10-Q 1 asix-20220331.htm 10-Q asix-20220331
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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 March 31, 2022
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 28,103,293 shares of common stock, $0.01 par value, outstanding at April 29, 2022.


ADVANSIX INC.
FORM 10-Q
 
TABLE OF CONTENTS


 
Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (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
March 31,
20222021
Sales$479,073 $376,383 
Costs, expenses and other:
Costs of goods sold375,646 317,899 
Selling, general and administrative expenses21,210 19,308 
Interest expense, net563 1,544 
Other non-operating (income) expense, net(603)230 
Total costs, expenses and other396,816 338,981 
Income before taxes82,257 37,402 
Income tax expense19,184 9,271 
Net income$63,073 $28,131 
Earnings per common share
Basic$2.24 $1.00 
Diluted$2.15 $0.98 
Weighted average common shares outstanding
Basic28,199,871 28,093,764 
Diluted29,371,051 28,741,066 
 

See accompanying notes to Condensed Consolidated Financial Statements.
3

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

 
Three Months Ended
March 31,
20222021
Net income $63,073 $28,131 
Foreign exchange translation adjustment57 (70)
Cash-flow hedges512 483 
Other comprehensive income (loss), net of tax569 413 
Comprehensive income$63,642 $28,544 

See accompanying notes to Condensed Consolidated Financial Statements.
4

ADVANSIX INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share and per share amounts)

March 31,
2022
December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$19,306 $15,100 
Accounts and other receivables – net223,541 179,087 
Inventories – net163,396 149,570 
Other current assets6,220 6,097 
Total current assets412,463 349,854 
Property, plant and equipment – net782,783 767,964 
Operating lease right-of-use assets132,567 136,207 
Goodwill57,863 17,592 
Intangible assets48,948 17,980 
Other assets22,497 22,402 
Total assets$1,457,121 $1,311,999 
LIABILITIES
Current liabilities:
Accounts payable$200,524 $211,511 
Accrued liabilities40,203 49,712 
Income taxes payable27,656 9,723 
Operating lease liabilities – short-term36,435 36,127 
Deferred income and customer advances2,434 2,749 
Total current liabilities307,252 309,822 
Deferred income taxes145,206 133,330 
Operating lease liabilities – long-term96,471 100,580 
Line of credit – long-term220,000 135,000 
Postretirement benefit obligations19,451 18,243 
Other liabilities10,350 13,834 
Total liabilities798,730 710,809 
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; 200,000,000 shares authorized; 31,900,305 shares issued and 28,103,293 outstanding at March 31, 2022; 31,755,430 shares issued and 28,139,954 outstanding at December 31, 2021
319 318 
Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at March 31, 2022 and December 31, 2021
  
Treasury stock at par (3,797,012 shares at March 31, 2022; 3,615,476 shares at December 31, 2021)
(38)(36)
Additional paid-in capital193,321 195,931 
Retained earnings470,759 411,516 
Accumulated other comprehensive loss(5,970)(6,539)
Total stockholders' equity658,391 601,190 
Total liabilities and stockholders' equity$1,457,121 $1,311,999 
See accompanying notes to Condensed Consolidated Financial Statements.
5

ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 

Three Months Ended
March 31,
20222021
Cash flows from operating activities:
Net income$63,073 $28,131 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 16,692 16,104 
Loss on disposal of assets 359 84 
Deferred income taxes (519)2,237 
Stock-based compensation3,374 2,363 
Accretion of deferred financing fees155 141 
Changes in assets and liabilities, net of business acquisitions:
Accounts and other receivables (28,402)(13,170)
Inventories (1,889)38,986 
Accounts payable (8,029)(13,781)
Income taxes payable17,933  
Accrued liabilities (11,718)912 
Deferred income and customer advances (315)(6,803)
Other assets and liabilities (1,552)1,886 
Net cash provided by operating activities 49,162 57,090 
Cash flows from investing activities:
Expenditures for property, plant and equipment (21,019)(14,177)
Acquisition of business(98,589)(9,523)
Other investing activities(296)(231)
Net cash used for investing activities (119,904)(23,931)
Cash flows from financing activities:
Borrowings from line of credit148,500 54,000 
Payments of line of credit(63,500)(83,000)
Principal payments of finance leases(237)(199)
Dividend payments(3,517) 
Purchase of treasury stock(7,012)(443)
Issuance of common stock714 1 
Net cash provided by (used for) financing activities 74,948 (29,641)
Net change in cash and cash equivalents 4,206 3,518 
Cash and cash equivalents at beginning of period15,100 10,606 
Cash and cash equivalents at the end of period$19,306 $14,124 
Supplemental non-cash investing activities:
Capital expenditures included in accounts payable $7,335 $2,965 
Supplemental cash activities:
Cash paid for interest$408 $1,518 
Cash paid for income taxes$22 $35 
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, 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 
Pension obligation adjustments— — — — — —  
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 

Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Total Equity
SharesAmount
Balance at December 31, 202031,627,139 $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 stock33,200 1 — — — — 1 
Purchase of treasury stock (15,371 shares)
— — (443)— — — (443)
Stock-based compensation— — 2,363 — — — 2,363 
Balance at March 31, 202131,660,339 $317 $186,652 $303,374 $(36)$(15,719)$474,588 



See accompanying notes to Condensed Consolidated Financial Statements.
7

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




1. Organization, Operations and Basis of Presentation
 
Description of Business
 
AdvanSix Inc. ("AdvanSix," the "Company," "we" or "our") 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, 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.

COVID-19

Since early 2020, the novel coronavirus (COVID-19) has continued to spread, with confirmed cases worldwide, and with certain jurisdictions experiencing resurgences, including as a result of variant strains. The pandemic and related containment measures, such as travel bans and restrictions, shelter in place orders and business shutdowns, 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 first quarter of 2022, 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 March 31, 2022, and its results of operations for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021. 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, 2021 (the "2021 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 were generally not significant to reported results for any quarter and only
8

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



existed within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, we will provide the appropriate disclosures. Our actual closing dates for the three months ended March 31, 2022 and 2021 were April 2, 2022 and April 3, 2021, respectively.

Liabilities to creditors to whom we have issued checks that remained outstanding at March 31, 2022 and December 31, 2021 aggregated to $2.2 million and $4.5 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 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.

During the first quarter of 2022, the Company repurchased 181,536 shares of common stock, including 57,968 shares to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $7.0 million at a weighted average market price of $38.61 per share. As of March 31, 2022, the Company had repurchased 3,797,012 shares of common stock, including 583,682 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $109.4 million at a weighted average market price of $28.81 per share. As of March 31, 2022, $54.8 million remained available for share repurchases under the current authorization. During the period April 1, 2022 through April 29, 2022, no additional shares were repurchased under the currently 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”). Any ASUs not currently adopted 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.

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 March 31, 2022 and 2021, the Company's ten largest customers accounted for approximately 37% and 38% 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 March 31, 2022 and 2021, the Company's sales to Shaw were 9% and 12% of our total sales, respectively.

The Company's revenue by product line, and related approximate percentage of total sales, for the three months ended March 31, 2022 and 2021 were as follows:
9

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



Three Months Ended
March 31,
20222021
Nylon$118,609 25%$83,789 22%
Caprolactam70,005 15%80,403 21%
Chemical Intermediates135,690 28%141,360 38%
Ammonium Sulfate154,769 32%70,831 19%
$479,073 100%$376,383 100%
The Company's revenues by geographic area, and related approximate percentage of total sales, for the three months ended March 31, 2022 and 2021 were as follows:
Three Months Ended
March 31,
20222021
United States$403,018 84 %$300,672 80 %
International76,055 16 %75,711 20 %
Total$479,073 100 %$376,383 100 %
Deferred Income and Customer Advances
The Company defers revenues when cash payments are received in advance of our performance. Below is a roll-forward of Deferred income and customer advances for the three months ended March 31, 2022:
Opening balance January 1, 2022$2,749 
Additional cash advances640 
Less amounts recognized in revenues(955)
Ending balance March 31, 2022$2,434 
The Company expects to recognize as revenue the March 31, 2022 ending balance of Deferred income and customer advances within one year or less.

4. Earnings Per Share
 
The computation of basic and diluted earnings per share ("EPS") is based on Net income divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively. The details of the basic and diluted EPS calculations for the three months ended March 31, 2022 and 2021 were as follows:
 
Three Months Ended
March 31,
20222021
Basic
Net income$63,073 $28,131 
Weighted average common shares outstanding28,199,871 28,093,764 
EPS – Basic$2.24 $1.00 
Diluted
Dilutive effect of equity awards and other stock-based holdings1,171,180 647,302 
Weighted average common shares outstanding29,371,051 28,741,066 
EPS – Diluted$2.15 $0.98 

10

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



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

The diluted EPS calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price of the common shares during the period. The anti-dilutive common stock equivalents outstanding at the three months ended March 31, 2022 and 2021 were as follows:
Three Months Ended
March 31,
20222021
Options and stock equivalents 120,316 861,376 

Dividend activity for the three months ended March 31, 2022 and 2021 was as follows:
Three Months Ended
March 31,
20222021
Cash dividends declared per share$0.125 $ 
Aggregate dividends paid to shareholders$3,517 $ 

5. Accounts and Other Receivables Net
March 31,
2022
December 31,
2021
Accounts receivables$220,010 $175,584 
Other4,870 4,998 
Total accounts and other receivables224,880 180,582 
Less – allowance for doubtful accounts(1,339)(1,495)
Total accounts and other receivables – net$223,541 $179,087 

6. Inventories
March 31,
2022
December 31,
2021
Raw materials$90,299 $56,961 
Work in progress52,578 43,526 
Finished goods57,374 27,961 
Spares and other27,679 27,150 
227,930 155,598 
Reduction to LIFO cost basis(64,534)(6,028)
Total inventories$163,396 $149,570 

Substantially all of the Company’s inventories at March 31, 2022 and December 31, 2021 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 March 31, 2022.

The excess of replacement cost over the carrying value of total inventories subject to LIFO was $72.5 million and $29.4 million at March 31, 2022 and December 31, 2021, respectively.

7. Leases

We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets ("ROU"), Operating lease liabilities – short-term, and Operating lease liabilities – long-term in our Condensed Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment – net, Accounts payable, and Other liabilities in our Condensed Consolidated Balance Sheets.
11

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




The components of lease expense were as follows:
Three Months Ended
March 31,
20222021
Finance lease cost:
Amortization of right-of-use asset$236 $183 
Interest on lease liabilities14 8 
Total finance lease cost250 191 
Operating lease cost10,339 11,571 
Short-term lease cost1,353 1,913 
Total lease cost$11,942 $13,675 

As of March 31, 2022, we have additional finance leases that have not yet commenced for approximately $0.5 million. These leases will commence during 2022 with lease terms of up to 5 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

The change in the carrying amount of goodwill was as follows:
Total
Balance atDecember 31, 2021$17,592 
Acquisition of U.S. Amines40,271
Balance atMarch 31, 2022$57,863 

Finite-Lived Intangible Assets

Intangible assets subject to amortization were as follows:
March 31, 2022December 31, 2021
Gross Carrying AmountAccumulated AmortizationNet Book ValueGross Carrying AmountAccumulated AmortizationNet Book Value
Customer relationships$34,220 $(423)$33,797 $3,920 $(240)$3,680 
Licenses18,451 (4,382)14,069 18,451 (4,151)14,300 
Trade names1,100 (18)1,082    
Total$53,771 $(4,823)$48,948 $22,371 $(4,391)$17,980 

For the three months ended March 31, 2022 and March 31, 2021, the Company recorded amortization expense on intangible assets of $0.4 million and $0.3 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
12

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



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 $19.2 million and $9.3 million for the three months ended March 31, 2022 and 2021, respectively, resulting in an effective tax rate of 23.3% and 24.8%, respectively.

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 months ended March 31, 2022 and 2021 differed from the U.S. federal statutory rate, due primarily to state taxes and executive compensation deduction limitations which generally increase the tax rate, partially offset by tax credits and the foreign-derived intangible income deduction which generally decrease the tax rate.

In February 2022, the Company acquired the stock of U.S. Amines, Ltd. Under purchase accounting rules, a net deferred tax liability of approximately $12.2 million was recorded in the quarter related to the adjustment of the acquired assets and liabilities to fair value. See Note 13 "Acquisitions" for further details.

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 July 2019, the Company entered into an interest rate swap transaction related to its credit agreement. The fair value of the interest rate swap at March 31, 2022 was a loss of approximately $0.04 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.

13

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



The Company also has assets that are required to be recorded at fair value on a non-recurring basis. These assets are evaluated when certain triggering events occur (including a decrease in estimated future cash flows) that indicate the asset should be evaluated for impairment which could result in such assets being measured at fair value. Goodwill must be evaluated at least annually. Our annual evaluation occurred on March 31, 2022 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 and interest rate swap agreement, used to manage the Company’s interest rate risk associated with a fixed and floating-rate borrowing.

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

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

The Company continually monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business. The terms and conditions of credit sales are designed to mitigate or eliminate concentrations of credit risk with any single customer. The Company did not have any customers with significant concentrations of trade accounts receivable – net at March 31, 2022 or December 31, 2021. Allowance for doubtful accounts is calculated based upon the Company's estimate of expected credit losses over the life of exposure based upon both historical information as well as future expected losses.

Commodity Price Risk Management – The Company's exposure to market risk for commodity prices can result in changes in the cost of production. We primarily mitigate our exposure to commodity price risk by using long-term, formula-based price contracts with our suppliers and formula-based price agreements with customers. Our customer agreements provide for price adjustments based on relevant market indices and raw material prices and generally do not include take-or-pay terms. We may also enter into forward commodity contracts with third-parties designated as hedges of anticipated purchases of several commodities. Forward commodity contracts are marked-to-market, with the resulting gains and losses recognized in earnings, in the same category as the items being hedged, when the hedged transaction is recognized. At March 31, 2022 and 2021, we had no financial contracts related to forward commodity agreements.

Interest Rate Risk Management – The Company has 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 with a maturity date of 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 converts 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 involves the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the interest rate swap without an exchange of the underlying principal amount.
14

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



Liability Derivatives
March 31, 2022December 31, 2021
Balance Sheet ClassificationFair ValueBalance Sheet ClassificationFair Value
Derivatives designated as hedging instruments under ASC 815:
Interest Rate ContractsAccrued liabilities and Other liabilities$(44)Accrued liabilities and Other liabilities$(708)
Total Derivatives$(44)$(708)

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

March 31,
2022
Loss on derivative instruments included in Accumulated other comprehensive loss at December 31, 2021$(708)
Fair value adjustment664 
Loss on derivative instruments included in Accumulated other comprehensive loss at March 31, 2022$(44)

At March 31, 2022, the Company expects to reclassify approximately $0.04 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:
Amount of Loss Recognized in Earnings
Three Months Ended
March 31,
20222021
Derivatives:
Interest Rate Contracts$12 $557 
Total Derivatives$12 $557 

13. Acquisitions

In February 2022, the Company acquired U.S. Amines, Ltd. ("U.S. Amines"), a leading North American producer of alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals for an estimated purchase price of approximately $98 million, net of cash acquired. U.S. Amines employs approximately 50 people in the United States at manufacturing facilities in Bucks, AL and Portsmouth, VA.

In accordance with ASC 805, this transaction has been accounted for as a business combination. The Company used its best estimates and assumptions for items including, but not limited to, corporate name recognition, strong, long-lasting customer relationships and potential revenue growth from existing customers 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 finite-lived intangible assets, comprised of customer relationships (approximately $30 million) and trademarks (approximately $1 million) which reflect the value of the benefit derived from incremental revenue and related cash flows as a direct result of the customer relationships and name brand. These intangible assets are being amortized on a straight-line basis over their estimated useful lives of 20 years and 5 years, respectively. The residual amount of the purchase price in excess of the value of the tangible and definite-lived intangible assets
15

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



was allocated to goodwill. Factors considered when identifying goodwill included, but are not limited to, a complementary business model and formula pricing mechanisms with a business that is adjacent to our ammonium sulfate adjuvant and solvent businesses, the enhancement of the Company’s value chain through internal supply of products and raw materials, a new unique platform in the agrochemicals space as well as a number of opportunities to support further penetration into high-value applications. The U.S. Amines acquisition was not significant to our Condensed Consolidated Financial Statements, therefore, pro forma and post-acquisition results of operations have not been presented.

The preliminary measurements of fair value set forth herein are subject to change and such changes could be material. The Company expects to finalize the valuation as soon as practicable, but no later than one year from the acquisition date.

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. 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 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

The following table summarizes the allocation of the purchase price consideration as of the acquisition date for the transactions noted above:
U.S. Amines (February 2022 - Preliminary)CIS
(January 2021)
Cash$22,887 $ 
Accounts receivable15,117 858 
Inventories11,937 712 
Other current assets1,876  
Property, plant and equipment13,600 1,875 
Intangible assets31,400 3,920 
Accounts payable(1,487)(429)
Accrued liabilities(2,760) 
Deferred income taxes(12,243) 
Net tangible and intangible assets80,327 6,936 
Goodwill40,271 2,587 
Total purchase price$120,598 $9,523 
Total purchase price$120,598 $9,523 
Less: Cash acquired(22,887) 
Total purchase price, net of cash received97,711 9,523 
Estimated working capital adjustment due from seller878  
Net cash paid$98,589 $9,523 
Goodwill deductible for tax purposes$ $2,587 

14. Subsequent Events

As announced on May 6, 2022, the Board declared a quarterly cash dividend of $0.125 per share on the Company's common stock, payable on May 31, 2022 to stockholders of record as of the close of business on May 17, 2022.
16


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, 2021 filed with the Securities and Exchange Commission (“SEC”) on February 18, 2022 (the “2021 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 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 scope, shape and pace of recovery of the pandemic; 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; 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 and 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; 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 2021 Form 10-K, and subsequent reports filed with the SEC. All subsequent written or oral forward-looking statements attributable
17


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 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, 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 March 31, 2022.

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. With the acquisition of U.S. Amines Ltd. ("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 March 31, 2022. 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, 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. We continue to invest in and grow our differentiated product offerings in high-purity applications and high-value intermediates including our newly acquired 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.
18



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 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, 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. 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

Since early 2020, the novel coronavirus (COVID-19) has continued to spread, with confirmed cases worldwide, and with certain jurisdictions experiencing resurgences, including as a result of variant strains. The pandemic and related containment measures, such as travel bans and restrictions, shelter in place orders and business shutdowns, 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 first quarter of 2022, 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.

Acquisition

In February 2022, the Company acquired U.S. Amines, a leading North American producer of alkyl and specialty amines serving high-value end markets such as agrochemicals and pharmaceuticals for an estimated purchase price of approximately
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$98 million, net of cash acquired. U.S. Amines employs approximately 50 people in the United States at manufacturing facilities in Bucks, AL and Portsmouth, VA. This acquisition enhances the Company's value chain through internal supply of products and raw materials. The acquisition also provides a unique platform in the agrochemicals space as well as a number of opportunities to support further penetration into high-value applications including electronics, pharmaceuticals and water treatment. U.S. Amines has a complementary business model with long-tenured customer relationships and formula pricing mechanisms with a business that is adjacent to both our ammonium sulfate adjuvant and solvent businesses.

Dividends

As announced on May 6, 2022, the Board declared a quarterly cash dividend of $0.125 per share on the Company's common stock, payable on May 31, 2022 to stockholders of record as of the close of business on May 17, 2022.

As announced on February 18, 2022, the Board declared a quarterly cash dividend of $0.125 per share on the Company's common stock, payable on March 15, 2022 to stockholders of record as of the close of business on March 1, 2022.

Results of Operations
(Dollars in thousands, unless otherwise noted)
 
Sales
Three Months Ended
March 31,
20222021
Sales$479,073 $376,383 
% change compared with prior year period27.3%

The change in sales compared to the prior year period is attributable to the following:
Three Months Ended
March 31, 2022
Volume(4.0)%
Price29.4%
Acquisition1.9%
27.3%

Sales increased in the three months ended March 31, 2022 compared to the prior year period by $102.7 million (approximately 27%) due primarily to (i) net favorable market-based pricing (approximately 26%) reflecting strength in our ammonium sulfate and nylon product lines, (ii) favorable raw material pass-through pricing (approximately 3%) as a result of net cost increases in benzene and propylene (inputs to cumene which is a key feedstock to our products) and (iii) acquisitions (approximately 2%), partially offset by decreased sales volume (approximately 4%) driven primarily by higher sales in the first quarter of 2021 through a reduction of finished goods inventory in the prior year period to meet customer demand recovery.

Costs of Goods Sold
Three Months Ended
March 31,
20222021
Costs of goods sold$375,646 $317,899 
% change compared with prior year period18.2%
Gross Margin percentage21.6%15.5%

Costs of goods sold increased in the three months ended March 31, 2022 compared to the prior year period by $57.7 million (approximately 18%) due primarily to (i) increased prices of raw materials, particularly natural gas and sulfur (approximately 18%), (ii) an increase in plant spend (approximately 2%) and (iii) the impact of the U.S. Amines acquisition (approximately 2%), partially offset by decreased sales volumes as discussed above (approximately 2%) and the favorable impact of a prior year non-cash LIFO reserve adjustment (approximately 2%).

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Gross margin percentage increased by approximately 6% in the three months ended March 31, 2022 compared to the prior year period due primarily to the net impact of (i) formula-based pass-through pricing and increased market pricing (approximately 7%) and (ii) the favorable impact of a prior year non-cash LIFO reserve adjustment (approximately 1%), partially offset by (i) higher plant spend (approximately 1%) and (ii) lower sales volume (approximately 1%).

Selling, General and Administrative Expenses
Three Months Ended
March 31,
20222021
Selling, general and administrative expenses$21,210 $19,308 
Percentage of Sales4.4%5.1%

Selling, general and administrative expenses increased by $1.9 million in the three months ended March 31, 2022 compared to the prior year period due primarily to increased functional support costs as compared to the prior year.

Income Tax Expense
Three Months Ended
March 31,
20222021
Income tax expense$19,184 $9,271 
Effective tax rate23.3%24.8%

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 months ended March 31, 2022 and 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 March 31, 2022 was slightly lower than the prior year period due primarily to a decrease in expected executive compensation deduction limitations and an increase in the expected tax benefit from the deduction for foreign-derived intangible income in 2022 compared to 2021.

In February 2022, the Company acquired the stock of U.S. Amines, Ltd. Under purchase accounting rules, a net deferred tax liability of approximately $12.2 million was recorded in the quarter related to the adjustment of the acquired assets and liabilities to fair value. See Note 13 "Acquisitions" for further details.

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
March 31,
20222021
Net income$63,073 $28,131 

As a result of the factors described above, Net income was $63.1 million for the three months ended March 31, 2022 as compared to $28.1 million in the corresponding prior year period.

Non-GAAP Measures
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(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 and Adjusted Earnings Per Share. Adjusted EBITDA is defined as Net income 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 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 Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin to their most directly comparable U.S. GAAP financial measure:
Three Months Ended
March 31,
20222021
Net income$63,073 $28,131 
Non-cash stock-based compensation3,374 2,363 
Non-recurring, unusual or extraordinary expenses— — 
Non-cash amortization from acquisitions201 44 
One-time M&A costs277 172 
Benefit from income taxes relating to reconciling items(556)(408)
Adjusted Net Income (non-GAAP)66,369 30,302 
Interest expense, net563 1,544 
Income tax expense - adjusted19,740 9,679 
Depreciation and amortization - adjusted16,491 16,060 
Adjusted EBITDA (non-GAAP)103,163 57,585 
Sales$479,073 $376,383 
Adjusted EBITDA Margin* (non-GAAP)21.5%15.3%
*Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Sales

The following is a reconciliation between the non-GAAP financial measures of Adjusted Earnings Per Share to its most directly comparable U.S. GAAP financial measure:


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Three Months Ended
March 31,
20222021
Net Income$63,073 $28,131 
Adjusted Net Income (non-GAAP)66,369 30,302 
Weighted-average number of common shares outstanding - basic28,199,871 28,093,764 
Dilutive effect of equity awards and other stock-based holdings1,171,180 647,302 
Weighted-average number of common shares outstanding - diluted29,371,051 28,741,066 
EPS - Basic$2.24 $1.00 
EPS - Diluted$2.15 $0.98 
Adjusted EPS - Basic (non-GAAP)$2.35 $1.08 
Adjusted EPS - Diluted (non-GAAP)$2.26 $1.05 

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

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 2021 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, capital expenditures, dividends and liquidity reflecting disciplined capital deployment. Capital expenditures are deployed for various ongoing investments and initiatives to improve reliability, yield and quality, expand production capacity and comply with health, safety and environmental ("HSE") regulations. We believe that our future cash from operations, together with cash on hand and our access to credit and capital markets, will provide adequate resources to fund our expected operating and financing needs and obligations. 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 2021 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 first quarter of 2022, the Company had approximately $19.3 million of cash on hand with approximately $279 million of additional capacity available under the revolving credit facility. The Company’s Consolidated Leverage Ratio financial covenant of its credit facility allows it to net up to $75 million of cash with debt. Capital expenditures are expected to be approximately $95 million to $105 million in 2022 compared to $57 million in 2021, reflecting the timing of maintenance and HSE spend.

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The Company filed a Federal net operating loss (NOL) carryback claim under the CARES Act in July 2020 which generated a refund of previously paid taxes in the amount of $12.3 million received in the first quarter of 2021. Additionally, the Company deferred approximately $6.5 million of social security taxes in 2020 under the CARES Act of which 50% was paid on January 3, 2022 and the remainder is due by January 3, 2023.

We assumed from Honeywell all HSE liabilities and compliance obligations related to the past and future operations of our current business, as well as all HSE liabilities associated with our three current manufacturing locations and the other locations used in our current operations including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past. 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 2022 will be to fund costs associated with ongoing operations, capital expenditures, and amounts related to other contractual obligations.

The Company made no cash contributions to the defined benefit pension plan of during the three months ended March 31, 2022. The Company currently plans to make pension plan contributions during 2022 sufficient to satisfy funding requirements under the AdvanSix Retirement Earnings Plan in an aggregate amount of approximately $5 million to $15 million. We contributed $5 million during April 2022 and anticipate making additional contributions in future periods sufficient to satisfy pension funding requirements.

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 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.

During the first quarter of 2022, the Company repurchased 181,536 shares of common stock, including 57,968 shares to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $7.0 million at a weighted average market price of $38.61 per share. As of March 31, 2022, the Company had repurchased 3,797,012 shares of common stock, including 583,682 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $109.4 million at a weighted average market price of $28.81 per share. As of March 31, 2022, $54.8 million remained available for share repurchases under the current authorization. During the period from April 1, 2022 through April 29, 2022, no additional shares were repurchased under the currently authorized repurchase program.

As of March 31, 2022, 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 2021 Form 10-K (see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Liquidity and Capital Resources - Liquidity"). The Company has not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Dividends

As announced on May 6, 2022, the Board declared a quarterly cash dividend of $0.125 per share on the Company's common stock, payable on May 31, 2022 to stockholders of record as of the close of business on May 17, 2022.

As announced on February 18, 2022, the Board declared a quarterly cash dividend of $0.125 per share on the Company's common stock, payable on March 15, 2022 to stockholders of record as of the close of business on March 1, 2022.

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.

Dividends paid to common stockholders were approximately $3.5 million in each of the first quarter of 2022 and the fourth quarter of 2021.

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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.

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

As of October 27, 2021, the Company borrowed $150 million under the Revolving Credit Facility. Borrowings under the Revolving Credit Facility will be subject to customary borrowing conditions.

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 0.25% to 1.25% or the sum of a Eurodollar rate plus a margin ranging from 1.25% to 2.25%, with either such margin varying according to the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement). The Company is also required to pay a commitment fee in respect of unused commitments under the Revolving Credit Facility, if any, at a rate ranging from 0.15% to 0.35% per annum depending on the Company’s Consolidated Leverage Ratio. As of October 27, 2021, the applicable margin under the Credit Agreement was 0.375% for base rate loans and 1.375% for Eurodollar loans and the applicable commitment fee rate was 0.175% per annum. The Revolving Credit Facility also contains certain administrative provisions regarding alternative rates of interest for LIBOR, as applicable.

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.

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. We were in compliance with all of our covenants at March 31, 2022 and through the date of the filing of this Quarterly Report on Form 10-Q.

The situation surrounding COVID-19 remains fluid and unpredictable, and the potential for a material impact on the Company increases if social and economic restrictions are reinstituted or if related economic impacts such as supply chain issues, labor market volatility and inflationary pressures persist. 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
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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 2021 Form 10-K.

As of December 31, 2021, we had a balance of $135 million under the Revolving Credit Facility. During the three months ended March 31, 2022, we borrowed an incremental net amount of $85 million to bring the balance under the Revolving Credit Facility to $220 million as of March 31, 2022. As of March 31, 2022, $279 million was available for use out of the total of $500 million under the Revolving Credit Facility. We expect that Cash provided by operating activities will fund future interest payments on the Company's outstanding indebtedness.

Cash Flow Summary
Three Months Ended
March 31,
20222021
Cash provided by (used for):
Operating activities$49,162 $57,090 
Investing activities(119,904)(23,931)
Financing activities74,948 (29,641)
Net change in cash and cash equivalents $4,206 $3,518 

Cash provided by operating activities decreased by $7.9 million for the three months ended March 31, 2022 versus the prior year period due primarily to a $43.9 million unfavorable 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 $38.6 million unfavorable cash impact from working capital for the three months ended March 31, 2022 compared to a $5.2 million favorable cash impact in the prior year period, which included a $12.3 million cash tax refund, and a $12.6 million unfavorable cash impact from Accrued liabilities driven by the timing of payments. This was partially offset by a $34.9 million increase in net income and $17.9 million favorable cash impact from income taxes.

Cash used for investing activities increased by $96.0 million for the three months ended March 31, 2022 versus the prior year period due primarily to cash paid for the acquisition of U.S. Amines for approximately $98.6 million compared to cash paid of approximately $9.5 million for the acquisition of Commonwealth Industrial Services, and increased cash payments for capital expenditures of approximately $6.8 million reflecting timing of project execution.

Cash provided by financing activities increased by $104.6 million for the three months ended March 31, 2022 versus the prior year period due primarily to net borrowings of $85.0 million for the three months ended March 31, 2022 compared to net repayments of $29.0 million during the prior year period partially offset by payments for share repurchases of $6.6 million and cash paid for dividends of approximately $3.5 million 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:
Three Months Ended
March 31, 2022
Capital expenditures in Accounts payable at December 31, 2021
$11,720 
Purchases of property, plant and equipment16,634 
Less: Capital expenditures in Accounts payable at March 31, 2022
(7,335)
Cash paid for capital expenditures$21,019 

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For 2022, we expect our total capital expenditures to be approximately $95 million to $