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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, 2023
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareASIXNew 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 ý
Accelerated filer o
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 26,953,680 shares of common stock, $0.01 par value, outstanding at October 27, 2023.


ADVANSIX INC.
FORM 10-Q
 
TABLE OF CONTENTS


 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (unaudited)
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2023 and 2022 (unaudited)




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,
2023202220232022
Sales$322,907 $478,769 $1,151,391 $1,541,578 
Costs, expenses and other:
Costs of goods sold314,785 443,646 1,004,844 1,296,128 
Selling, general and administrative expenses21,585 23,069 70,711 65,120 
Interest expense, net2,075 686 5,296 2,017 
Other non-operating (income) expense, net(5,485)(1,394)(6,918)(1,825)
Total costs, expenses and other332,960 466,007 1,073,933 1,361,440 
Income (loss) before taxes(10,053)12,762 77,458 180,138 
Income tax expense (benefit)(2,076)2,730 17,753 41,876 
Net income (loss)$(7,977)$10,032 $59,705 $138,262 
Earnings per common share
Basic$(0.29)$0.36 $2.18 $4.92 
Diluted$(0.29)$0.35 $2.12 $4.74 
Weighted average common shares outstanding
Basic27,209,521 27,944,494 27,433,851 28,103,255 
Diluted27,209,521 28,889,658 28,193,721 29,173,537 
 

See accompanying notes to Condensed Consolidated Financial Statements.
3

ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands)

 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Net income (loss)$(7,977)$10,032 $59,705 $138,262 
Foreign exchange translation adjustment197 (32)39 (10)
Cash-flow hedges 57 (150)864 
Other comprehensive income (loss), net of tax197 25 (111)854 
Comprehensive income (loss)$(7,780)$10,057 $59,594 $139,116 

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,
2023
December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents$22,110 $30,985 
Accounts and other receivables – net144,673 175,429 
Inventories – net229,199 215,502 
Taxes receivable1,498 9,771 
Other current assets16,251 9,241 
Total current assets413,731 440,928 
Property, plant and equipment – net830,399 811,065 
Operating lease right-of-use assets102,267 114,688 
Goodwill56,192 56,192 
Intangible assets46,955 49,242 
Other assets26,910 23,216 
Total assets$1,476,454 $1,495,331 
LIABILITIES
Current liabilities:
Accounts payable$230,547 $272,770 
Accrued liabilities41,302 48,820 
Operating lease liabilities – short-term33,690 37,472 
Deferred income and customer advances2,415 34,430 
Total current liabilities307,954 393,492 
Deferred income taxes161,431 160,409 
Operating lease liabilities – long-term68,875 77,571 
Line of credit – long-term170,000 115,000 
Postretirement benefit obligations3,419  
Other liabilities10,290 10,679 
Total liabilities721,969 757,151 
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; 200,000,000 shares authorized; 32,597,015 shares issued and 27,055,067 outstanding at September 30, 2023; 31,977,593 shares issued and 27,446,520 outstanding at December 31, 2022
326 320 
Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at September 30, 2023 and December 31, 2022
  
Treasury stock at par (5,541,948 shares at September 30, 2023; 4,531,073 shares at December 31, 2022)
(55)(45)
Additional paid-in capital143,965 174,585 
Retained earnings614,557 567,517 
Accumulated other comprehensive loss(4,308)(4,197)
Total stockholders' equity754,485 738,180 
Total liabilities and stockholders' equity$1,476,454 $1,495,331 
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,
20232022
Cash flows from operating activities:
Net income$59,705 $138,262 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 54,337 51,870 
Loss on disposal of assets 939 1,303 
Deferred income taxes 1,069 8,696 
Stock-based compensation5,840 7,599 
Amortization of deferred financing fees464 464 
Operational asset adjustments(4,472) 
Changes in assets and liabilities, net of business acquisitions:
Accounts and other receivables 42,185 7,346 
Inventories (14,082)27 
Taxes receivable8,273 (13,983)
Accounts payable (47,987)33,769 
Accrued liabilities (7,787)(7,666)
Deferred income and customer advances (32,015)(188)
Other assets and liabilities (9,088)(23,512)
Net cash provided by operating activities 57,381 203,987 
Cash flows from investing activities:
Expenditures for property, plant and equipment (69,025)(61,010)
Acquisition of businesses (97,456)
Other investing activities(2,404)(1,587)
Net cash used for investing activities (71,429)(160,053)
Cash flows from financing activities:
Borrowings from line of credit371,000 354,000 
Payments of line of credit(316,000)(354,000)
Principal payments of finance leases(698)(712)
Dividend payments(12,354)(11,083)
Purchase of treasury stock(37,651)(23,591)
Issuance of common stock876 1,046 
Net cash (used for) provided by financing activities 5,173 (34,340)
Net change in cash and cash equivalents (8,875)9,594 
Cash and cash equivalents at beginning of period30,985 15,100 
Cash and cash equivalents at the end of period$22,110 $24,694 
Supplemental non-cash investing activities:
Capital expenditures included in accounts payable $21,188 $19,182 
Supplemental cash activities:
Cash paid for interest$4,998 $1,580 
Cash paid for income taxes$7,037 $55,840 

See accompanying notes to Condensed Consolidated Financial Statements.
6

ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)


Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Total Equity
SharesAmount
Balance at December 31, 202231,977,593 $320 $174,585 $567,517 $(45)$(4,197)$738,180 
Net Income— — — 34,954 — — 34,954 
Comprehensive income
Foreign exchange translation adjustments— — — — — (33)(33)
Cash-flow hedges— — — — — (150)(150)
Other comprehensive income (loss), net of tax— — — — — (183)(183)
Issuance of common stock555,249 5 617 — — — 622 
Purchase of treasury stock (333,054 shares)
— — (13,496)— (3)— (13,499)
Stock-based compensation— — 2,013 — — — 2,013 
Dividends— — 112 (4,132)— — (4,020)
Balance at March 31, 202332,532,842 325 163,831 598,339 (48)(4,380)758,067 
Net Income— — — 32,728 — — 32,728 
Comprehensive income
Foreign exchange translation adjustments— — — — — (125)(125)
Cash-flow hedges— — — — — —  
Other comprehensive income (loss), net of tax— — — — — (125)(125)
Issuance of common stock45,020 1 122 — — — 123 
Purchase of treasury stock (410,862 shares)
— — (14,881)— (5)— (14,886)
Stock-based compensation— — 2,436 — — — 2,436 
Dividends— — 198 (4,182)— — (3,984)
Balance at June 30, 202332,577,862 326 151,706 626,885 (53)(4,505)774,359 
Net Income (loss)— — — (7,977)— — (7,977)
Comprehensive income— 
Foreign exchange translation adjustments— — — — — 197 197 
Cash-flow hedges— — — — — —  
Other comprehensive income (loss), net of tax— — — — — 197 197 
Issuance of common stock19,153 — 131 — — — 131 
Purchase of treasury stock (266,959 shares)
— — (9,264)— (2)— (9,266)
Stock-based compensation— — 1,391 — — — 1,391 
Dividends— — 1 (4,351)— — (4,350)
Balance at September 30, 202332,597,015 $326 $143,965 $614,557 $(55)$(4,308)$754,485 

7

ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Total Equity
SharesAmount
Balance at December 31, 202131,755,430 $318 $195,931 $411,516 $(36)$(6,539)$601,190 
Net Income— — — 63,073 — — 63,073 
Comprehensive income
Foreign exchange translation adjustments— — — — — 57 57 
Cash-flow hedges— — — — — 512 512 
Other comprehensive income (loss), net of tax— — — — — 569 569 
Issuance of common stock144,875 1 713 — — — 714 
Purchase of treasury stock (181,536 shares)
— — (7,010)— (2)— (7,012)
Stock-based compensation— — 3,374 — — — 3,374 
Dividends— — 313 (3,830)— — (3,517)
Balance at March 31, 202231,900,305 319 193,321 470,759 (38)(5,970)658,391 
Net Income— — — 65,157 — — 65,157 
Comprehensive income
Foreign exchange translation adjustments— — — — — (35)(35)
Cash-flow hedges— — — — — 295 295 
Other comprehensive income (loss), net of tax— — — — — 260 260 
Issuance of common stock61,651 1 317 — — — 318 
Purchase of treasury stock (87,251 shares)
— — (3,406)— (1)— (3,407)
Stock-based compensation— — 2,005 — — — 2,005 
Dividends— — 155 (3,670)— — (3,515)
Balance at June 30, 202231,961,956 320 192,392 532,246 (39)(5,710)719,209 
Net Income— — — 10,032 — — 10,032 
Comprehensive income
Foreign exchange translation adjustments— — — — — (32)(32)
Cash-flow hedges— — — — — 57 57 
Pension obligation adjustments— — — — — —  
Other comprehensive income (loss), net of tax— — — — — 25 25 
Issuance of common stock510 — 14 — — — 14 
Purchase of treasury stock (362,609 shares)
— — (13,169)— (3)— (13,172)
Stock-based compensation— — 2,220 — — — 2,220 
Dividends— — 171 (4,222)— — (4,051)
Balance at September 30, 202231,962,466 $320 $181,628 $538,056 $(42)$(5,685)$714,277 





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") is a diversified chemistry company playing a critical role in global supply chains, innovating and delivering essential products for our customers in a wide variety of end markets and applications that touch people’s lives, such as building and construction, fertilizers, agrochemicals, plastics, solvents, packaging, paints, coatings, adhesives and electronics. Our reliable and sustainable supply of quality products emerges from the integrated value chain of our five U.S.-based manufacturing facilities. AdvanSix strives to deliver best-in-class customer experiences and differentiated products in the industries of nylon solutions, chemical intermediates and plant nutrients, guided by our core values of Safety, Integrity, Accountability and Respect.

Basis of Presentation

The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of September 30, 2023, and its results of operations for the three and nine months ended September 30, 2023 and 2022 and cash flows for the nine months ended September 30, 2023 and 2022. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Form 10-K"). All intercompany transactions have been eliminated.
 
Certain prior period amounts have been reclassified for consistency with the current period presentation.

It is our practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires our businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on our business processes. Historically, the effects of this practice have generally not been significant to reported results for any quarter and only existed within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, we will provide the appropriate disclosures. Our actual closing dates for the three and nine months ended September 30, 2023 and 2022 were September 30, 2023 and October 1, 2022, respectively.

Liabilities to creditors to whom we have issued checks that remained outstanding at September 30, 2023 and December 31, 2022 aggregated to $5.0 million and $9.0 million, respectively, and were included in Cash and cash equivalents and Accounts payable in the Condensed Consolidated Balance Sheets.

The Company was party to three transactions during the third quarter of 2023: (i) exit from its alliance with Oben Holding Group S.A. resulting in a pre-tax gain of approximately $11.4 million, (ii) notification from a licensee of certain legacy ammonium sulfate technology assets operated at the licensee’s fertilizer manufacturing facility, that it intends to close its facility no later than August 2024, resulting in a non-cash, pre-tax charge of approximately $4.5 million and (iii) a strategic decision to exit production of certain low-margin oximes products resulting in a non-cash, pre-tax charge of approximately $2.4 million. Each of these transactions, totaling a net pre-tax gain of approximately $4.5 million, was recorded during the third quarter of 2023 and included as a component of Other non-operating (income) expense, net on the Condensed Consolidated Statements of Operations and a non-cash transaction on the Condensed Consolidated Statements of Cash Flows.

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

9

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



Date of Authorization
Authorized Amount
 (millions)
Authorized Amount Remaining as of September 30, 2023
(millions)
May 4, 2018$75.0 $ 
February 22, 201975.0 1.6 
February 17, 202375.0 75.0 
     Totals$225.0 $76.6 

Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act. The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The 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, 2023, the Company has repurchased a total of 5,541,948 shares of common stock, including 854,340 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $173.6 million at a weighted average market price of $31.33 per share. As of September 30, 2023, $76.6 million remained available for share repurchases under the current authorization. During the period October 1, 2023 through October 27, 2023, the Company repurchased an additional 101,387 shares at a weighted average market price of $29.07 per share primarily under the current authorized repurchase program.

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

In September 2022, the FASB issued ASU No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The amendments in this ASU require that a buyer in a supplier finance program disclose sufficient quantitative and qualitative information about its supplier finance programs to allow a user of the financial statements to understand the program’s nature, activity during the period, changes from period to period and potential magnitude. On a retrospective basis, for each annual reporting period, an entity should disclose the key terms of the program, including a description of the payment terms, assets pledged as security or other forms of guarantees, the confirmed amount outstanding that remains unpaid, a description of where the obligations are presented in the balance sheet and a roll-forward of those obligations confirmed as well as the amount of obligations subsequently paid. In each interim reporting period, an entity should disclose the amount of confirmed obligations outstanding. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption of the amendments in this update is permitted. The Company adopted ASU 2022-04, effective January 1, 2023, which did not have a material impact on the Company's consolidated financial position or results of operations upon adoption.

3. Revenues

Revenue Recognition

We serve approximately 400 customers annually in approximately 40 countries across a wide variety of industries. For the three months ended September 30, 2023 and 2022, the Company's ten largest customers accounted for approximately 41% and 43% of total sales, respectively. For the nine months ended September 30, 2023 and 2022, the Company's ten largest customers accounted for approximately 39% and 39% 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
10

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



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, 2023 and 2022, the Company's sales to Shaw were 12% and 16% of our total sales, respectively. For the nine months ended September 30, 2023 and 2022, the Company's sales to Shaw were 11% and 12% of our total sales, respectively.

The Company's revenue by product line, and related approximate percentage of total sales, for the three and nine months ended September 30, 2023 and 2022 were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Nylon$86,056 27%$141,017 29%$278,381 24%$391,731 25%
Caprolactam68,794 21%90,818 19%215,867 19%247,992 16%
Chemical Intermediates83,460 26%115,268 24%298,333 26%409,568 27%
Ammonium Sulfate84,597 26%131,666 28%358,810 31%492,287 32%
Total$322,907 100%$478,769 100%$1,151,391 100%$1,541,578 100%
The Company's revenues by geographic area, and related approximate percentage of total sales, for the three and nine months ended September 30, 2023 and 2022 were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
United States$264,858 82%$393,447 82%$953,392 83 %$1,290,621 84 %
International58,049 18%85,322 18%197,999 17 %250,957 16 %
Total$322,907 100%$478,769 100%$1,151,391 100 %$1,541,578 100 %
Deferred Income and Customer Advances
The Company defers revenues when cash payments are received in advance of our performance. Below is a roll-forward of Deferred income and customer advances for the nine months ended September 30, 2023:
Opening balance January 1, 2023$34,430 
Additional cash advances7,307 
Less amounts recognized in revenues(39,322)
Ending balance September 30, 2023$2,415 
The Company expects to recognize as revenue the September 30, 2023 ending balance of Deferred income and customer advances within one year or less.

4. Earnings Per Share
 
The computation of basic and diluted earnings per share ("EPS") is based on Net income (loss) divided by the basic weighted average number of common shares outstanding and diluted weighted average number of common shares outstanding, respectively. The details of the basic and diluted EPS calculations for the three and nine months ended September 30, 2023 and 2022 were as follows:
11

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,
2023202220232022
Basic
Net income (loss)$(7,977)$10,032 $59,705 $138,262 
Weighted average common shares outstanding27,209,521 27,944,494 27,433,851 28,103,255 
EPS – Basic$(0.29)$0.36 $2.18 $4.92 
Diluted
Dilutive effect of equity awards and other stock-based holdings 945,164 759,870 1,070,282 
Weighted average common shares outstanding27,209,521 28,889,658 28,193,721 29,173,537 
EPS – Diluted$(0.29)$0.35 $2.12 $4.74 

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, 2023 and 2022 were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Options and stock equivalents 498,652 227,144 447,950 156,418 

Dividend activity for the three and nine months ended September 30, 2023 and 2022 was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Cash dividends declared per share$0.16 $0.145 $0.465 $0.395 
Aggregate dividends paid to shareholders$4,349 $4,051 $12,354 $11,083 

5. Accounts and Other Receivables Net
September 30,
2023
December 31,
2022
Accounts receivables$134,664 $171,923 
Other10,987 4,100 
Total accounts and other receivables145,651 176,023 
Less – allowance for doubtful accounts(978)(594)
Total accounts and other receivables – net$144,673 $175,429 

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,
2023
December 31,
2022
Raw materials$133,103 $126,060 
Work in progress64,368 64,669 
Finished goods97,310 60,711 
Spares and other30,730 28,892 
325,511 280,332 
Reduction to LIFO cost basis(96,312)(64,830)
Total inventories$229,199 $215,502 

Substantially all of the Company’s inventories at September 30, 2023 and December 31, 2022 are valued at the lower of cost or market using the last-in, first-out (“LIFO”) method. However, approximately 9% was valued at average cost using the first-in, first-out (“FIFO”) method at September 30, 2023.

The excess of replacement cost over the carrying value of total inventories subject to LIFO was $61.4 million and $58.2 million at September 30, 2023 and December 31, 2022, respectively.

7. Leases

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

The components of lease expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Finance lease cost:
Amortization of right-of-use asset$237 $229 $675 $703 
Interest on lease liabilities28 15 69 37 
Total finance lease cost265 244 744 740 
Operating lease cost12,032 11,711 34,873 32,321 
Short-term lease cost1,572 1,541 4,109 4,091 
Total lease cost$13,869 $13,496 $39,726 $37,152 

As of September 30, 2023, we have additional operating leases that have not yet commenced for approximately $1.4 million. These leases will commence during December 2023 and January 2024 with lease terms of up to 7 years.

8. Goodwill and Intangible Assets

Intangible assets with finite lives acquired through a business combination are recorded at fair value, less accumulated amortization. Customer relationships and trade-names are amortized on a straight-line basis over their expected useful lives of 15 to 20 years and 5 years, respectively.

Goodwill

There was no change in the carrying amount of goodwill for the nine months ended September 30, 2023.

Finite-Lived Intangible Assets

Intangible assets subject to amortization 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)



September 30, 2023December 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Book ValueGross Carrying AmountAccumulated AmortizationNet Book Value
Customer relationships$36,820 $(3,283)$33,537 $36,820 $(1,854)$34,966 
Licenses18,451 (5,766)12,685 18,451 (5,074)13,377 
Trade names1,100 (367)733 1,100 (201)899 
Total$56,371 $(9,416)$46,955 $56,371 $(7,129)$49,242 

For each of the three months ended September 30, 2023 and September 30, 2022, the Company recorded amortization expense on intangible assets of $0.8 million. For the nine months ended September 30, 2023 and September 30, 2022, the Company recorded amortization expense on intangible assets of $2.3 million and $2.0 million, respectively.

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

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

10. Income Taxes

The (benefit) provision for income taxes was ($2.1 million) and $2.7 million for the three months ended September 30, 2023 and 2022, respectively, resulting in an effective tax rate of 20.7% and 21.4%, respectively. The provision for income taxes was $17.8 million and $41.9 million for the nine months ended September 30, 2023 and 2022, respectively, resulting in an effective tax rate of 22.9% and 23.2%, respectively.

The Company’s provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against Income before taxes for the period in addition to recording any tax effects of discrete items for the quarter. The Company’s effective tax rate for the three and nine months ended September 30, 2023 and 2022 differed from the U.S. federal statutory rate, due to the impacts of state taxes and executive compensation deduction limitations, offset by tax credits and the foreign-derived intangible income deduction. Additionally for 2023, discrete tax adjustments relating to the vesting of equity compensation, changes in state tax legislation and return to provision adjustments related to the filing of the Company's 2022 U.S. federal income tax return resulted in a net 4.4% increase to the quarterly effective tax rate and a net 1.6% decrease to the year-to-date effective tax rate.

14

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



On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law. This legislation includes significant changes relating to tax, climate change, energy and health care. Among other provisions, the IRA introduces a corporate alternative minimum tax (CAMT) on adjusted financial statement income of certain large corporations and a 1% excise tax on share repurchases. The Company is not currently subject to the CAMT which became effective for tax years beginning after December 31, 2022. The 1% excise tax is generally applicable to publicly traded corporations for the net value of certain stock that the corporation repurchases during the year and is also effective for tax years beginning after December 31, 2022. The impact of any excise tax imposed on the Company for share repurchases is generally accounted for as an equity transaction with no consequences to the Company's results in operations, and this provision of the law is not expected to have a material impact on the Company's financial condition. The IRA also includes significant extensions, expansions and enhancements related to climate and energy tax credits designed to encourage investment in the adoption and expansion of renewable and alternative energy sources. The Company continues to evaluate these energy credit provisions of the law in relation to our sustainability and environmental, social and governance initiatives.

11. Fair Value Measurements

Financial and non-financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. In July 2019, the Company entered into an interest rate swap transaction related to its credit agreement. The interest rate swap, considered a Level 2 liability, expired February 21, 2023.

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

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

The Company also has assets that are required to be recorded at fair value on a non-recurring basis. These assets are evaluated when certain triggering events occur (including a decrease in estimated future cash flows) that indicate the asset should be evaluated for impairment which could result in such assets being measured at fair value. Goodwill must be evaluated at least annually. Our annual evaluation occurred on March 31, 2023 and we concluded that an impairment for goodwill did 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 any hedging instrument and interest rate swap agreement, used to manage the Company’s interest rate risk associated with a fixed and floating-rate borrowing.

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

Credit and Market Risk – Financial instruments, including derivatives, expose the Company to counterparty credit risk for non-performance and to market risk related to changes in commodity prices, interest rates and foreign currency exchange rates. The Company manages its exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. The Company’s counterparties in derivative transactions are substantial investment and commercial banks with significant experience using such derivative instruments. The Company monitors the impact of market risk on the fair value and cash flows of its derivative and other financial instruments considering reasonably possible changes in commodity prices, interest rates and foreign currency exchange rates and restricts the use of derivative financial instruments to hedging activities.

The Company continually monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. The Company did not have any customers with significant concentrations of trade accounts receivable – net at September 30, 2023 or December 31, 2022. Allowance for doubtful accounts is calculated based upon the Company's estimate of expected credit losses over the life of exposure based upon both historical information as well as future expected losses.

15

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



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, 2023 and 2022, we had no financial contracts related to forward commodity agreements.

Interest Rate Risk Management – The Company had entered into one interest rate swap agreement for a total notional amount of $50 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings. The interest rate swap had a fair value of zero at inception and was effective July 31, 2019 and matured on February 21, 2023. In accordance with ASC 815, the Company designated the interest rate swap as a cash flow hedge of floating-rate borrowings. The interest rate swap converted the Company’s interest rate payments on the first $50 million of variable-rate, 1-month LIBOR-based debt to a fixed interest rate. The interest rate swap involved the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the interest rate swap without an exchange of the underlying principal amount.

Asset (Liability) Derivatives
September 30, 2023December 31, 2022
Balance Sheet ClassificationFair ValueBalance Sheet ClassificationFair Value
Derivatives designated as hedging instruments under ASC 815:
Interest Rate ContractsAccounts and other receivables, net$ Accounts and other receivables, net$197 
Total Derivatives$ $197 

The following table summarizes adjustments related to cash flow hedge included in Cash-flow hedges, in the Condensed Consolidated Statements of Comprehensive Income:

September 30,
2023
Gain on derivative instruments included in Accumulated other comprehensive loss at December 31, 2022$197 
Fair value adjustment(197)
Gain (Loss) on derivative instruments included in Accumulated other comprehensive loss at September 30, 2023$ 

At September 30, 2023, the Company expects no reclassifications of net gains or losses on derivative instruments from Accumulated other comprehensive income ("AOCI") to earnings during the next 12 months as the interest rate swap agreement matured on February 21, 2023. The following table summarizes the reclassification of net (gains) losses on derivative instruments from AOCI into earnings:
Amount of (Gain) Loss Recognized in Earnings
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Derivatives:
Interest Rate Contracts$ $(256)$ $(375)
Total Derivatives$ $(256)$ $(375)

13. Acquisitions

16

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



In February 2022, the Company acquired the stock of U.S. Amines, a leading North American producer of alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals for a purchase price of approximately $97.5 million, net of cash acquired.

In January 2021, the Company acquired certain assets associated with ammonium sulfate packaging, warehousing and logistics services in Virginia from Commonwealth Industrial Services, Inc. ("CIS") for approximately $9.5 million.

14. Supplier Finance Programs

The Company has entered into a supply chain finance program with a financial intermediary providing participating suppliers the option to be paid by the intermediary earlier than the original invoice due date. AdvanSix’s responsibility is limited to making payments to the intermediary based upon payment terms negotiated with the suppliers, regardless of whether the intermediary pays the supplier in advance of the original due date. The Company’s payment terms with suppliers are consistent, regardless of whether a vendor participates in the supply chain finance program or not. All related agreements are terminable by either party upon at least 30 days’ notice.

The total amount due to the financial intermediaries to settle supplier invoices under the supplier finance programs was approximately $17 million as of September 30, 2023 and December 31, 2022. These amounts outstanding are included in Accounts payable.

15. Subsequent Events

As announced on November 3, 2023, the Board declared a quarterly cash dividend of $0.160 per share on the Company's common stock, payable on November 28, 2023 to stockholders of record as of the close of business on November 14, 2023.
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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 Quarterly Report on Form 10-Q (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, 2022 filed with the Securities and Exchange Commission (“SEC”) on February 17, 2023 (the “2022 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; the potential effects of inflationary pressures, labor market shortages and supply chain issues; instability or volatility in financial markets or other unfavorable economic or business conditions caused by geopolitical concerns, including as a result of the conflict between Russia and Ukraine, the conflict in Israel and Gaza and the possible expansion of such conflicts; the effect of the foregoing 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; 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, data privacy incidents 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 or otherwise; the impact of scheduled turnarounds and significant unplanned downtime and interruptions of production or logistics operations as a result of mechanical issues or other unanticipated events such as fires, severe weather conditions, natural disasters, pandemics, geopolitical conflicts and related events; price fluctuations, cost increases and supply of raw materials; 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; 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 2022 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.

Business Overview
AdvanSix is a diversified chemistry company playing a critical role in global supply chains, innovating and delivering essential products for our customers in a wide variety of end markets and applications that touch people’s lives, such as building and
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construction, fertilizers, agrochemicals, plastics, solvents, packaging, paints, coatings, adhesives and electronics. Our reliable and sustainable supply of quality products emerges from the integrated value chain of our five U.S.-based manufacturing facilities. AdvanSix strives to deliver best-in-class customer experiences and differentiated products in the industries of nylon solutions, chemical intermediates and plant nutrients, guided by our core values of Safety, Integrity, Accountability and Respect. 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, VA manufacturing facility is one of the world’s largest single-site producers of caprolactam as of September 30, 2023.

Chemical Intermediates – We manufacture, market and sell a number of other chemical intermediate products that are derived from the manufacturing processes within our integrated supply chain. 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, 2-pentanone oxime, cyclohexanol, sulfuric acid, ammonia and carbon dioxide. With the acquisition of U.S. Amines Limited (“U.S. Amines”), we now produce alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals.

Ammonium Sulfate – Our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur, two key plant nutrients. Ammonium sulfate fertilizer is derived from the integrated operations at the Hopewell manufacturing facility. Because of our Hopewell facility’s size, scale and technology design, we are the world’s largest single-site producer of ammonium sulfate fertilizer as of September 30, 2023. We market and sell ammonium sulfate primarily to North American and South American distributors, farm cooperatives and retailers to fertilize crops.

Global demand for Nylon 6 resin spans a variety of end-uses such as textiles, engineered plastics, industrial filament, food and industrial films, and carpet. The market growth typically tracks global GDP growth over the long-term but varies by end-use. Generally, prices for Nylon 6 resin and caprolactam reflect supply and demand trends in the marketplace as well as the value of the basic raw materials used in the production of caprolactam, consisting primarily of benzene and, depending on the manufacturing process utilized, natural gas and sulfur. The global prices for nylon resin typically track a spread over the price of caprolactam, which in turn tracks as a spread over benzene because the key feedstock materials for caprolactam, phenol or cyclohexane, are derived from benzene. This price spread has historically experienced variation as a result of global changes in supply and demand. Nylon 6 resin prices generally track caprolactam prices, although prices set above the average commodity spread are achievable when nylon resin manufacturers, like AdvanSix, formulate and produce differentiated nylon resin products for current and new customer applications. Our differentiated Nylon 6 products, such as our wire and cable and co-polymer offerings, are typically valued at a higher level than commodity resin products.

We also manufacture, market and sell a number of chemical intermediate products that are derived from the manufacturing processes within our integrated supply chain. Most significant is acetone, the price of which is influenced by its own supply and demand dynamics but can also be influenced by the underlying move in propylene input costs. Our differentiated product offerings include high-purity applications and high-value intermediates including our U.S. Amines portfolio as well as our oximes-based EZ-Blox™ anti-skinning agent used in paints and Nadone® cyclohexanone, which is a solvent used in various high-value applications.

Global prices for ammonium sulfate fertilizer are influenced by several factors including the price of urea, which is the most widely used source of nitrogen-based fertilizer in the world. Other global factors driving ammonium sulfate fertilizer demand are general agriculture trends, including planted acres and the price of crops. Our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition to increase yields of key crops. In addition, due to its nutrient density, the typical ammonium sulfate product delivers pound for pound the most readily available sulfur and nitrogen to crops as compared to other fertilizers. We also directly supply packaged ammonium sulfate to customers, primarily in North and South America, and diversified and optimized our offerings to include spray-grade adjuvants to support crop protection, as well as other specialty fertilizers and products for industrial use.
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We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, however, quarterly sales experience seasonality reflecting both geographical and product sales mix considerations based on the timing and length of the growing seasons in North and South America. The North America planting season runs from July through June. The new season fill typically occurs in the third quarter and proceeds sequentially into the following spring which is the peak period for fertilizer application for key crops in North America. As a result of this typical pattern, North American ammonium sulfate demand and pricing, particularly for our higher-value granular product, are typically the strongest in the first half of the year through application for the spring crop and then decline in the second half. Our export sales, primarily into South America, are predominantly of the standard grade product. 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

Business Operations

In the second quarter of 2019, the Company entered into an alliance with Oben Holding Group S.A. (“Oben”), a third-party producer of films for the flexible packaging industry. On September 8, 2023, the Company entered into an agreement to exit its alliance with Oben. The exit of the alliance provides a termination fee payable by Oben to AdvanSix in exchange for full transition of AdvanSix’s share of the alliance. The Company recorded a gain of $11.4 million in the third quarter of 2023. The gain represents management’s estimate of the value of the termination fee, which is calculated based upon a formula that takes into account a combination of historical and future performance, and is included as a component of Other non-operating (income) expense, net. Approximately 60% of the termination fee is subject to change as it is based on an estimate of future performance. This fee is payable in 3 installments, with the first installment of $4.4 million received in the fourth quarter of 2023. Subsequent installments are expected to be paid in the third quarters of 2024 and 2025.

On September 21, 2023, the Company was notified by a licensee of certain legacy ammonium sulfate fertilizer technology assets operated at the licensee's fertilizer manufacturing facility that it intends to close its facility no later than August 2024. As a result, the Company recognized a non-cash, pre-tax charge related to the assets located at the licensee's facility of approximately $4.5 million in the third quarter of 2023. The charge is included as a component of Other non-operating (income) expense, net. The remaining asset balance of $2.6 million, an amount equal to the cash-flows expected to be received through the end of the contract, will be depreciated through August 2024.

During the third quarter of 2023, the Company made a strategic decision to cease production of certain low-margin products in the oximes family. The Company incurred an approximately $2.4 million unfavorable impact to pre-tax income during the third quarter of 2023 primarily as a result of a non-cash write-down of the assets associated with these products.

Share Repurchase Authorization

On February 17, 2023, the Company announced that the Board authorized a share repurchase program of up to an additional $75 million of the Company's common stock, which was in addition to the remaining capacity available under the previously approved share repurchase program. Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act. The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The repurchase program has no expiration date and may be modified, suspended or discontinued at any time.
Hopewell, VA Collective Bargaining Agreements
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On April 7, 2023, the Company issued a press release announcing that a labor strike had been initiated by the Hopewell South bargaining unit, consisting of the International Chemical Workers Union Council/the United Food and Commercial Workers, Local 591-C, the International Brotherhood of Electrical Workers, Local 666, the International Association of Machinists and Aerospace Workers, Local No. 10, and the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry, Local 851, affecting approximately 340 workers at the Company’s manufacturing facility in Hopewell, Virginia. The Company had robust contingency measures in place and was well prepared to support safe, stable and sustainable operations during this period. On May 8, 2023, the Company announced that the Hopewell South bargaining unit voted to ratify a new five-year collective bargaining agreement and that Hopewell South employees would return to work on May 10, 2023. The strike did not have a material impact on the Company’s results of operations.

On September 29, 2023, the Company’s Hopewell North bargaining unit, represented by the United Steelworkers, ratified a new five-year labor agreement in advance of the prior agreement’s anticipated expiration date of October 4, 2023. The ratified labor agreement affects approximately 130 workers at the Company’s manufacturing facility in Hopewell, Virginia.

Dividends

During 2023, the Company has declared dividends as follows:

Date of AnnouncementDate of RecordDate PayableDividend per Share
11/3/202311/14/202311/28/2023$0.160
8/4/20238/15/20238/29/2023$0.160
5/5/20235/16/20235/30/2023$0.145
2/17/20233/3/20233/17/2023$0.145

Results of Operations
(Dollars in thousands, unless otherwise noted)
 
Sales
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Sales$322,907 $478,769 $1,151,391 $1,541,578 
% change compared with prior year period(32.6)%(25.3)%

The change in sales compared to the prior year period is attributable to the following:
Three Months Ended
September 30, 2023
Nine Months Ended
September 30, 2023
Volume(1.0)%(3.6)%
Price(31.6)%(22.5)%
Acquisition—%0.8%
(32.6)%(25.3)%

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

Sales decreased in the nine months ended September 30, 2023 compared to the prior year period by $390.2 million (approximately 25%) due to (i) net unfavorable market-based pricing (approximately 16%) primarily reflecting reduced ammonium sulfate pricing amid lower raw material input costs and a more stable global nitrogen supply environment, as well as lower nylon pricing due to unfavorable supply and demand conditions, (ii) unfavorable raw material pass-through pricing
21


(approximately 6%) as a result of a net cost decrease in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) decreased sales volume (approximately 3%) driven primarily by chemical intermediates, partially offset by the acquisition of U.S. Amines (approximately 1%).

Costs of Goods Sold
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Costs of goods sold$314,785 $443,646 $1,004,844 $1,296,128 
% change compared with prior year period(29.0)%(22.5)%
Gross Margin percentage2.5%7.3%12.7%15.9%

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

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

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

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


Selling, General and Administrative Expenses
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Selling, general and administrative expenses$21,585 $23,069 $70,711 $65,120 
Percentage of Sales6.7%4.8%6.1%4.2%

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

Selling, general and administrative expenses increased by $5.6 million in the nine months ended September 30, 2023 compared to the prior year period due primarily to increased functional support costs including upgrades to our enterprise resource planning system, costs associated with pursuing the business interruption insurance claim in connection with the June 2019 shutdown of cumene supplier, Philadelphia Energy Solutions, and a reduction in bad debt expense in the prior year period associated with a cash collection of a previously reserved customer receivable partially offset by lower incentive-based compensation costs.

Income Tax Expense
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Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Income tax expense (benefit)$(2,076)$2,730 $17,753 $41,876 
Effective tax rate20.7%21.4%22.9%23.2%

The Company’s effective tax rate for the three and nine months ended September 30, 2023 and 2022 differed from the U.S. federal statutory rate, due to the impacts of state taxes and executive compensation deduction limitations, offset by tax credits and the foreign-derived intangible income deduction. Additionally in 2023, discrete tax adjustments relating to the vesting of equity compensation, changes in state tax legislation and return to provision adjustments related to the filing of the Company's 2022 U.S. federal income tax return resulted in a net 4.4% increase to the quarterly effective tax rate and a net 1.6% decrease to the year-to-date effective tax rate.

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

On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA") was signed into law. This legislation includes significant changes relating to tax, climate change, energy and health care. Among other provisions, the IRA introduces a corporate alternative minimum tax (CAMT) on adjusted financial statement income of certain large corporations and a 1% excise tax on share repurchases. The Company is not currently subject to the CAMT which became effective for tax years beginning after December 31, 2022. The 1% excise tax is generally applicable to publicly traded corporations for the net value of certain stock that the corporation repurchases during the year and is also effective for tax years beginning after December 31, 2022. The impact of any excise tax imposed on the Company for share repurchases is generally accounted for as an equity transaction with no consequences to the Company's results of operations, and this provision of the law is not expected to have a material impact on the Company's financial condition. The IRA also includes significant extensions, expansions and enhancements related to climate and energy tax credits designed to encourage investment in the adoption and expansion of renewable and alternative energy sources. The Company continues to evaluate these energy credit provisions of the law in relation to our sustainability and environmental, social and governance initiatives.

Net Income
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Net income (loss)$(7,977)$10,032 $59,705 $138,262 

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

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

The following tables set forth the non-GAAP financial measures of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss) and Adjusted Earnings Per Share. Adjusted EBITDA is defined as Net income (loss) before Interest, Income taxes, Depreciation and amortization, Non-cash stock-based compensation, Non-recurring, unusual or extraordinary expenses, Non-cash amortization from acquisitions and One-time merger and acquisition costs. Adjusted EBITDA Margin is equal to Adjusted EBITDA divided by Sales. 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
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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 Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBITDA Margin to their most directly comparable U.S. GAAP financial measure:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Net Income (loss)$(7,977)$10,032 $59,705 $138,262 
Non-cash stock-based compensation1,391 2,220 5,840 7,599 
Non-recurring, unusual or extraordinary expenses (income) *(4,472)— (4,472)— 
Non-cash amortization from acquisitions532 532 1,596 1,284 
Non-recurring M&A costs—