aggregate, to have a material adverse effect on the Company’s consolidated financial position or results of operations or cash flows.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.
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.period in addition to recording any tax effects of discrete items for the quarter. The provision for income taxes was $14.5 million and $11.3 millionCompany’s effective tax rate for the three months ended March 31, 2023 approximated the U.S. federal statutory rate, due to the impacts of state taxes and executive compensation deduction limitations which generally increase the tax rate, offset by tax credits and the foreign-derived intangible income deduction which generally decrease the tax rate. Additionally, a current period discrete tax adjustment was recorded relating to the vesting of equity compensation that resulted in a 2.3% decrease to the Company's quarterly effective tax rate. The Company's effective tax rate for the three months ended March 31, 2022 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.
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 and Combined Financial Statements and the notes thereto contained elsewhere 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, 20162022 filed with the SECSecurities and Exchange Commission (“SEC”) on March 6, 2017February 17, 2023 (the “2016“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 Report,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 ReportForm 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.statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Report,Form 10-Q, words such as "expect," “anticipate,” "estimate," "outlook," "project," "strategy," "intend," "plan," "target," "goal," "may," "will," "should," and “believe,” “will,” “estimate,” “expect,” “intend” and other variations or similar terminology and expressions identify forward-looking statements. SuchAlthough 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 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 beliefsU.S.; our ability to sell and provide our goods and services; the ability of management, as well as assumptions made by,our customers to pay for our products; any closures of our and information currently availableour customers’ offices and facilities; risks associated with increased phishing, compromised business emails and other cybersecurity attacks and disruptions to our management. Actualtechnology 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 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 certaina number of risks, uncertainties and other factors including those noted above and those detailed in Item 1A of Part I and elsewhere in our filings2022 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 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 produce and 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 caprolactamfilms that, in turn, are used in such end-products as commodity productscarpets, automotive and also produceelectric components, sports apparel, food packaging and sellother 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, 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, oximes (methyl ethyl ketoxime, acetaldehyde oxime and 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 specializedfertilizer 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, 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 product.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 these products is capital intensive, requiring ongoing investments in improving plant reliability, expanding production capacitycaprolactam, consisting primarily of benzene and, achieving higher quality. Our results of operations are primarily driven by production volumedepending on the manufacturing process utilized, natural gas and the spread between the prices of our products and the costs of the underlying raw materials built into the market-based pricing models for most of our sales.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 ultimately derived from benzene. This price spread has historically experienced cyclicalityvariation as a result of global changes in supply and demand. Generally, Nylon 6 resin prices generally track the cyclicality of caprolactam prices, although prices set above the average commodity spread are achievable when nylon resin manufacturers, like AdvanSix, are able to formulate and produce specializeddifferentiated nylon resin products. Our specializeddifferentiated Nylon 6 products are typically valued at a higher level than commodity resin products.
In recent years, nylon and caprolactam prices have experienced a cyclical period of downturn as the global market has experienced large increases in supply without a commensurate increase in demand. Most of this supply increase has been built by new Chinese manufacturers, resulting in margin compression for Nylon 6 resin and caprolactam in recent years to historic lows. Over the last year, capacity reductions by our competitors have occurred in North America and Europe improving supply/demand fundamentals in North America with continued dynamic conditions globally. We believe that in addition to a potential recovery that has historically followed periods of oversupply and declining prices, Nylon 6 end-market growth will continue to generally track global GDP with certain applications growingover the long-term. Applications such as engineered plastics and packaging have potential to grow at faster rates including engineered plastics and packaging.given certain macrotrends. Additionally, one of our strategies is to continue developing specialty nylonhigher-value, differentiated Nylon 6 products, such as our wire and copolymercable and co-polymer offerings, in current and new customer applications.
We also manufacture, market and sell a number of chemical intermediate products that we believe will obtain higher margins.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. 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.
Our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur, two key crop nutrients. Global prices for ammonium sulfate fertilizer are influenced by several factors including the price of urea, which is the most widely used source of nitrogen-based fertilizer in the world. A secondaryOther global price driver forfactors driving ammonium sulfate fertilizer isdemand
are general agriculture trends, including planted acres and the price of future deliveriescrops. 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 including corn, wheatas compared to other fertilizers. We also directly supply packaged ammonium sulfate to customers, primarily in North and coffee, which are impacted by general trends in the agricultural industry. We expect agriculture fundamentalsSouth America, and diversified and optimized our offerings to remain challenging through the 2017/2018 planting season.include spray-grade adjuvants to support crop protection, as well as other specialty fertilizers and products for industrial use.
We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, buthowever, quarterly sales experience quarterly cyclicalityseasonality 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 andas several of our intermediate products are key feedstock materials for other products in our integrated manufacturing chain. WeWhile 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 several planned outagesplant turnarounds each year to conduct routine and major maintenance across our facilities, which are referred to as plant turnarounds. While we
may experience unplanned interruptions from time to time, we seek to mitigate the risk through regularly scheduled maintenance both for major and minor repairs at all of our production facilities. We also utilize maintenance excellence and mechanical integrity programs, and maintain appropriatetargeted 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. While our integrated manufacturing, scaledowntime; however, the mitigation of all or part of any such production impact cannot be assured.
Recent Developments
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 South Collective Bargaining Agreement
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 quantityUnited Association of Journeymen and range of our product offerings make us oneApprentices of the most efficient manufacturersPlumbing and Pipe Fitting Industry, Local 851, affecting approximately 340 workers at the Company's manufacturing facility in our industry,Hopewell, Virginia. The Company has robust contingency measures in place and is well prepared to support safe, stable and sustainable operations during this period. While AdvanSix continues to operate, we are also exposeddo not currently have an estimate of timing for completion of negotiations with the Hopewell South bargaining unit. The strike is not expected to increased risk associated with unplanned downtime orhave a material disruptions at any one of our production facilities which could impact our supply chain to downstream plants in our manufacturing process.on the Company's financial condition.
Dividends
During 2023, the Company has declared dividends as follows:
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| Date of Announcement | | Date of Record | | Date Payable | | Dividend per Share | | |
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| 5/5/2023 | | 5/16/2023 | | 5/30/2023 | | $0.145 | | | |
| 2/17/2023 | | 3/3/2023 | | 3/17/2023 | | $0.145 | | | |
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Results of Operations
(Dollars in thousands, unless otherwise noted)
Sales
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| Three Months Ended
March 31, | | |
| 2023 | | 2022 | | | | |
| Sales | $ | 400,544 | | | $ | 479,073 | | | | | |
| % change compared with prior year period | (16.4)% | | | | | | |
|
| | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Sales | $366,660 | | $323,953 | | $1,104,805 | | $932,201 |
| % change compared with prior year period | 13.2% | | | | 18.5% | |
|
The change in sales compared to the prior year period is attributable to the following:
| | | | | | | |
| Three Months Ended
March 31, 2023 | | |
| Volume | (8.8)% | | |
| Price | (10.1)% | | |
| Acquisition | 2.5% | | |
| (16.4)% | | |
|
| | | |
| | Three Months Ended
September 30, 2017 | | Nine Months Ended
September 30, 2017 |
| Volume | 4.9% | | 4.1% |
| Price | 8.3% | | 14.4% |
| | 13.2% | | 18.5% |
Sales increaseddecreased in the three months ended September 30, 2017March 31, 2023 compared to the prior year period by $42.7$78.5 million (approximately 13.2%16%) due primarily to higher(i) decreased sales pricesvolume (approximately 8.3%9%) and volume increasesdriven primarily by soft end market demand, (ii) net unfavorable market-based pricing (approximately 4.9%6%) of caprolactam, chemical intermediates, andreflecting lower pricing across our ammonium sulfate offset partially byand nylon product lines, and (iii) lower nylon volume. Sales prices increased due primarily to (i) higher prices of the raw materials used to manufacture caprolactam, nylon and chemical intermediates impacting formula-basedmaterial pass-through pricing (approximately 4.2% favorable impact), particularly4%) as a result of net cost decreases in benzene and propylene (inputs to cumene which is a key feedstock material forto our products), and (ii) market-based pricing due primarily to increases in nylon and caprolactam pricingpartially offset partially by lower pricesthe acquisition of ammonium sulfateU.S. Amines (approximately 4.1% favorable impact)3%).
Sales increasedCosts of Goods Sold
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| Three Months Ended
March 31, | | |
| 2023 | | 2022 | | | | |
| Costs of goods sold | $ | 330,042 | | | $ | 375,646 | | | | | |
| % change compared with prior year period | (12.1)% | | | | | | |
| Gross Margin percentage | 17.6% | | 21.6% | | | | |
Costs of goods sold decreased in the ninethree months ended September 30, 2017March 31, 2023 compared to the prior year period by $172.6$45.6 million or approximately 18.5%(approximately 12%) due primarily to higher salesdecreased prices of raw materials (approximately 14.4%12%) and lower sales volume increases (approximately 4.1%7%), including the impact of lower production, partially offset by an increase in plant spend related to additional maintenance and operational enhancements (approximately 4%) of ammonium sulfate, chemical intermediates and caprolactam offset partially by volume decreases of nylon. Sales prices increased due primarily to (i) higher pricesthe impact of the raw materials used to manufacture caprolactam, nylon and chemical intermediates impacting formula-based pass-through pricingU.S. Amines acquisition (approximately 10.5% favorable impact), particularly benzene and propylene, and (ii) market-based pricing due primarily to increases in nylon, caprolactam and chemical intermediates pricing offset partially by lower prices of ammonium sulfate (approximately 3.9% favorable impact)3%).
Costs of Goods Sold
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| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Costs of goods sold | $309,629 | | $285,091 | | $923,268 | | $804,471 |
| % change compared with prior year period | 8.6% | | | | 14.8% | | |
| Gross Margin percentage | 15.6% | | 12.0% | | 16.4% | | 13.7% |
Costs of goods sold increasedGross margin percentage decreased in the three months ended September 30, 2017March 31, 2023 compared to the prior year period by $24.5 million or approximately 8.6%4% due primarily to higher prices(i) lower sales volume including the impact of lower production (approximately 2%) and (ii) increased plant spend related to additional maintenance and operational enhancements (approximately 3%), partially offset by the impact of market-based pricing, net of raw materialsmaterial costs (approximately 5.7%), particularly benzene and propylene (inputs to cumene which is a key feedstock material for our products) and higher sales volumes (approximately 1.8%1%).
Selling, General and Administrative Expenses
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| Three Months Ended
March 31, | | |
| 2023 | | 2022 | | | | |
| Selling, general and administrative expenses | $ | 25,114 | | | $ | 21,210 | | | | | |
| Percentage of Sales | 6.3% | | 4.4% | | | | |
Selling, general and administrative expenses increased by approximately 3.6%$3.9 million in the three months ended September 30, 2017March 31, 2023 compared to the prior year period due primarily to higher sales prices net of rising raw materials costs (approximately 2.1%) and increased sales volumes (approximately 2.1%).
Costs of goods sold increased in the nine months ended September 30, 2017 comparedupgrades to the prior year period by $118.8 million or approximately 14.8% due primarily to higher prices of raw materials (approximately 13.4%), particularly benzene and propylene, and a one-time prior year benefit related to the termination of a long-term supply agreement in the three months ended March 31, 2016 (approximately 2.0% unfavorable).
Gross margin percentage increased by approximately 2.7% in the nine months ended September 30, 2017 compared to the prior year period due primarily to higher sales and production volumes on a year-over-year basis (approximately 3.7%) offset partially by the termination of a long-term supply agreement in the three months ended March 31, 2016 (approximately 1.4%).
Selling, General and Administrative Expenses
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| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Selling, general and administrative expenses | $19,086 | | $11,695 | | $54,022 | | $33,949 |
| Percent of sales | 5.2% | | 3.6% | | 4.9% | | 3.6% |
Selling, general and administrative expenses increased by $7.4 million and $20.1 million in the three and nine months ended September 30, 2017, respectively compared to the corresponding prior year periods due primarily to higher stand-alone costs incurred since the Spin-Off on October 1, 2016. These stand-alone costs are related primarily to workforceour enterprise resource planning systems and other infrastructure and shared facilities including costs for transition services provided by Honeywell which were partially offset by the elimination of costs allocated in the prior year to the Company from Honeywell on the basis of sales. The incremental one-time and ongoing stand-alone costs to operate our business as an independent public company remain in line with the Company’s expectations as previously disclosed in our Form 10 filed with the SEC and are expected to exceed the historical allocations of expenses from Honeywell. functional support costs.
Income Tax Expense
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| Three Months Ended
March 31, | | |
| 2023 | | 2022 | | | | |
| Income tax expense | $ | 9,275 | | | $ | 19,184 | | | | | |
| Effective tax rate | 21.0% | | 23.3% | | | | |
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| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Tax expense | $14,538 | | $11,342 | | $46,803 | | $36,712 |
| Effective tax rate | 40.6% | | 40.8% | | 38.6% | | 38.4% |
The Company’s effective tax rate for the three and nine months ended September 30, 2017March 31, 2023 approximated the U.S. federal statutory rate, due to the impacts of state taxes and executive compensation deduction limitations which generally increase the tax rate, offset by tax credits and the foreign-derived intangible income deduction which generally decrease the tax rate. Additionally, a current period discrete tax adjustment was higher comparedrecorded relating to the vesting of equity compensation that resulted in a 2.3% decrease to the Company's quarterly effective tax rate. The Company's effective tax rate for the three months ended March 31, 2022 differed from the U.S. federal statutory rate, due primarily to state taxes and changes inexecutive compensation deduction limitations which generally increase the Company's domestic manufacturing deduction. tax rate, partially offset by tax credits and the foreign-derived intangible income deduction which generally decrease the tax rate.
The Company’sCompany's effective tax rate for the three and nine months ended September 30, 2017 were comparableMarch 31, 2023 was lower than the prior year period due primarily to the vesting of equity compensation that resulted in a 2.3% decrease to the Company's quarterly effective tax ratesrate in the same priorcurrent period.
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 periods.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.
Net Income
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| 2023 | | 2022 | | | | |
| Net income | $ | 34,954 | | | $ | 63,073 | | | | | |
|
| | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Net income | $21,274 | | $16,460 | | $74,331 | | $58,861 |
As a result of the factors described above, netNet income was $21.3 million and $74.3$35.0 million for the three and nine months ended September 30, 2017, respectively,March 31, 2023 as compared to $16.5 million and $58.9$63.1 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, andAdjusted EBITDA Margin, Adjusted Net Income and EBITDA and EBITDA Margin excluding the prior year one-time benefit described below.Adjusted Earnings Per Share. Adjusted EBITDA is defined as Net income before Interest, Income taxes, Depreciation and amortization.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 aremanagement believes do not considered core toreflect 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 and EBITDA and EBITDA Margin excluding the prior year one-time benefit to their most directly comparable U.S. GAAP financial measure:
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| 2023 | | 2022 | | | | |
| Net income | $ | 34,954 | | | $ | 63,073 | | | | | |
| Non-cash stock-based compensation | 2,013 | | | 3,374 | | | | | |
| Non-recurring, unusual or extraordinary expenses | — | | | — | | | | | |
| Non-cash amortization from acquisitions | 532 | | | 201 | | | | | |
| Non-recurring M&A costs | — | | | 277 | | | | | |
| Benefit from income taxes relating to reconciling items | (435) | | | (556) | | | | | |
| Adjusted Net Income (non-GAAP) | 37,064 | | | 66,369 | | | | | |
| Interest expense, net | 1,267 | | | 563 | | | | | |
| Income tax expense - adjusted | 9,710 | | | 19,740 | | | | | |
| Depreciation and amortization - adjusted | 17,313 | | | 16,491 | | | | | |
| Adjusted EBITDA (non-GAAP) | $ | 65,354 | | | $ | 103,163 | | | | | |
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| Sales | $ | 400,544 | | | $ | 479,073 | | | | | |
| | | | | | | |
| Adjusted EBITDA Margin* (non-GAAP) | 16.3% | | 21.5% | | | | |
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| | | | | | | |
*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:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Net income | $ | 21,274 |
| | $ | 16,460 |
| | $ | 74,331 |
| | $ | 58,861 |
|
| Interest expense (income) | 1,961 |
| | — |
| | 5,373 |
| | — |
|
| Income taxes | 14,538 |
| | 11,342 |
| | 46,803 |
| | 36,712 |
|
| Depreciation and amortization | 12,565 |
| | 10,307 |
| | 35,524 |
| | 29,964 |
|
| EBITDA (non-GAAP) | 50,338 |
| | 38,109 |
| | 162,031 |
|
| 125,537 |
|
Prior year one-time benefit (1) | — |
| | — |
| | — |
| | 15,500 |
|
| EBITDA excluding prior year one-time benefit (non-GAAP) | $ | 50,338 |
| | $ | 38,109 |
| | $ | 162,031 |
| | $ | 110,037 |
|
| | | | | | | | |
| Sales | $ | 366,660 |
| | $ | 323,953 |
| | $ | 1,104,805 |
| | $ | 932,201 |
|
| | | | | | | | |
| EBITDA Margin (non-GAAP) | 13.7% | | 11.8% | | 14.7% | | 13.5% |
| | | | | | | | |
| EBITDA Margin excluding prior year one-time benefit (non-GAAP) | 13.7% | | 11.8% | | 14.7% | | 11.8% |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| | 2023 | | 2022 | | | | |
| | | | | | | | |
| Net Income | | $ | 34,954 | | | $ | 63,073 | | | | | |
| Adjusted Net Income (non-GAAP) | | 37,064 | | | 66,369 | | | | | |
| | | | | | | | |
| | | | | | | | |
| Weighted-average number of common shares outstanding - basic | | 27,601,784 | | | 28,199,871 | | | | | |
| Dilutive effect of equity awards and other stock-based holdings | | 984,779 | | | 1,171,180 | | | | | |
| Weighted-average number of common shares outstanding - diluted | | 28,586,563 | | | 29,371,051 | | | | | |
| | | | | | | | |
| EPS - Basic | | $ | 1.27 | | | $ | 2.24 | | | | | |
| EPS - Diluted | | $ | 1.22 | | | $ | 2.15 | | | | | |
| Adjusted EPS - Basic (non-GAAP) | | $ | 1.34 | | | $ | 2.35 | | | | | |
| Adjusted EPS - Diluted (non-GAAP) | | $ | 1.30 | | | $ | 2.26 | | | | | |
| |
(1) | Prior year one-time benefit reflects the $15.5 million one-time benefit in the first quarter of 2016 related to the termination of a long-term supply agreement. |
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 annualshort-term operating and longer termobjectives 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 as previously disclosed in Item 1A of Part I of our 20162022 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 operating 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, including the ongoing labor strike initiated by the Hopewell South bargain unit, as well as the prices of our raw materials, and general economic and industry trends.trends and customer demand. The Company applies a proactive and disciplined approach to working capital management to optimize cash flow and to enable capital allocation options in support of the Company’s strategy. We utilize asupply chain financing and trade receivables discount arrangementarrangements with a third partythird-party financial institutioninstitutions which enhancesoptimize terms and conditions related to accounts receivable and accounts payable in order to enhance liquidity and enablesenable us to efficiently manage our working capital needs. Although we continue to optimize supply chain financing and trade receivable programs in the ordinary course, our utilization of these arrangements has not had a material impact on our liquidity. In addition, we monitor the third-party depository institutions that hold our cash and cash equivalents. 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, including high return growthdividends and cost savingsliquidity 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 compliance costs, employee benefit obligations, interest payments, debt repayment and strategic acquisitions.("HSE") regulations. We believe that our future cash from operations, together with cash on hand and our access to funds on hand and credit and capital markets, will provide adequate resources to fund our expected operating and financing needs.needs and obligations. Our ability to fund our capital needs, however, will depend on our ongoing ability to generate cash from operations and access to credit and capital markets, both of which are subject to the risk factors previously disclosed in Item 1A of Part I of our 20162022 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 2023, the Company had approximately $1.8 million of cash on hand with approximately $372 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 $110 million to $120 million in 2023 compared to $89 million in 2022, reflecting increased spend due to critical infrastructure, other maintenance, and growth and cost savings projects.
We assumed from Honeywell International Inc. ("Honeywell") all health, safety and environmental (“HSE”)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 ourthe three current manufacturing locations and the other locationsassumed 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.
We expect that our primary cash requirements for 2023 will be material for 2017.to fund costs associated with ongoing operations, capital expenditures, and amounts related to other contractual obligations.
The Company made no cash contributions to the defined benefit pension plan during 2017 sufficientthe three months ended March 31, 2023. The Company plans to satisfy pension funding requirements under the AdvanSix Retirement Earnings Planmake cash contributions of between nil to $5 million in the aggregate amount of approximately $17 million2023 and will make additional contributions in future years sufficient to satisfy pension funding requirements in those periods.
The Company's Board of Directors (the "Board") has authorized share repurchase programs to repurchase shares of the Company's common stock as follows:
| | | | | | | | | | | | | | | | | | |
| Date of Authorization | | Authorized Amount (millions) | | | | | | Authorized Amount Remaining as of March 31, 2023 (millions) |
| May 4, 2018 | | $ | 75.0 | | | | | | | $ | — | |
| February 22, 2019 | | 75.0 | | | | | | | 25.2 | |
| February 17, 2023 | | 75.0 | | | | | | | 75.0 | |
| Totals | | $ | 225.0 | | | | | | | $ | 100.2 | |
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 March 31, 2023, the Company has repurchased a total of 4,864,127 shares of common stock life-to-date, including 841,354 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $149.6 million at a weighted average market price of $30.75 per share. As of March 31, 2023, $100.2 million remained available for share repurchases under the current authorization. During the period from April 1, 2023 through April 28, 2023, we repurchased an additional 105,573 shares at a weighted average market price of $38.95 per share primarily under the currently authorized repurchase program.
As of March 31, 2023, the Company did not have any off-balance sheet arrangements as described in Instruction 8 to Item 303(b) of Regulation S-K and did not have any material changes in the commitments or contractual obligations detailed in the Company's 2022 Form 10-K (see Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Liquidity and Capital Resources - Liquidity"). The Company made contributionshas not guaranteed any debt or commitments of $2.2 million in first quarterother entities or entered into any options on non-financial assets.
Dividends
The Company commenced the declaration of 2017, $1.6 million individends on September 28, 2021.
Since commencement of dividends, the second quarterCompany has declared dividends as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Date of Announcement | | Date of Record | | Date Payable | | Dividend per Share | | Total Approximate Dividend Amount ($M) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| 5/5/2023 | | 5/16/2023 | | 5/30/2023 | | $0.145 | | $ | 4.0 | | | | |
| 2/17/2023 | | 3/3/2023 | | 3/17/2023 | | $0.145 | | $ | 4.0 | | | | |
| 11/4/2022 | | 11/15/2022 | | 11/29/2022 | | $0.145 | | $ | 4.0 | | | | |
| 8/5/2022 | | 8/16/2022 | | 8/30/2022 | | $0.145 | | $ | 4.1 | | | | |
| 5/6/2022 | | 5/17/2022 | | 5/31/2022 | | $0.125 | | $ | 3.5 | | | | |
| 2/18/2022 | | 3/1/2022 | | 3/15/2022 | | $0.125 | | $ | 3.5 | | | | |
| 9/28/2021 | | 11/9/2021 | | 11/23/2021 | | $0.125 | | $ | 3.5 | | | | |
The timing, declaration, amount and payment of 2017, $11.1 million in third quarterfuture dividends to stockholders, if any, will fall within the discretion of 2017our Board. Holders of shares of our common stock will be entitled to receive dividends when, and $2.0 million in October 2017.
We expectif, 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 primary cash requirements for the remainder of 2017 will be to fund costs associated with ongoing operations including planned plant outages and capital expenditures.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 we incurred indebtednessbear 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 aggregate principalCredit 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, 2023 and through the date of the filing of this Form 10-Q.
We had a borrowed balance of $115 million under the Revolving Credit Facility at December 31, 2022. We borrowed an incremental net amount of $12 million during the three months ended March 31, 2023, bringing the balance under the Revolving Credit Facility to $127 million, and available credit for use of approximately $270.0$372 million in the formas of a term loan, the net proceeds of which were distributed to Honeywell substantially concurrent with the consummation of the Spin-Off, and we also entered into a $155.0 million revolving credit facility to fund our working capital and other cash needs. For information regarding our Credit Agreement, refer to “Note 9-Long-term Debt and Credit Agreement” to the Consolidated and Combined Financial Statements in Item 8 of our 2016 Form 10-K. Going forward, cashMarch 31, 2023. We expect that Cash provided by operating activities will be needed to fund future interest payments on the Company's outstanding indebtedness.
Under the terms of the Credit Agreement, we are subject to restrictive covenants that limit our ability, among other things, to incur additional indebtedness, pay dividends or make other distributions, and consolidate, merge, sell or otherwise dispose of assets, as well as financial covenants that require us to maintain interest coverage and leverage ratios at levels specified in the Credit Agreement. These covenants may limit how we conduct our business, and in the event of certain defaults, our repayment obligations may be accelerated. We were in compliance with all of our covenants at September 30, 2017. As of September 30, 2017, $152.9 million of the total credit facility of $425.0 million is available to be drawn under the Credit Agreement.
During the three months ended September 30, 2017, we borrowed $32.5 million in the aggregate from our revolving credit facility for our working capital and other cash needs and these borrowings were fully repaid by September 30, 2017. During the nine months ended September 30, 2017, we borrowed $308.5 million in the aggregate from our revolving credit facility for our working capital and other cash needs and these borrowings were fully repaid by September 30, 2017.
Cash Flow Summary
| | | | Nine Months Ended
September 30, | | Three Months Ended
March 31, |
| | 2017 | | 2016 | | 2023 | | 2022 |
| Cash provided by (used for): | |
| | |
| Cash provided by (used for): | | | |
| Operating activities | $ | 98,471 |
| | $ | 66,467 |
| Operating activities | $ | 1,575 | | | $ | 49,162 | |
| Investing activities | (72,593 | ) | | (57,320 | ) | Investing activities | (25,606) | | | (119,904) | |
| Financing activities | (91 | ) | | 28,817 |
| Financing activities | (5,128) | | | 74,948 | |
| Net increase in cash and cash equivalents | $ | 25,787 |
| | $ | 37,964 |
| |
| Net change in cash and cash equivalents | | Net change in cash and cash equivalents | $ | (29,159) | | | $ | 4,206 | |
Cash provided by operating activities increaseddecreased by $32.0$47.6 million for the ninethree months ended September 30, 2017March 31, 2023 versus the prior year period due primarily to (i) a $15.5$28.1 million increasedecrease in Netnet income versusand a $36.6 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 $57.3 million unfavorable cash impact from working capital for the three months ended March 31, 2023 compared to a $20.7 million unfavorable cash impact in the prior year period dueperiod. This was partially offset by (i) a $8.7 million favorable cash impact from Taxes receivable, (ii) a $5.1 million favorable cash impact from Other assets and liabilities primarily related to significantly higher salesthe timing of payments and (iii) a $3.3 million favorable cash impact primarily from lower short-term incentive payments during the three months ended March 31, 2023 compared to the prior year period.
Cash used for investing activities decreased by $94.3 million for the ninethree months ended September 2017, (ii) a $14.9 million larger decrease in Inventory during the nine months ended September 30, 2017March 31, 2023 versus the prior year period due primarily to cash paid for the timingacquisition of cumene purchases, (iii) a $11.9U.S. Amines for approximately $98.6 million increase in Accrued liabilities due to the timing of payments during the nineprior year period, and increased cash payments for capital expenditures of approximately $3.6 million during the prior year period due primarily to increased spend for critical infrastructure, other maintenance, and growth and cost savings projects.
Cash used for financing activities increased by $80.1 million for the three months ended September 30, 2017 versus the same period last year and (iv) a $11.3 million increase in deferred income taxesMarch 31, 2023 versus the prior year period due primarily to lower cash tax payments relative to the income tax provision. This activity was offset partially by a net $33.8borrowings of $12.0 million unfavorable cash impact from Accounts payable due primarily to the timing of payments during the ninethree months ended September 30, 2017 versus the prior year period.
Cash used for investing activities increased by $15.3March 31, 2023 compared to net borrowings of $85.0 million for the nine months ended September 30, 2017 versusduring the prior year period due primarily to an increase inpartially offset by payments for share repurchases of $13.5 million and cash paid for capital expendituresdividends of $10.3 million.
Cash from financing activities decreased by $28.9approximately $4.0 million forduring the ninethree months ended September 30, 2017 versus the prior year period. Cash provided by operating activities was sufficientMarch 31, 2023 compared to repay all current period borrowings under the revolving credit facility whereas revolver borrowings from$7.0 million and $3.5 million during the prior year period, were not repaid and remained outstanding during that period.respectively.
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 capacity,output, further improve mix, yield throughput, and cost position, and comply with environmental and safety regulations.
The following table summarizes ongoing and expansion capital expenditures:
|
| | | |
| | Nine Months Ended
September 30, 2017 |
| Capital expenditures in Accounts payable at December 31, 2016 | $ | 28,485 |
|
| Purchases of property, plant and equipment | 55,949 |
|
| Capital expenditures in Accounts payable at September 30, 2017 | (17,228 | ) |
| Cash paid for capital expenditures | $ | 67,206 |
|
| | | | | |
| Three Months Ended
March 31, 2023 |
| Capital expenditures in Accounts payable at December 31, 2022 | $ | 14,879 | |
| Purchases of property, plant and equipment | 17,917 | |
| Less: Capital expenditures in Accounts payable at March 31, 2023 | (8,193) | |
| Cash paid for capital expenditures | $ | 24,603 | |
For the full year 2017,2023, we expect the Company’sour total capital expenditures to be approximately $90 million.$110 million to $120 million to compared to $89 million in 2022, reflecting increased spend due to critical infrastructure, other maintenance, and growth and cost savings projects. Capital expenditures are deployed for various ongoing investments and initiatives to improve reliability, yield and quality, expand production capacity and comply with HSE regulations.
Critical Accounting Policies and Estimates
The preparation of our Condensed Consolidated and Combined Financial Statements in accordance with U.S. GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider these accounting policies to be critical to the understanding of our Condensed Consolidated and Combined Financial Statements. For a full description of our critical accounting policies, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the 2016our 2022 Form 10-K. While there have been no material changes to our critical accounting policies, or the methodologies or assumptions we apply under them, we continue to monitor such methodologies and assumptions.
Off-Balance Sheet Arrangements and Contractual Obligations
As of September 30, 2017, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any material changes in commitments or contractual obligations other than those detailed in our 2016 Form 10-K. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
Recent Accounting Pronouncements
See “Note 22. Recent Accounting Pronouncements” to the Condensed Consolidated and Combined Financial Statements included in Part I,I. Item 1 of this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to risk based on changes in interest rates during the three-month period ended March 31, 2023 relates primarily to ourthe Revolving Credit Agreement. We have not used derivative financial instruments in our investment portfolio.Facility. The Revolving Credit AgreementFacility bears interest at floating rates. For variable rate debt, interest rate changes generally do not affect the fair market value of such debt assuming all other factors remain constant but do impact future earnings and cash flows. Accordingly, we may be exposed to interest rate risk on borrowings under the Credit Agreement.
Based on current borrowing levels at March 31, 2023, a 25 basis25-basis point fluctuation in interest rates for the ninethree months ended September 30, 2017March 31, 2023 would resulthave resulted in an increase or decrease to our interest expense of approximately $0.5$0.3 million.
See “Note 12. Derivative and Hedging Instruments” to the Condensed Consolidated Financial Statements, included in Part I. Item 1 of this Form 10-Q, for a discussion relating to credit and market, commodity price and interest rate risk.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains a system of disclosure controls and procedures designed to giveprovide reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud have been, or will be, detected.
Our Chief Executive Officer and Chief Financial Officer, with the assistance of other members of our management, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at a reasonable assurance level as of March 31, 2023, the end of the period covered by this quarterly report.
Changes in Internal Control over Financial Reporting
Management has not identified any change in the Company’sCompany's internal control over financial reporting that occurred during the quarter ended September 30, 2017March 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Philadelphia Air Management Services (“PAMS”) notified the Company in November 2021 of certain alleged violations involving emission control equipment at the Company’s manufacturing facility in Philadelphia, Pennsylvania, which in each case were self-reported by the Company and subsequently corrected. The Company discussed this matter with PAMS and responded to various information requests. In April 2023, the Company and PAMS agreed to a settlement, pursuant to which the Company would pay a civil penalty of approximately $62 thousand.
The United States Environmental Protection Agency (“EPA”) and the Company entered into an Administrative Compliance Order on Consent in February 2023 in connection with alleged violations involving the Company’s risk management program at its manufacturing facility in Hopewell, Virginia. The Company has discussed this matter with the EPA and proposed a workplan and schedule for the implementation of improvements to the program. The Company also has entered into discussions with the EPA regarding an Administrative Compliance Order in connection with alleged violations involving the Company’s stormwater and other discharges. These EPA allegations may potentially subject the Company to penalties. Although the outcome of the matter cannot be predicted with certainty, we do not believe that it will have a material adverse effect on our consolidated financial position, results of operations or operating cash flows.
From time to time, we are involved in litigation relating to claims arising outoutside of the ordinary course of our business operations. We are not a party to, and, to our knowledge, there are not threats of anyno pending claims or actions against us, the ultimate disposition of which wouldcould be expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity.operating cash flows.
ITEM 1A. RISK FACTORS
There have been no material changes to our risk factors as previously disclosed in Item 1A of Part I of the Company’s 20162022 Form 10-K. 10-K, which are hereby incorporated by reference.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 4, 2018, the Company announced that the Board authorized a share repurchase program of up to $75 million of the Company’s common stock. On February 22, 2019, the Company announced that the Board authorized a share repurchase program of up to an additional $75 million of the Company's common stock, which was in addition to the remaining capacity authorized under the May 2018 share repurchase program. 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.
The below table sets forth the repurchases of Company common stock, by month, for the quarter ended March 31, 2023. During the quarter ended March 31, 2023, 84,676 shares were purchased under our share repurchase program and 248,378 shares were withheld to cover tax withholding obligations in connection with the vesting of equity awards.
ISSUER PURCHASES OF EQUITY SECURITIES | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plan | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan |
| January 2023 | | 12,710 | | | $ | 39.96 | | | 12,710 | | | $ | 27,943,734 | |
| February 2023 | | 4,460 | | | 40.76 | | | 4,460 | | | 102,761,950 | |
| March 2023 | (1) | 315,884 | | | 40.55 | | | 67,506 | | | 100,187,862 | |
| Total | | 333,054 | | | $ | 40.53 | | | 84,676 | | | |
(1) Total number of shares purchased includes 248,378 shares covering tax withholding obligations in connection with the vesting of equity awards
During the period April 1, 2023 through April 28, 2023, we repurchased an additional 105,573 shares at a weighted average market price of $38.95 per share primarily under the currently authorized repurchase program.
ITEM 6. EXHIBITS
|
| | | | | | | |
| Exhibit | | Description |
| 3.1 | | |
| 3.2 | | |
| 10.1 | | |
31.110.2 | | |
| 10.3 | | |
| 31.1 | | |
| 31.2 | | |
| 32.1 | | |
| 32.2 | | |
| 101.INS | | Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101) |
| | |
† Indicates management contract or compensatory plan.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | | | | | | | |
| ADVANSIX INC. |
| |
Date: November 7, 2017May 5, 2023 | By: | | /s/ Michael Preston |
| | | Michael Preston |
| | | Senior Vice President and Chief Financial Officer |