980) $ 36,835  $ 4,957 
Effective tax rate 23.8% 58.6% 24.1% 20.4%

As noted in Note 10. "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. The refund was received in the first quarter of 2021.

The Company’s effective tax rate for the three and nine months ended September 30, 2021 was higher compared to the U.S. federal statutory rate, due primarily to state taxes and executive compensation deduction limitations, partially offset by tax credits and the deduction for foreign-derived intangible income. The Company’s effective tax rate for the three months ended September 30, 2020, was higher compared to the U.S. federal statutory rate primarily due to research tax credits and the 2019 state return-to-provision adjustment recorded in that quarter as discrete tax adjustments which had a larger than normal impact on the quarterly effective tax rate due to the nominal Loss before taxes recorded in that quarter. The Company’s effective tax rate for the nine months ended September 30, 2020 was lower compared to the U.S. federal statutory rate due primarily to research tax credits and the impact of changes in the Company’s geographical sales mix on state tax, partially offset by tax deficiencies on vesting of equity compensation, executive compensation deduction limitations, and state taxes.

The Company’s effective tax rate for the three months ended September 30, 2021 was lower than the prior year period due primarily to the Loss before taxes, an increase in 2020 anticipated research tax credits and a discrete 2019 state return-to-provision adjustments recorded in the third quarter of 2020, which resulted in a large increase on the quarterly effective tax rate.
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The Company’s effective tax rate for the nine months ended September 30, 2021 was higher than the prior year period due primarily to the impact of discrete tax adjustments recorded in 2020 related to changes in the Company's geographical sales mix on state tax and 2019 federal and state return-to-provision adjustments, which decreased the 2020 effective tax rate.

We are subject to income taxes in the United States and to a lesser extent several foreign jurisdictions. Changes to income tax laws and regulations, or the interpretation of such laws, in any of the jurisdictions in which we operate could increase our effective tax rate and reduce our cash flows from operating activities. The current US administration has released various draft tax reform proposals that, if enacted, would generally increase U.S. federal income taxes on corporations. These proposals, if implemented, could have an unfavorable effect on our business, results of operations and financial condition. As such, we continue to monitor these legislative proposals to evaluate the impact on our business.

Net Income
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Net income (loss) $ 43,942  $ (692) $ 116,204  $ 19,313 

As a result of the factors described above, Net income (loss) was $43.9 million and $116.2 million for the three and nine months ended September 30, 2021 as compared to $(0.7) million and $19.3 million in the corresponding prior year period.

Non-GAAP Measures
(Dollars in thousands, unless otherwise noted)

The following tables set forth the non-GAAP financial measures of EBITDA and EBITDA Margin. EBITDA is defined as Net income before Interest, Income taxes and Depreciation and amortization. EBITDA Margin is equal to EBITDA divided by Sales. The following tables may also present each of these measures as further adjusted. The Company believes these non-GAAP financial measures provide meaningful supplemental information as they are used by the Company’s management to evaluate the Company’s operating performance, enhance a reader’s understanding of the financial performance of the Company, and facilitate a better comparison among fiscal periods and performance relative to its competitors, as the non-GAAP measures exclude items that management believes do not reflect the Company’s ongoing operations.

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. GAAP. Non-GAAP financial measures should be read only in conjunction with the comparable U.S. GAAP financial measures. The Company's non-GAAP measures may not be comparable to other companies' non-GAAP measures.

The following is a reconciliation between the non-GAAP financial measures of EBITDA and EBITDA Margin to their most directly comparable U.S. GAAP financial measure:
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2020 2021 2020
Net income (loss) $ 43,942  $ (692) $ 116,204  $ 19,313 
Interest expense, net 1,174  1,981  4,096  5,827 
Income tax expense (benefit) 13,747  (980) 36,835  4,957 
Depreciation and amortization 16,325  15,497  49,058  45,061 
EBITDA (non-GAAP) 75,188  15,806  206,193  75,158 
Sales $ 446,495  $ 281,910  $ 1,260,561  $ 817,644 
EBITDA Margin* (non-GAAP) 16.8% 5.6% 16.4% 9.2%
*EBITDA Margin is defined as EBITDA divided by Sales

Liquidity and Capital Resources
(Dollars in thousands, unless otherwise noted)
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Liquidity

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 our 2020 Form 10-K. Our principal source of liquidity is our cash flow generated from operating activities, which is expected to provide us with the ability to meet the majority of our short-term funding requirements. Our cash flows are affected by capital requirements and production volume, which may be materially impacted by unanticipated events such as unplanned downtime, material disruptions at our production facilities as well as the prices of our raw materials and general economic and industry trends, as well as customer demand, which in the second quarter of 2020, was materially impacted by the circumstances surrounding COVID-19. The Company applies a proactive and disciplined approach to working capital management to optimize cash flow and to enable capital allocation options in support of the Company’s strategy. We utilize supply chain financing and trade receivables discount arrangements with third-party financial institutions which optimize terms and conditions related to accounts receivable and accounts payable in order to enhance liquidity and enable us to efficiently manage our working capital needs. Although we continue to optimize supply chain financing and trade receivable programs in the ordinary course, our utilization of these arrangements, both prior to and during the COVID-19 pandemic, has not had a material impact on our liquidity. In addition, we monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on the safety of principal and secondarily on maximizing yield on those funds. 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, dividends, liquidity, 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 and comply with HSE regulations. While the COVID-19 pandemic has created and continues to create significant 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 our 2020 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 2021, the Company had approximately $7.2 million of cash on hand with approximately $289 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. The Second Amendment to the credit facility also provided leverage ratio covenant flexibility through the maturity date of the credit facility. Capital expenditures are expected to be approximately $63 million in 2021 compared to $83 million in 2020, reflecting efficiencies in project execution and following the completion of several high-return growth and cost savings investments. See Note 14. “Subsequent Events,” for information regarding the Company’s Credit Agreement, entered into on October 27, 2021, which replaces and supersedes the Company’s existing credit facility.

As noted in Note 10. "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% is due by December 31, 2021 and the remainder is due by December 31, 2022.

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

We expect that our primary cash requirements for the remainder of 2021 will be to fund costs associated with ongoing operations, capital expenditures, and amounts related to other contractual obligations.

The Company made cash contributions to the defined benefit pension plan of $17.5 million during the nine months ended September 30, 2021 with $1.2 million in the first quarter of 2021, $3.6 million in the second quarter of 2021 and $12.7 million
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in the third quarter of 2021. The Company currently plans to make pension plan contributions during 2021 sufficient to satisfy funding requirements under the AdvanSix Retirement Earnings Plan in an aggregate amount of approximately $18 million to $23 million. We anticipate making additional contributions in future years sufficient to satisfy pension funding requirements in those periods.

On May 4, 2018, the Company announced that its Board of Directors (the “Board”) authorized a share repurchase program of up to $75 million of the Company’s common stock. On February 22, 2019, the Company announced that the Board authorized a share repurchase program of up to an additional $75 million of the Company’s common stock, which was in addition to the remaining capacity available under the May 2018 share repurchase program. Repurchases may be made from time to time on the open market, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act. The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The repurchase program has no expiration date and may be modified, suspended or discontinued at any time.

As of September 30, 2021, the Company had repurchased 3,614,202 shares of common stock, including 524,440 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $102.3 million at a weighted average market price of $28.31 per share. As of September 30, 2021, $59.6 million remained available for share repurchases under the current authorization. During the third quarter of 2021 and the period from October 1, 2021 through October 22, 2021, no additional shares were repurchased under the currently authorized repurchase program.

Dividend

As announced on September 28, 2021, the Board declared a quarterly cash dividend of $0.125 per share on the Company's common stock, payable on November 23, 2021 to stockholders of record as of the close of business on November 9, 2021.

The timing, declaration, amount and payment of future dividends to stockholders, if any, will fall 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.

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. 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 had a five year term with a scheduled maturity date of February 21, 2023.

The Second Amended and Restated Credit Agreement required the Company to maintain a Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement) of (i) 3.50 to 1.00 or less for the fiscal quarter ending March 31, 2020, (ii) 4.50 to 1.00 or less for the fiscal quarter ending June 30, 2020, (iii) 4.25 to 1.00 or less for the fiscal quarter ending September 30, 2020, (iv) 3.50 to 1.00 or less for the fiscal quarter ending December 31, 2020, (v) 3.25 to 1.00 or less for the fiscal quarter ending March 31, 2021 through and including the fiscal quarter ending December 31, 2021, and (vi) 3.00 to 1.00 or less for the fiscal quarter ending March 31, 2022 and each fiscal quarter thereafter (subject to the Company’s option to elect a Consolidated Leverage Ratio increase in connection with certain acquisitions). The Consolidated Interest Coverage Ratio financial covenant required the Company to maintain a Consolidated Interest Coverage Ratio (as defined in the Second Amended and Restated Credit Agreement) of not less than 3.00 to 1.00. If the Company did not comply with the covenants in the Second Amended and Restated Credit Agreement, the lenders could, subject to customary cure rights, require the immediate payment of all amounts outstanding under the Revolving Credit Facility. The Company was in compliance with all related covenants at September 30, 2021.

Borrowings under the Second Amended and Restated Credit Agreement bore interest at a rate equal to either the sum of a base rate plus a margin ranging from 0.50% to 2.00% or the sum of a Eurodollar rate plus a margin ranging from 1.50% to 3.00%, with either such margin varying according to the Company’s Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement). The Company was also required to pay a commitment fee in respect of unused commitments
27

under the credit facility, if any, at a rate ranging from 0.20% to 0.50% per annum depending on the Company’s Consolidated Leverage Ratio.

In addition, the Second Amendment also amended certain administrative provisions associated with the LIBOR Successor Rate (as defined in the Second Amended and Restated Credit Agreement).

The obligations under the Second Amended and Restated Credit Agreement were secured by a pledge of assets and liens on substantially all of the assets of AdvanSix.

The Second Amended and Restated Credit Agreement contained customary covenants limiting the ability of the Company and its subsidiaries to, among other things, pay cash dividends, incur debt or liens, redeem or repurchase stock of the Company, enter into transactions with affiliates, make investments, make capital expenditures, merge or consolidate with others or dispose of assets, as well as financial covenants that require the Company to maintain interest coverage and leverage ratios at levels specified in the Second Amended and Restated Credit Agreement. These covenants placed limits on how we conduct our business, and in the event of certain defaults, our repayment obligations could be accelerated. We were in compliance with all of our covenants at September 30, 2021 and through the date of the filing of this Quarterly Report on Form 10-Q.

On October 27, 2021, the Company completed a refinancing of its existing senior secured revolving credit facility under the Second Amended and Restated Credit Agreement, by entering into a new Credit Agreement (the “Credit Agreement”), among the Company, the lenders party thereto, the swing line lenders party thereto, the letter of credit issuers party thereto and Truist Bank, as administrative agent, which provides for a new senior secured revolving credit facility in an aggregate principal amount of $500 million (the “Revolving Credit Facility”). For a discussion of the Credit Agreement and Revolving Credit Facility, please refer to Note 14. "Subsequent Events".

The situation surrounding COVID-19 remains fluid and unpredictable, and the potential for a material impact on the Company increases the longer the social and economic restrictions remain in place or are reinstituted, which impacts the overall level of consumer and business activity in the United States and globally. For this reason, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity. For further information regarding risk and the impact COVID-19 could have on our business, financial condition, results of operations and liquidity, including our ability to comply with financial covenants in our credit facility and our access to, and cost of, capital, see "Risk Factors" in Item 1A of Part I of the 2020 Form 10-K.

As of September 30, 2021, $289 million was available for use out of the total of $425 million under the Revolving Credit Facility.

As of December 31, 2020, we had a balance of $275 million under the Revolving Credit Facility. During the nine months ended September 30, 2021, we repaid an incremental net amount of $140 million to bring the balance under the Revolving Credit Facility to $135 million as of September 30, 2021. 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,
2021 2020
Cash provided by (used for):
Operating activities $ 185,523  $ 64,086 
Investing activities (47,969) (68,461)
Financing activities (140,921) 14,011 
Net change in cash and cash equivalents $ (3,367) $ 9,636 

Cash provided by operating activities increased by $121.4 million for the nine months ended September 30, 2021 versus the prior year period due primarily to a $96.9 million increase in net income, a $23.7 million cash improvement from Taxes receivable (including a $12.3 million cash tax refund received in the first quarter of 2021) and a $13.3 million favorable cash impact from working capital (comprised of Accounts and other receivables, Inventories, Accounts payable and Deferred income and customer advances) year-over-year with a $4.9 million unfavorable cash impact from working capital for the nine months ended September 30, 2021 compared to a $18.2 million unfavorable cash impact in the prior year period. These net favorable
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impacts for the nine months ended September 30, 2021 were partially offset by a $20.3 million unfavorable cash impact from Other assets and liabilities driven by a $2.7 million increase in prepaid insurance and a decrease in the pension liability of $16.4 million (primarily reflecting the impact of cash pension contributions), compared to the prior year period.

Cash used for investing activities decreased by $20.5 million for the nine months ended September 30, 2021 versus the prior year period due to lower cash payments for capital expenditures of approximately $30.1 million reflecting capital project efficiencies and timing of project execution offset by cash paid for the acquisition of Commonwealth Industrial Services for approximately $9.5 million.

Cash used for financing activities increased by $154.9 million for the nine months ended September 30, 2021 versus the prior year period due primarily to net repayments of $140.0 million for the nine months ended September 30, 2021 compared to net borrowings of $16.0 million during the prior year period as described above.

Capital Expenditures
(Dollars in thousands, unless otherwise noted)
 
Our operations are capital intensive, requiring ongoing investments that have consisted, and are expected to continue to consist, primarily of capital expenditures required to maintain and improve equipment reliability, expand production output, further improve mix, yield and cost position, and comply with environmental and safety regulations.

The following table summarizes ongoing and expansion capital expenditures:
Nine Months Ended
September 30, 2021
Capital expenditures in Accounts payable at December 31, 2020
 $ 6,178 
Purchases of property, plant and equipment 38,076 
Less: Capital expenditures in Accounts payable at September 30, 2021
 (6,783)
Cash paid for capital expenditures $ 37,471 

For 2021, we expect our total capital expenditures to be approximately $63 million compared to $83 million in 2020, reflecting process and execution efficiencies, as well as timing and scope of replacement maintenance and high-return 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.

Critical Accounting Policies
 
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. We consider these accounting policies to be critical to the understanding of our Condensed Consolidated Financial Statements. For a full description of our critical accounting policies, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2020 Form 10-K. While there have been no material changes to our critical accounting policies, or the methodologies or assumptions we apply under them, we continue to monitor such methodologies and assumptions.

Off-Balance Sheet Arrangements and Contractual Obligations
 
As of September 30, 2021, 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 2020 Form 10-K. The Company has not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Recent Accounting Pronouncements
 
See “Note 2. Recent Accounting Pronouncements” to the Condensed Consolidated Financial Statements included in Part I. Item 1 of this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
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Interest Rate Risk
 
Our exposure to risk based on changes in interest rates during the nine month period ended September 30, 2021 relates primarily to our Second Amended and Restated Credit Agreement. The Second Amended and Restated Credit Agreement bore interest at floating rates. The Credit Agreement, effective October 27, 2021, which replaces and supersedes the Second Amended and Restated Credit Agreement, also bears interest at floating rates (see Note 14. “Subsequent Events” for additional information). For variable rate debt, interest rate changes generally do not affect the fair market value of such debt assuming all other factors remain constant but do impact future earnings and cash flows. Accordingly, we may be exposed to interest rate risk on borrowings under the Credit Agreement.

The Company has entered into two interest rate swap agreements for a total notional amount of $100 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings.

These interest rate swaps had a fair value of zero at inception and were effective November 30, 2018 and July 31, 2019 with respective maturity dates of November 30, 2021 and February 21, 2023. These interest rate swaps have been designated as cash flow hedges and convert the Company’s interest rate payments on the first $100 million of variable-rate, 1-month LIBOR-based debt to a fixed interest rate. As a result of these interest rate swaps, interest payments on approximately 74% of our total borrowings, as of September 30, 2021, have been swapped from floating rate to fixed rate for the life of the swaps, without an exchange of the underlying principal amount.

A hedge effectiveness assessment was completed by comparing the critical terms of the hedged items with the hedging instruments, and also by reviewing the credit standing of the counterparties. As of September 30, 2021, it was determined that the critical terms continued to exactly match, and that the counterparties still had the ability to honor their obligations. As a result, the hedges continue to be deemed effective.

Based on current borrowing levels at September 30, 2021, net of the interest rate swap, a 25-basis point fluctuation in interest rates for the nine months ended September 30, 2021 would have resulted in an increase or decrease to our interest expense of approximately $0.1 million.

See “Note 12. Derivative and Hedging Instruments” to the Condensed Consolidated Financial Statements, included in Part I. Item 1 of this Form 10-Q, for a discussion relating to credit and market, commodity price and interest rate risk.

ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
The Company maintains disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
 
Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud have been, or will be, detected.
 
Our Chief Executive Officer and Chief Financial Officer, with the assistance of other members of our management, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at a reasonable assurance level as of September 30, 2021, the end of the period covered by this quarterly report.
 
Changes in Internal Control over Financial Reporting

Management has not identified any change in the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. The Company has not experienced any material impact to the Company’s internal
30

control over financial reporting due to the fact that certain of the Company’s employees responsible for financial reporting are working remotely during the COVID-19 pandemic. The Company continually monitors and assesses the potential impact of the COVID-19 pandemic on the Company’s internal control over financial reporting to mitigate any impact to design and operating effectiveness.

PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in litigation relating to claims arising outside of the ordinary course of our business operations. We are not a party to, and, to our knowledge, there are no pending claims or actions against us, the ultimate disposition of which could be expected to have a material adverse effect on our consolidated financial position, results of operations or operating cash flows.

ITEM 1A. RISK FACTORS

There have been no material changes to our risk factors as previously disclosed in Item 1A of Part I of the Company’s 2020 Form 10-K, which are hereby incorporated by reference.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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 authorization was in addition to the remaining capacity authorized 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 size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The share repurchase program has no expiration date and may be modified, suspended or discontinued at any time.

The below table sets forth the repurchases of Company common stock, by month, for the quarter ended September 30, 2021. During the quarter ended September 30, 2021, no shares were purchased under our share repurchase program or as a result of tax withholding obligations in connection with the vesting of equity awards.

ISSUER PURCHASES OF EQUITY SECURITIES
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
July 2021 —  $ —  —  $ 59,581,679 
August 2021 —  —  —  59,581,679 
September 2021 —  —  —  59,581,679 
Total —  $ —  — 

During the period October 1, 2021 through October 22, 2021, no shares were repurchased under the currently authorized repurchase program.
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ITEM 6. EXHIBITS

Exhibit
Description
3.1
3.2
10.1
31.1
31.2
32.1
32.2
101.INS
 Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH
 Inline XBRL Taxonomy Extension Schema Document
101.CAL
 Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101)
†    Indicates management contract or compensatory plan.
32

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
ADVANSIX INC.
Date: October 29, 2021
By:
/s/ Michael Preston
Michael Preston
Senior Vice President and Chief Financial Officer

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