UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018March 31, 2019
or
oTRANSITION 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)

AdvanSix Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware81-2525089
(State or Other Jurisdictionother jurisdiction of
Incorporationincorporation or Organization)organization)
(I.R.S. Employer Identification No.)

300 Kimball Drive, Suite 101, Parsippany, New Jersey07054
(Address of Principal Executive Offices)principal executive offices)(Zip Code)
(973) 526-1800
(Registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or 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  o
Emerging growth company  o
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 o   No ý

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareASIXNew York Stock Exchange

The Registrant had 30,331,06928,363,471 shares of common stock, $0.01 par value, outstanding at July 27, 2018.April 26, 2019.



ADVANSIX INC.
FORM 10-Q
 
TABLE OF CONTENTS



 
Part I.
FINANCIAL INFORMATION
Part I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
3
3
4
5
6
7
78
Item 2.
1518
Item 3.
2225
Item 4.
2225
Part II.
OTHER INFORMATION
2326
Item 1.
Legal Proceedings
2326
Item 1A.
Risk Factors
2326
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
2327
Item 6.
Exhibits
2428
2529



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
June 30,		 Six Months Ended
June 30,		Three Months Ended
March 31,
2018 2017 2018 201720192018
Sales$400,459
 $361,441
 $759,697
 $738,145
Sales$314,895 $359,238 
Costs, expenses and other: 
  
    Costs, expenses and other:
Costs of goods sold342,958
 299,298
 664,278
 613,193
Costs of goods sold266,880 321,320 
Selling, general and administrative expenses17,919
 18,095
 37,132
 34,865
Selling, general and administrative expenses19,413 19,213 
Other non-operating expense (income), net1,582
 2,965
 5,128
 4,763
Other non-operating expense (income), net1,604 3,546 
362,459
 320,358
 706,538
 652,821
Total costs, expenses and otherTotal costs, expenses and other287,897 344,079 
       
Income before taxes38,000
 41,083
 53,159
 85,324
Income before taxes26,998 15,159 
Income taxes9,590
 15,317
 13,156
 32,265
Income tax expenseIncome tax expense6,824 3,566 
Net income$28,410

$25,766
 $40,003
 $53,059
Net income$20,174 $11,593 
       
Earnings per common share 
  
    Earnings per common share
Basic$0.93
 $0.85
 $1.31
 $1.74
Basic$0.70 $0.38 
Diluted$0.91
 $0.83
 $1.28
 $1.71
Diluted$0.68 $0.37 
Weighted average common shares outstanding 
  
    Weighted average common shares outstanding
Basic30,481,627
 30,482,966
 30,485,095
 30,482,966
Basic28,820,603 30,488,601 
Diluted31,305,168
 30,986,854
 31,294,323
 30,977,472
Diluted29,786,957 31,285,365 


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,
20192018
Net income$20,174 $11,593 
Foreign exchange translation adjustment(1)(1)
Cash-flow hedges(192)— 
Pension obligation adjustments— 410 
Other comprehensive income (loss), net of tax(193)409 
Comprehensive income$19,981 $12,002 
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
Net income$28,410
 $25,766
 $40,003
 $53,059
Foreign exchange translation adjustment(17) (1) (18) (3)
Pension obligation adjustments—
 —
 410
 —
Other comprehensive income (loss), net of tax(17) (1) 392
 (3)
Comprehensive income$28,393
 $25,765
 $40,395
 $53,056


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)




June 30, 2018 December 31, 2017March 31,
2019		December 31,
2018
ASSETS 
  
ASSETS
Current assets: 
  
Current assets:
Cash and cash equivalents$16,714
 $55,432
Cash and cash equivalents$7,803 $9,808 
Accounts and other receivables – net155,724
 196,003
Accounts and other receivables – net117,247 160,266 
Inventories – net122,129
 129,208
Inventories – net140,598 137,182 
Other current assets5,869
 7,130
Other current assets3,237 3,807 
Total current assets300,436
 387,773
Total current assets268,885 311,063 
Property, plant and equipment – net619,267
 612,612
Property, plant and equipment – net685,366 672,210 
Operating lease right-of-use assetsOperating lease right-of-use assets116,614 — 
Goodwill15,005
 15,005
Goodwill15,005 15,005 
Other assets36,443
 34,884
Other assets37,902 36,348 
Total assets$971,151
 $1,050,274
Total assets$1,123,772 $1,034,626 
   
LIABILITIES 
  
LIABILITIES
Current liabilities: 
  
Current liabilities:
Accounts payable$176,589
 $227,711
Accounts payable$188,169 $231,720 
Accrued liabilities28,208
 35,013
Accrued liabilities22,910 30,448 
Income taxes payable3,258
 1
Operating lease liabilities – short-termOperating lease liabilities – short-term24,929 — 
Deferred income and customer advances2,425
 17,194
Deferred income and customer advances20,694 22,556 
Line of credit – short-term18,300
 —
Current portion of long-term debt—
 16,875
Total current liabilities228,780
 296,794
Total current liabilities256,702 284,724 
Deferred income taxes99,121
 92,276
Deferred income taxes107,466 103,783 
Operating lease liabilities – long-termOperating lease liabilities – long-term91,802 — 
Line of credit – long-term191,700
 —
Line of credit – long-term220,000 200,000 
Long-term debt—
 248,339
Postretirement benefit obligations29,212
 33,396
Postretirement benefit obligations22,980 21,080 
Other liabilities4,261
 3,144
Other liabilities5,578 4,701 
Total liabilities553,074
 673,949
Total liabilities704,528 614,288 
   
COMMITMENTS AND CONTINGENCIES (Note 9)

 

COMMITMENTS AND CONTINGENCIES (Note 9)
   
STOCKHOLDERS' EQUITY 
  
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; 200,000,000 shares authorized;
30,524,738 shares issued and 30,445,636 outstanding at June 30, 2018;
30,482,966 shares issued and outstanding at December 31, 2017		305
 305
Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at June 30, 2018 and December 31, 2017—
 —
Treasury stock at par (79,102 shares at June 30, 2018; 0 shares at December 31, 2017)(1) —
Common stock, par value $0.01; 200,000,000 shares authorized; 30,578,212 shares issued and 28,573,744 outstanding at March 31, 2019; 30,555,715 shares issued and 29,345,001 outstanding at December 31, 2018Common stock, par value $0.01; 200,000,000 shares authorized; 30,578,212 shares issued and 28,573,744 outstanding at March 31, 2019; 30,555,715 shares issued and 29,345,001 outstanding at December 31, 2018306 306 
Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at March 31, 2019 and December 31, 2018Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at March 31, 2019 and December 31, 2018— — 
Treasury stock at par (2,004,468 shares at March 31, 2019; 1,210,714 shares at December 31, 2018)Treasury stock at par (2,004,468 shares at March 31, 2019; 1,210,714 shares at December 31, 2018)(20)(12)
Additional paid-in capital264,849
 263,081
Additional paid-in capital213,632 234,699 
Retained earnings161,578
 121,985
Retained earnings207,993 187,819 
Accumulated other comprehensive loss(8,654) (9,046)Accumulated other comprehensive loss(2,667)(2,474)
Total stockholders' equity418,077
 376,325
Total stockholders' equity419,244 420,338 
Total liabilities and stockholders' equity$971,151
 $1,050,274
Total liabilities and stockholders' equity$1,123,772 $1,034,626 
See accompanying notes to Condensed Consolidated Financial Statements.

5
ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 



Six Months Ended June 30,Three Months Ended
March 31,
2018 201720192018
Cash flows from operating activities: 
  
Cash flows from operating activities:
Net income$40,003
 $53,059
Net income$20,174 $11,593 
Adjustments to reconcile net income to net cash provided by operating activities:   
Adjustments to reconcile net income to net cash (used for) provided by operating activities:Adjustments to reconcile net income to net cash (used for) provided by operating activities:
Depreciation and amortization25,913
 22,959
Depreciation and amortization13,915 12,542 
Loss on disposal of assets1,336
 1,189
Loss on disposal of assets415 311 
Deferred income taxes6,845
 20,500
Deferred income taxes3,747 1,741 
Stock based compensation4,880
 3,619
Stock based compensation2,762 2,281 
Accretion of deferred financing fees1,589
 296
Accretion of deferred financing fees107 1,480 
Changes in assets and liabilities:   Changes in assets and liabilities:
Accounts and other receivables43,913
 (7,945)Accounts and other receivables43,018 33,092 
Inventories7,079
 (2,509)Inventories(3,416)4,573 
Accounts payable(33,442) (14,157)Accounts payable(30,674)(15,652)
Income taxes payable3,257
 4,949
Accrued liabilities(6,805) (227)Accrued liabilities(7,232)(9,631)
Deferred income and customer advances(14,769) (23,982)Deferred income and customer advances(1,862)(68)
Other assets and liabilities(2,578) 3,041
Other assets and liabilities1,122 1,805 
Net cash provided by operating activities77,221
 60,792
Net cash provided by operating activities42,076 44,067 
   
Cash flows from investing activities: 
  
Cash flows from investing activities:
Expenditures for property, plant and equipment(53,423) (47,785)Expenditures for property, plant and equipment(39,512)(30,713)
Other investing activities(1,254) (4,062)Other investing activities(587)(1,002)
Net cash used for investing activities(54,677) (51,847)Net cash used for investing activities(40,099)(31,715)
   
Cash flows from financing activities: 
  
Cash flows from financing activities:
Payment of long-term debt(266,625) —
Payments of long-term debtPayments of long-term debt— (266,625)
Borrowings from line of credit261,000
 276,000
Borrowings from line of credit85,500 246,000 
Payments of line of credit(51,000) (276,000)Payments of line of credit(65,500)(16,000)
Payment of line of credit fees(1,362) —
Principal payments under capital lease(162) (70)
Purchase of treasury shares(3,113) —
Payment of line of credit facility feesPayment of line of credit facility fees— (1,362)
Principal payments of finance leasesPrincipal payments of finance leases(145)(75)
Purchase of treasury stockPurchase of treasury stock(23,853)(370)
Issuance of common stockIssuance of common stock16 — 
Net cash used for financing activities(61,262)
(70)Net cash used for financing activities(3,982)(38,432)
   
Net change in cash and cash equivalents(38,718) 8,875
Net change in cash and cash equivalents(2,005)(26,080)
Cash and cash equivalents at beginning of period55,432
 14,199
Cash and cash equivalents at beginning of period9,808 55,432 
Cash and cash equivalents at the end of period$16,714

$23,074
Cash and cash equivalents at the end of period$7,803 $29,352 
   
Supplemental non-cash investing activities: 
  
Supplemental non-cash investing activities:
Capital expenditures included in accounts payable$7,704
 $16,980
Capital expenditures included in accounts payable$14,039 $9,753 
   
Supplemental cash investing activities: 
  
Supplemental cash investing activities:
Cash paid for interest$3,204
 $5,244
Cash paid for interest$1,040 $1,777 
Cash paid for income taxes$2,240
 $6,671
Cash paid for income taxes$21 $179 
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 Earnings (Accumulated Deficit)Treasury StockAccumulated  Other Comprehensive Income (Loss)Total Equity
SharesAmount
Balance at December 31, 201830,555,715 $306 $234,699 $187,819 $(12)$(2,474)$420,338 
Net Income— — — 20,174 — — 20,174 
Comprehensive income
Foreign exchange translation adjustments— — — — — (1)(1)
Cash-flow Hedges— — — — — (192)(192)
Pension obligation adjustments— — — — — — — 
Other comprehensive income (loss), net of tax— — — — — (193)(193)
Issuance of common stock22,497 — 16 — — — 16 
Purchase of treasury stock (793,754 shares)— (23,845)— (8)— (23,853)
Stock-based compensation— — 2,762 — — — 2,762 
Balance at March 31, 201930,578,212 $306 $213,632 $207,993 $(20)$(2,667)$419,244 




Common StockAdditional Paid-In CapitalRetained Earnings (Accumulated Deficit)Treasury StockAccumulated  Other Comprehensive Income (Loss)Total Equity
SharesAmount
Balance at December 31, 201730,482,966 $305 $263,081 $121,985 $— $(9,046)$376,325 
Net Income— — — 11,593 — — 11,593 
Comprehensive income
Foreign exchange translation adjustments— — — — — (1)(1)
Cash-flow Hedges— — — — — — — 
Pension obligation adjustments— — — (410)— 410 — 
Other comprehensive income (loss), net of tax— — — (410)— 409 (1)
Issuance of common stock25,356 — — — — — — 
Purchase of treasury stock (8,995 shares)— (370)— — — (370)
Stock-based compensation— — 2,281 — — — 2,281 
Balance at March 31, 201830,508,322 $305 $264,992 $133,168 $— $(8,637)$389,828 











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") is an integrated manufacturer of Nylon 6, a polymer resin which is a synthetic material used by our customers to produce engineered plastics, fibers, filaments and films that, in turn, are used in such end-products as automotive and electronic components, carpets, sports apparel, fishing nets and food and industrial packaging. As a result of our backward integration and the configuration of our manufacturing facilities, we also sell a variety of other products, all of which are produced as part of our integrated Nylon 6 resin manufacturing process including caprolactam, ammonium sulfate fertilizers, acetone and other chemical intermediates.

Separation from Honeywell
On October 1, 2016, Honeywell International Inc. (“Honeywell”) completed the separation of AdvanSix. The separation was completed by Honeywell distributing (the “Distribution”) all of the then outstanding shares of common stock of AdvanSix on October 1, 2016 (the “Distribution Date”) through a dividend in kind of AdvanSix common stock, par value $0.01, to holders of Honeywell common stock as of the close of business on the record date of September 16, 2016 who held their shares through the Distribution Date (the “Spin-Off”). Each Honeywell stockholder who held their shares through the Distribution Date received one share of AdvanSix common stock for every 25 shares of Honeywell common stock held at the close of business on the record date of September 16, 2016. We filed our Form 10 describing the Spin-Off with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on September 8, 2016 (the “Form 10”). On October 3, 2016, AdvanSix stock began “regular-way” trading on the New York Stock Exchange under the “ASIX” stock symbol.


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 June 30, 2018,March 31, 2019, and its results of operations for the three and six months ended June 30, 2018 and 2017, and cash flows for the sixthree months ended June 30, 2018March 31, 2019 and 2017.2018. The Condensed Consolidated Balance SheetsSheet at December 31, 2017 were2018 was derived from audited annual financial statements but dodoes not contain all of the footnote disclosures from the annual financial statements. 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 (the "2017 Form 10-K") for the year ended December 31, 2017.2018  (the "2018 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 existed within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, we will provide the appropriate disclosures. Our actual closing dates for the three and six months ended JuneMarch 31, 2019 and 2018 were March 30, 2019 and March 31, 2018, and 2017 were June 30, 2018 and July 1, 2017, respectively.respectively.
 
Liabilities to creditors to whom we have issued checks that remained outstanding at June 30, 2018,March 31, 2019 and December 31, 20172018 aggregated $5.7 million and $8.5$7.7 million, respectively, and were included in Cash and cash equivalents and Accounts payable in the Condensed Consolidated Balance Sheets.

The Company submitted a business interruption insurance claim related to the 2018 weather event and recorded a benefit of $6.6 million to Cost of goods sold in the first quarter of 2019.

On May 4, 2018, the Company announced that its Board of Directors authorized a share repurchase program of up to $75 million of the Company’s common stock. Repurchases may be made from time to time on the open market, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange Act.Act of 1934, as amended (the "Exchange Act"). The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The share repurchase program has no expiration date and may be modified, suspended or discontinued at any time. The Company had approximately 30.4
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)

million shares of common stock outstanding as of June 30, 2018. 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.


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

8
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



As of June 30, 2018,March 31, 2019, the Company had repurchased 70,1071,977,668 shares of common stock for an aggregate of $2.7$61.3 million under the currently authorized program at a weighted average market price of $39.10$31.00 per share. As of June 30, 2018, $72.3March 31, 2019, $88.7 million remained available for share repurchases under the currently authorized program.programs, including the amount available under the program announced on February 22, 2019.


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


In FebruaryOctober 2018, the Financial Accounting Standards Board (“FASB”)FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive IncomeNo. 2018-16, Derivatives and Hedging (Topic 220), Reclassification815): Inclusion of Certain Tax Effects from Accumulated Other Comprehensive Income, that allows companiesthe Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which permits use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to reclassifythe UST, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the SIFMA Municipal Swap Rate. Pursuant to Retained earnings the stranded tax effects in Accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act (the "Tax Act").amendments, SOFR will be an option to replace LIBOR as it is phased out. The amendments inof ASU 2018-02No. 2018-16 are effective for all entitiescompanies that have adopted ASU 2017-12 for fiscal years beginning after December 15, 2018, andincluding interim periods within thosethat fiscal years.year or at such time a company adopts ASU 2017-12. Early adoption of the amendments in this updateASU 2018-16 is not permitted includingwithout previous adoption in any interim period. Theof ASU 2017-12. As the Company elected to early adopt this guidanceASU 2017-12 during the fourth quarter of 2018, the Company adopted ASU 2018-16 effective January 1, 2018 and to reclassify the stranded tax effects from the Tax Act from Accumulated other comprehensive income to Retained earnings (see Note 10).
In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715), in order to improve the presentation of net periodic pension and postretirement costs. The amendment requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside2019, which did not have a subtotal of income from operations, if one is presented. The amendments in this ASU also allow only the service cost component to be eligible for capitalization when applicable. The amendments in this update related to income statement activity were applied retrospectively whereas balance sheet activity was applied prospectively. For public business entities, the effective date for ASU 2017-07 was annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company adopted this guidance effective January 1, 2018 and there was nomaterial impact on the Company’sCompany's consolidated financial position andor results of operations upon adoption other than pension expense reclassifications in the 2017 Consolidated Statement of Operations which reduced Costs of goods sold and Selling, general and administrative expenses and increased Other non-operating expense (income), net.adoption.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases. The new standard also requires disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018 (early adoption is permitted). TheInitial guidance stated that the new standard should be applied under a modified retrospective approach. approach with periods prior to the adoption date being adjusted. During July 2018, however, the FASB issued ASU 2018-11, Leases (Topic 842), providing another transition method allowing a company to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjusting prior periods. The Company adopted the standard effective January 1, 2019 electing the cumulative-effect adjustment approach made available in ASU 2018-11, allowing a company to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has also elected the following practical expedients:

•the package of three expedients which allows the Company not to re-assess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, and (iii) initial direct costs for any expired or existing leases; 
•the short-term lease practical expedient, which allows the Company to exclude leases with an initial term of 12 months or less (“short-term leases”) from recognition in the unaudited Condensed Consolidated Balance Sheet;
•the bifurcation of lease and non-lease components practical expedients, which did not require the Company to bifurcate lease and non-lease components for our real estate leases; and
•the land easements practical expedient, which allows the Company to carry forward the accounting treatment for land easements on existing agreements.

We continuehave implemented internal controls and key system functionality to evaluateenable the preparation of financial information on adoption. The standard had a material impact of the new standard on the Company’s consolidated financial position, results of operations and related disclosures. Although we havein our Condensed Consolidated Balance Sheet, but did not yet completed our assessment, adoption of this standard will have a significant impact on the Consolidated Balance Sheets.  However, we do not expect adoption of this standard to have a significant impact onin the recognition, measurement or presentation of lease expenses within the Condensed Consolidated Statements of Operations or the Condensed Consolidated Statements of Cash Flows. Information aboutThe most significant impact was the recognition of right-of-use (“ROU”) assets and liabilities for operating leases, while our undiscounted future lease payments and the timing of those payments is provided under “Contractual Obligations” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2017 Form 10-K.  The Company plans to adopt this standard effective January 1, 2019. accounting for finance leases remained substantially unchanged. See "Note 8. Leases" for further information. 

In May 2014, the FASB issued ASU 2014-09,
3. Revenues

Revenue from Contracts with Customers (Topic 606), which replaced the existing accounting standards for revenue recognition with a single comprehensive five-step model eliminating industry-specific accounting rules. The core principle is to recognize revenue upon the transfer of goods or services to customers at an amount that reflects the consideration expected to be received. Since its issuance, the FASB amended several aspects of the new guidance, including provisions that address revenue recognition associated with the licensing of intellectual property. The provisions of ASU 2014-09 became effective for public business entities for interim and annual periods beginning after December 15, 2017. The Company adopted this standard effective January 1, 2018 using the modified retrospective method of transition and there was no cumulative impact adjustment on the Company’s Consolidated Financial Position and Results of Operations. Under this standard, revenueRecognition

9
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



recognition from the Company's products remained unchanged from the Company's previous revenue recognition model. As a result of adopting this standard, the Company expanded its revenue recognition disclosures (see Note 3).
3. Revenues

Revenue Recognition

The Company recognizes revenue upon the transfer of control of goods or services to customers at amounts that reflect the consideration expected to be received. AdvanSix primarily recognizes revenues when title and control of the product transfers from the Company to the customer. Outbound shipping costs incurred by the Company are not included in revenues but are reflected as freight expense in Costs of goods sold in the Consolidated Statements of Operations.
Sales of our products to customers are made under a purchase order, and in certain cases in accordance with the terms of a master services agreement. These agreements typically contain formula-based pass-through pricing tied to key feedstock materials and volume ranges, but often do not specify the goods, including the quantities thereof, to be transferred. Certain master services agreements (including with respect to our largest customer) may contain minimum purchase volumes which can be satisfied by the customer on a periodic basis by choosing from various products offered by the Company. In these cases, a performance obligation is created when a customer submits a purchase order for a specific product at a specified price, typically providing for delivery within the next 60 days. The Company considers the performance obligation with respect to such purchase order satisfied at the point in time when control of the product is transferred to the customer, which is indicated by shipment of the product and transfer of title and risk of loss to the customer. Variable consideration is estimated for future volume rebates and early pay discounts on certain products and product returns.  The Company records variable consideration as an adjustment to the sale transaction price.  Since variable consideration is generally settled within one year, the time value of money is not significant.
The Company applies the practical expedient in Topic 606 and does not include disclosures regarding remaining performance obligations that have original expected durations of one year or less, or amounts for variable consideration allocated to wholly-unsatisfied performance obligations or wholly-unsatisfied distinct goods that form part of a single performance obligation, if any.
The Company also utilizes the practical expedient in Topic 606 and does not include an adjustment for the effects of a significant financing component given the expected period duration of one year or less.
We serve more thanapproximately 500 customers annually in more than 40 countries and across a wide variety of industries. For the three months ended June 30,March 31, 2019 and 2018, and 2017, the Company's ten largest customers accounted for approximately 45% of total sales for each period. For the six months ended June 30, 2018 and 2017, the Company’s ten largest customers accounted for approximately 45% and 43% 48% and 47% of total sales, respectively.
We typically sell to customers under contracts,master service agreements, with one- to two-year terms on average, or by purchase orders. We have historically experienced low customer turnover.turnover and have an average customer relationship of approximately 20 years. Our largest customer is Shaw Industries Group Inc. ("Shaw"), one of the world's largest consumers of caprolactam and Nylon 6 resin. We sell Nylon 6 resin and caprolactam to Shaw under a long-term agreement. For the three months ended March 31, 2019 and 2018, our sales to Shaw were 22% and 21%, respectively, of our total sales. 
Each of the Company’s product lines represented the following approximate percentage of total sales for the three and six months ended June 30, 2018March 31, 2019 and 2017:2018:
Three Months Ended
March 31,
20192018
Nylon31%  28%  
Caprolactam20%  18%  
Ammonium Sulfate Fertilizers21%  19%  
Chemical Intermediates28%  35%  
100%  100%  
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
Nylon27% 29% 28% 29%
Caprolactam19% 18% 18% 19%
Ammonium Sulfate Fertilizers21% 21% 20% 20%
Chemical Intermediates33% 32% 34% 32%
 100% 100% 100% 100%


The Company's revenues by geographic area for the three and six months ended June 30,March 31, 2019 and 2018 and 2017 were as follows:
ADVANSIX INC.
Three Months Ended
March 31,
20192018
United States$257,642 $297,648 
International57,253 61,590 
Total$314,895 $359,238 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)

 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
United States$342,497
 $299,537
 $640,145
 $600,035
International57,962
 61,904
 119,552
 138,110
Total$400,459
 $361,441
 $759,697
 $738,145


Deferred Income and Customer Advances
The Company defers revenues when cash payments are received in advance of our performance. Customer advances relate primarily to sales from the ammonium sulfate business. Below is a roll-forward of Deferred incomeIncome and customer advancesCustomer Advances for the sixthree months ended June 30, 2018:March 31, 2019:
Opening balance January 1, 2018$17,194
Additional cash advances                2,107
Less amounts recognized in revenues(16,876)
Ending balance June 30, 2018$2,425
Opening balance January 1, 2019$22,556 
Additional cash advances1,083 
Less amounts recognized in revenues(2,945)
Ending balance March 31, 2019$20,694 
The Company expects to recognize as revenue the June 30, 2018March 31, 2019 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 and six months ended June 30,March 31, 2019 and 2018 and 2017 were asas follows:
 
10
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



Three Months Ended
June 30,		 Six Months Ended
June 30,		Three Months Ended
March 31,
2018 2017 2018 201720192018
Basic 
  
  
  
Basic
Net Income$28,410
 $25,766
 $40,003
 $53,059
Net Income$20,174 $11,593 
Weighted average common shares outstanding30,481,627
 30,482,966
 30,485,095
 30,482,966
Weighted average common shares outstanding28,820,603 30,488,601 
EPS – Basic$0.93
 $0.85
 $1.31
 $1.74
EPS – Basic$0.70 $0.38 
Diluted 
  
  
  
Diluted
Dilutive effect of unvested equity awards and other stock-based holdings823,541
 503,888
 809,228
 494,506
Dilutive effect of equity awards and other stock-based holdingsDilutive effect of equity awards and other stock-based holdings966,354 796,764 
Weighted average common shares outstanding31,305,168
 30,986,854
 31,294,323
 30,977,472
Weighted average common shares outstanding29,786,957 31,285,365 
EPS – Diluted$0.91
 $0.83
 $1.28
 $1.71
EPS – Diluted$0.68 $0.37 


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 year.

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. For the three months ended June 30,March 31, 2019 and 2018, and 2017, stock options of 128,777330,823 and 175,026,53,117, respectively, were anti-dilutive and excluded from the computations of dilutive EPS.

On March 2, 2018, the Company granted equity awards representing 231,162 shares of common stock under the 2016 Stock Incentive Plan of AdvanSix Inc. and its Affiliates (the "2016 Stock Plan") to Company employees consisting of 128,777 stock options, 58,078 performance stock units (at target) and 44,307 restricted stock units. These equity awards have a per share strike price (for stock options) or grant date fair value per share (for performance stock units and restricted stock units) of $41.97 with vesting periods ranging from 12 to 36 months.
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)


On June 14, 2018, the Company granted equity awards representing 20,760 shares of common stock under the 2016 Stock Plan to certain Company employees and the Company’s Board of Directors consisting of restricted stock units. These equity awards have a grant date fair value per share of $40.74 with vesting periods ranging from 12 to 36 months.


In September 2017, the Board adopted the AdvanSix Inc. Deferred Compensation Plan (the “DCP”), effective January 1, 2018. Pursuant to the DCP, our directors may elect to defer their cash retainer fees and allocate their deferrals to the AdvanSix stock unit fund.  Each unit allocated under the stock unit fund represents the economic equivalent of one share of common stock. Units are paid out in shares of AdvanSix Inc. common stock upon distribution. As of June 30, 2018,March 31, 2019, a total of 5,33117,011 units were allocated to the AdvanSix stock unit fund under the DCP during 2018.DCP. 


In the second quarter of 2018, the Company repurchased 70,107 shares of common stock for $2.7 million at a weighted average market price of $39.10 per share. The purchase of shares under the repurchase program reduces the weighted average number of shares outstanding in the basic and diluted earnings per share calculations.

5. Accounts and Other Receivables – Net
March 31,
2019		December 31,
2018
Accounts receivables$122,769 $166,017 
Other1,798 1,716 
Total accounts and other receivables124,567 167,733 
Less – allowance for doubtful accounts(7,320)(7,467)
Total accounts and other receivables – net$117,247 $160,266 
 June 30, 2018 December 31, 2017
Accounts receivables$155,185
 $188,477
Other2,235
 8,936
Total accounts and other receivables157,420
 197,413
Less – allowance for doubtful accounts(1,696) (1,410)
Total accounts and other receivables – net$155,724
 $196,003


The decrease in Total accounts and other receivables – net at June 30, 2018March 31, 2019 versus December 31, 20172018 was due primarily to lower raw material pass-through pricing, lower sales volumes, and increased collections during the sixthree months ended June 30, 2018March 31, 2019 related to a trade receivables discount arrangement with a third-party financial institution, which enhances liquidity and enables the Company to efficiently manage its working capital needs, as well as the collection of a Federal income tax refund.institution.


6. Inventories
March 31,
2019		December 31,
2018
Raw materials$62,469 $55,002 
Work in progress42,502 46,728 
Finished goods41,234 39,368 
Spares and other25,222 24,555 
171,427 165,653 
Reduction to LIFO cost basis(30,829)(28,471)
Total inventories – net$140,598 $137,182 

11
 June 30, 2018 December 31, 2017
Raw materials$50,151
 $48,502
Work in progress43,269
 50,511
Finished goods32,816
 35,430
Spares and other24,364
 23,091
 150,600
 157,534
Reduction to LIFO cost basis(28,471) (28,326)
Total inventories – net$122,129
 $129,208
The decrease in Total inventories – net as of June 30, 2018 compared to December 31, 2017 is due to lower levels of production, including the impact of the unplanned weather-related outage in January 2018, during the six months ended June 30, 2018.

7. Long-term Debt and Credit Agreement

The Company’s debt at June 30, 2018 consisted of the following:
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)




Total term loan outstanding$—
Amounts outstanding under the Revolving Credit Facility210,000
Total outstanding indebtedness210,000
Less: Line of credit – short-term(18,300)
Line of credit – long-term$191,700

At June 30, 2018, the Company assessed the amount recorded under the Revolving Credit Facility (defined below) and determined that such amounts approximate fair value. The fair values of the debt are based on quoted inactive market prices and are therefore classified as Level 2 within the valuation hierarchy.

The outstanding balances under the Revolving Credit Agreement are classified as $18.3 million as short-term and $191.7 million as long-term. The amount included in Line of credit - short-term, noted above and included on the accompanying Condensed Consolidated Balance Sheets, represents the outstanding balance the Company anticipates paying within one year.

Credit Agreement

On February 21, 2018 (the “Amendment Date”), the Company entered into Amendment No. 1 (the “Amendment”) to the Credit Agreement, dated September 30, 2016 (the “Original Credit Agreement”), among the Company, the guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent (the Original Credit Agreement, after giving effect to the Amendment, the “Amended and Restated Credit Agreement”).

The credit facilities under the Original Credit Agreement consisted of a senior secured term loan in an aggregate principal amount of $270 million, of which $267 million was outstanding just prior to entering into the Amendment, and a senior secured revolving credit facility in a principal amount of $155 million. Pursuant to the Amendment, (i) the term loan facility under the Original Credit Agreement was terminated and the entire outstanding balance of the term loan facility (the “Term Loan”) thereunder was paid in full and (ii) the maximum aggregate principal amount of the senior secured revolving credit facility (the “Revolving Credit Facility”) was increased to $425 million.

On the Amendment Date, the Company borrowed $242 million under the Revolving Credit Facility. The proceeds of such loans, as well as cash on hand, were used to repay the outstanding Term Loan under the Original Credit Agreement. The Revolving Credit Facility under the Amended and Restated Credit Agreement has a 5-year term with a scheduled maturity date of February 21, 2023. The Amendment resulted in an increase in the Revolving Credit Facility to replace the Term Loan and provides increased borrowing flexibility and reduced overall borrowing costs with an approximate 50 basis point reduction in the interest rate spread.

The Amended and Restated Credit Agreement permits the Company to utilize up to $40 millionTotal inventories – net as 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 incur incremental 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 Senior Secured Leverage Ratio (as defined in the Amended and Restated Credit Agreement) would not be greater than 1.75 to 1.00, in each case, to the extent that any one or more lenders, whether or not currently party to the Amended and Restated Credit Agreement, commits to be a lender for such amount. Borrowings under the Amended and Restated Credit Agreement bear interest at a rate equal to either the sum of a base rate plus a margin ranging from 0.50% to 1.50% or the sum of a Eurodollar rate plus a margin ranging from 1.50% to 2.50%, with either such margin varying according to the Company’s Consolidated Leverage Ratio (as defined in the Amended and Restated 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 0.20% to 0.40% per annum depending on the Company’s Consolidated Leverage Ratio. The initial margin under the Amended and Restated Credit Agreement is 0.75% for base rate loans and 1.75% for Eurodollar rate loans and the initial commitment fee rate is 0.25% per annum. Substantially all domestic tangible and intangible assets of the Company and its subsidiaries are pledged as collateral to secure the obligations under the Amended and Restated Credit Agreement.

The Amended and Restated 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 Amended and Restated Credit Agreement also contains financial covenants that require the Company to maintain a Consolidated Interest Coverage Ratio (as defined in the Amended and Restated Credit Agreement) of not less than 3.00 to 1.00 and to maintain a Consolidated Leverage Ratio of (i) 3.50 to 1.00 or less for the fiscal quarter ending March 31, 2018, through and including the fiscal quarter ending2019 compared to December 31, 2019, (ii) 3.252018 is primarily due to 1.00 or less forhigher levels of raw materials driven by the fiscal quarter ending March 31, 2020, through and includingtiming of cumene deliveries.
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)

the fiscal quarter ending December 31, 2020, (iii) 3.00 to 1.00 or less for the fiscal quarter ending March 31, 2021, through and including the fiscal quarter ending December 31, 2021, and (iv) 2.75 to 1.00 or less for the fiscal quarter ending March 31, 2022 and each fiscal quarter thereafter (subject to the Company’s option to elect a consolidated leverage ratio increase in connection with certain acquisitions). If the Company does not comply with the covenants in the Amended and Restated Credit Agreement, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding under the Revolving Credit Facility.

In addition to the amount borrowed on the Amendment Date, the Company has since borrowed an incremental $19 million ($4 million in first quarter and $15 million in second quarter) for working capital purposes under the Revolving Credit Facility and repaid $51 million ($16 million in first quarter and $35 million in second quarter) to bring the balance under the Revolving Credit Facility to $210 million at June 30, 2018.

The Company had approximately $6.6 million of letter of credit agreements outstanding at June 30, 2018, of which $5.5 million are bi-lateral letters of credit and $1.1 million are provided to the Company under the Revolving Credit Facility.

8.7. Postretirement Benefit Cost
 
The components of net periodic benefit cost of the Company’s pension plan are as follows:
Three Months Ended
March 31,
20192018
Service costService cost$1,714 $2,001 
Interest costInterest cost521 469 
Expected return on plan assetsExpected return on plan assets(334)(287)
Three Months Ended
June 30,		 Six Months Ended
June 30,
2018 2017 2018 2017
Service costs$2,001
 $1,908
 $4,003
 $3,816
Interest costs469
 333
 938
 666
Expected return on plan assets(287) (76) (575) (152)
Net periodic benefit cost$2,183
 $2,165
 $4,366
 $4,330
Net periodic benefit cost$1,901 $2,183 
 
The Company plans tomade no pension plan contributions during the three months ended March 31, 2019. However, the Company will make contributions during calendar year 20182019 sufficient to satisfy pension funding requirements under the AdvanSix Retirement Earnings Plan in an aggregate amount of approximately $10.0$3 to $15.0$8 million and will make additional contributions in future years sufficient to satisfy pension funding requirements in those periods. The Company made contributions of $2.0 million in the first quarter of 2018 and $6.6 million in the second quarter of 2018. 

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


8. Leases

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

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease and, when it is reasonably certain that such an option will be exercised, it is included in the determination of the corresponding assets and liabilities. Short-term leases are not recognized on our unaudited Condensed Consolidated Balance Sheets. Lease expense for all lease payments is recognized on a straight-line basis over the lease term. 

We have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities. The Company has entered into agreements to lease transportation equipment, storage facilities, office space, dock access and other equipment. The leases have initial terms of up to 20 years with some containing renewal options subject to customary conditions.

The components of lease expense were as follows:
12
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 31,2019
Finance lease cost:
Amortization of right-of-use asset$148 
Interest on lease liabilities18 
Total finance lease cost166 
Operating lease cost7,570 
Short-term lease cost4,282 
Total lease cost$12,018 

Supplemental cash flow information related to leases was as follows:
Three Months Ended March 31,2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$7,457 
Operating cash flows from finance leases13 
Financing cash flows from finance leases145 
Non-cash information:
Right-of-use assets obtained in exchange for lease obligations:
Operating leases4,569 
Finance leases406 

Supplemental balance sheet information related to leases was as follows:
March 31,
2019
Operating Leases
Operating lease right-of-use assets$116,614 
Operating lease liabilities – short term24,929 
Operating lease liabilities – long term91,802 
Total operating lease liabilities$116,731 
Finance Leases
Property, plant and equipment – gross$2,168 
Accumulated depreciation(878)
Property, plant and equipment – net$1,290 
Accounts payable540 
Other liabilities753 
Total finance lease liabilities$1,293 
Weighted Average Remaining Lease Term
Operating leases10.75 years
Finance leases2.53 years
Weighted Average Discount Rate
Operating leases6.10 %
Finance leases5.39 %

The cumulative effect of the changes made to the Condensed Consolidated Balance Sheets for the adoption of the new leasing standard on January 1, 2019 was as follows:
13
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



Balance Sheet accounts prior to new leasing standard adoption adjustmentsAdjustments due to the adoption of the new leasing standardBalance Sheet accounts after the new leasing standard adoption adjustments
ASSETS
Property, plant and equipment – net$1,032 $— $1,032 
Operating lease right-of-use assets— 117,921 117,921 
Total assets1,034,626 $117,921 1,152,547 
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable$318 $— $318 
Operating lease liabilities – short term— 24,794 24,794 
Total current liabilities284,724 24,794 309,518 
Operating lease liabilities – long term— 93,127 93,127 
Other liabilities762 — 762 
Total liabilities614,288 117,921 732,209 
Total equity420,338 — 420,338 
Total liabilities and equity1,034,626 $117,921 1,152,547 

Maturities of lease liabilities were as follows:
Year Ending December 31,Operating LeasesFinance Leases
2019 (remainder)$23,435 $452 
202030,466 543 
202118,683 307 
202213,798 83 
202311,200 — 
Thereafter69,473 — 
Total lease payments167,055 1,385 
Less imputed interest(50,324)(92)
Total$116,731 $1,293 

As previously disclosed in our 2018 Form 10-K and under the previous lease accounting standard, future minimum lease payments for leases having initial or remaining non-cancellable lease terms in excess of one year would have been as follows:
Year Ending December 31,Operating LeasesCapital Leases
2019$36,110 $239 
202029,318 212 
202116,111 131 
202211,571 89 
20239,104 — 
Thereafter26,627 — 
Total lease payments$128,841 671 

9. Commitments and Contingencies
 
14
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



The Company is subject to a number of lawsuits, investigations and disputes, (somesome of which involve substantial amounts claimed)claimed, arising out of the conduct of the Company or other third partiesthird-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 (taking into consideration any insurance recoveries), based on an analysis of each matter with the assistance of legal counsel and, if applicable, other experts.
 
Given the uncertainty inherent in such lawsuits, investigations and disputes, the Company does not believe it is possible to develop estimates of reasonably possible loss in excess of current accruals for these matters. Considering the Company’s past experience and existing accruals, the Company does not expect the outcome of these matters, either individually or in the aggregate, to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. 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.
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



On March 13, 2018, a federal search warrant was executed at the Company’s Hopewell, Virginia manufacturing facility. On the same date, the Company was separately served with a grand jury subpoena issued by the U.S. District Court for the Eastern District of Virginia, which requested documents related to the Hopewell facility’s air emissions and its compliance with the terms of a previously disclosed 2013 consent decree with the federal government and the Commonwealth of Virginia. The Company was notified during the first quarter of 2019 that the U.S. Attorney’s Office for the Eastern District of Virginia has closed its investigation and no further action by the Company is required. The Company continues to cooperate fully with the authoritiesremaining narrowed inquiry by the U.S. Environmental Protection Agency and is providing information in response to the subpoena.Department of Justice criminal divisions. The Company’s production across its sites was not affectedremains unaffected by these events and the Company expects to continue operating safely at plan moving forward. While the Company may incur penalties or fines in connection with the remaining federal inquiry, the amount of such penalties or fines, if any, cannot be reasonably estimated at this time.


Following the Spin-Off, the CompanyWe assumed from Honeywell all health, safety and environmental (“HSE”) liabilities and compliance obligations related to the past and future operations of our current business, as well as all HSE liabilities associated with our three current manufacturing locations and the other locations used in our current operations, including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past. Honeywell retained all HSE liabilities related to former business locations or the operation of our former businesses. Although we have ongoing environmental remedial obligations at certain of our facilities, in the past three years, the associated remediation costs have not been material, and we do not expect our known remediation costs to be material for 2018.2019.


10. Income Taxes
 
The Company’s provision for income taxes in interim periods is computed by applying an estimated annual effective tax rate against Income before taxes for the period in addition to recording any tax effects of discrete items for the three and six months ended June 30, 2018. For interim reporting purposes, the Company recorded a benefit to the Income taxes of $0.2 million as a discrete item related to excess tax benefits associated with the vesting of restricted stock units for the six months ended June 30, 2018.quarter. The provision for income taxes was $9.6$6.8 million and $15.3$3.6 million for the three months ended June 30,March 31, 2019 and 2018, and 2017, respectively. The provision for income taxes was $13.2 million and $32.3 million for the six months ended June 30, 2018 and 2017, respectively.


As a result
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 early adoptionfair value measurement. During the fourth quarter of ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, during the six months ended June 30, 2018, the Company electedacquired a royalty stream which has been treated as an asset acquisition and entered into an interest rate swap transaction related to its credit agreement. The purchase price of the royalty stream for $1.0 million approximates its fair value at December 31, 2018 and is considered a Level 3 asset. The fair value measurement is based on the expected future cash flows and, as there is no reason to believe that the asset is impaired, it is assumed that the valuation remains unchanged at March 31, 2019. The fair value of the interest rate swap loss at March 31, 2019 is approximately $1.1 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.

15
ADVANSIX INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts and as otherwise noted)



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

The Company also has assets that are required to be recorded at fair value on a non-recurring basis. These assets are evaluated when certain triggering events occur (including a decrease in estimated future cash flows) that indicate the asset should be evaluated for impairment. Goodwill and indefinite lived intangible assets must be evaluated at least annually.

12. Derivative and Hedging Instruments

The specific 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, a 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 has one customer that accounted for approximately 12% and 20% of trade accounts receivable – net at March 31, 2019 and 2018, respectively.

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, 2019 and 2018, we had no contracts with notional amounts related to forward commodity agreements.

Interest Rate Risk Management – On November 6, 2018, the Company entered into an interest rate swap agreement, with a maturity date of November 30, 2021, to hedge the variability in expected future 1 Month LIBOR-based interest payment cash flows. In accordance with ASC 815, the Company designated the interest rate swap as a cash flow hedge of floating-rate borrowings. This interest rate swap agreement locks in the Company’s interest rate payments on the first $50 million of variable-rate, 1-month LIBOR-based debt, thus reducing the impact of interest-rate changes on future interest expense. This agreement involves the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreement without an exchange of the underlying principal amount.

16
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, 2019December 31, 2018
Balance Sheet ClassificationFair ValueBalance Sheet ClassificationFair Value
Derivatives designated as hedging instruments under ASC 815:
Interest Rate ContractsAccrued liabilities and Other liabilities(1,089) Accrued liabilities and Other liabilities(833)
Total Derivatives$(1,089)$(833)

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,
2019
Loss on derivative instruments included in Accumulated other comprehensive income at December 31, 2018$(833)
Fair value adjustment(256)
Loss on derivative instruments included in Accumulated other comprehensive income at March 31, 2019$(1,089)

At March 31, 2019, the Company expects to reclassify approximately $0.4 million of net losses on derivative instruments from Accumulated other comprehensive income to Retained earnings. The reclassification results fromearnings during the remeasurement of deferred taxes pursuantnext 12 months due to the Tax Act relatedpayment of variable interest associated with the floating rate debt.

13. Subsequent Events

On May 2, 2019, the Company approved the closure of its Pottsville, Pennsylvania films plant as part of its broader strategic efforts associated with the films product line in North America to improve the Company’s pension plan that was recognized as a component of Income taxes related to continuing operationscompetitive position in providing quality products and services for the year ended December 31, 2017 which was originally recognized in Other comprehensive income. The Company elected the optional transition method and recorded the adjustment at the beginning of the period of adoption of ASU 2018-02. The Company’s current accounting policy related to stranded tax effects in Accumulated other comprehensive income is to review and reclassify on an item by item basis.

its customers. The Company has not made any adjustmentsalso announced a strategic alliance with a third-party producer of films for the flexible packaging industry combining the Company's channel to North America with their new state-of-the-art manufacturing facility. The Company expects the closure to be completed during the third quarter of 2019. Subject to the finalization of certain estimates, the Company expects to take a pre-tax repositioning charge associated with the closure of approximately $10 to 12 million in the six months ended June 30, 2018second quarter of 2019. The expected charge consists of approximately $6 million associated with a non-cash impairment of plant and business related assets. Future cash expenses associated with the charge are anticipated to the financial impactsbe approximately $2 million for employee separation benefits and $3 million of the Tax Act recorded as provisional amounts in 2017 under Staff Accounting Bulletin No. 118.other exit and removal costs.



17

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 elsewhere in this Report, as well as the MD&A section included in our Annual Report on Form 10-K for the year ended December 31, 20172018 filed with the SECSecurities and Exchange Commission ("SEC") on February 27, 201822, 2019 (the “2017“2018 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 near- and long-term, including those incorporated by reference in Item 1A of Part II of this Report 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 Report 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, words such as “anticipate,” “believe,” “will,” “estimate,” “expect,” "plan," “intend” and similar expressions identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information then available to, our management at the time such statements are made. ActualThey 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 factors including those detailed in our 2018 Form 10-K and subsequent filings 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.


Separation from Honeywell

On October 1, 2016, Honeywell International Inc. (“Honeywell”) completed the separation of AdvanSix Inc. The separation was completed by Honeywell distributing all of the then outstanding shares of common stock of AdvanSix on October 1, 2016 (the “Distribution Date”) through a dividend in kind of AdvanSix common stock, par value $0.01, to holders of Honeywell common stock as of the close of business on the record date of September 16, 2016 who held their shares through the Distribution Date (the “Spin-Off”). Each Honeywell stockholder who held their shares through the Distribution Date received one share of AdvanSix common stock for every 25 shares of Honeywell common stock held at the close of business on the record date of September 16, 2016. We filed our Form 10 describing the Spin-Off with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on September 8, 2016 (the “Form 10”). On October 3, 2016, AdvanSix stock began “regular-way” trading on the New York Stock Exchange under the “ASIX” stock symbol.

Business Overview
 
We produce and sell our Nylon 6 resin and caprolactam as a commodity productsproduct and produce and sell our Nylon 6 resin as both a commoditized and specialized resin product. The production of these products is capital intensive, requiring ongoing investments to improve plant reliability, expand production capacity and achieve higher quality. Our results of operations are primarily driven by production volume and the spread between the sales prices of our products and the costs of the underlying raw materials built into the market-based pricing models for most of our products. 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. Generally, Nylon 6 resin prices track the cyclicality of caprolactam prices, although prices set above the spread are achievable when nylon resin manufacturers, like AdvanSix, formulate and produce specialized nylon resin products. Our specialized Nylon 6 products are typically valued at a higher level than commodity resin products.


Since theFollowing a peak in 2011 through the first half of 2016, nylon and caprolactam prices 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 newwas the result of Chinese manufacturers, resulting in margin compressionwhich compressed industry margins for Nylon 6 resin and caprolactam in recent years to historic lows. Beginning inSince the second half of 2016, 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 certainGDP; applications including engineeredsuch as packaging and engineering plastics and packaging, growinghave potential to grow at faster rates.rates given certain macrotrends. Additionally, one of our strategies is to continue developing specialty nylonhigher-value, differentiated Nylon 6 products, such as our co-polymer offerings, in current and nylon 6 based copolymer products that we believe will generate higher margins.new customer 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. Other global factors driving ammonium sulfate fertilizer demand are general agriculture trends, including crop prices.the price of crops.


We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, but quarterly sales experience cyclicalityseasonality 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 and then typically decline seasonally with new season fill in the third quarter. Due to the ammonium sulfate fertilizer sales cycle, we occasionally build
18

up higher inventory balances because our production is continuous and not tied to seasonal demand for fertilizers. Sales of most of our other products have generally been subject to minimal, or no, seasonality.


We also manufacture, market and sell a number of chemical intermediate products that are derived from the chemical processes within our integrated supply chain. Most significant is acetone, which is used by our customers in the production of adhesives, paints, coatings and solvents. Prices for acetone are influenced by its own supply and demand dynamics but can also be influenced by the underlying move in propylene input costs.


We 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. Our production processes are capital intensive, requiring ongoing investments to improve plant reliability, expand production capacity and achieve higher quality. We schedule several planned outagesturnarounds each year, referred to as plant turnarounds, to conduct routine and major maintenance across our facilities. 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 appropriate buffer inventory of intermediate chemicals necessary for our manufacturing process, which are intended to mitigate the extent of any production losses as a result of planned and unplanned downtime.


While our integrated manufacturing, scale and the quantity and range of our product offerings make us one of the most efficient manufacturers in our industry, itthese attributes also exposesexpose us to increased risk associated with unplanned downtime or material disruptions at any one of our production facilities which could impact the supply chain throughout our manufacturing process. Should unplanned outagesinterruptions occur, we may not have enough buffer inventory at any given time to offset such production losses. Moreover, taking our production facilities offline for regularly scheduled repairs can be an expensive and time-consuming operation with risk that discoverable items and delays during the repair process may cause unplanned downtime as well.


Recent Developments


On May 2, 2019, the Company approved the closure of its Pottsville, Pennsylvania films plant as part of its broader strategic efforts associated with the films product line in North America to improve the Company’s competitive position in providing quality products and services for its customers. The Company has also announced a strategic alliance with a third-party producer of films for the flexible packaging industry, combining the Company's channel to North America with their new state-of-the-art manufacturing facility. The Company expects the closure to be completed during the third quarter of 2019. Subject to the finalization of certain estimates, the Company expects to take a pre-tax repositioning charge associated with the closure of approximately $10 to 12 million in the second quarter of 2019. The expected charge consists of approximately $6 million associated with a non-cash impairment of plant and business related assets. Future cash expenses associated with the charge are anticipated to be approximately $2 million for employee separation benefits and $3 million of other exit and removal costs.

On March 13, 2018, a federal search warrant was executed at the Company’s Hopewell, Virginia manufacturing facility. On the same date, the Company was separately served with a grand jury subpoena issued by the U.S. District Court for the Eastern District of Virginia, which requested documents related to the Hopewell facility’s air emissions and its compliance with the terms of a previously disclosed 2013 consent decree with the federal government and the Commonwealth of Virginia. As previously reported in our 2018 Form 10-K, the Company was notified during the first quarter of 2019 that the U.S. Attorney’s Office for the Eastern District of Virginia has closed its investigation and no further action by the Company is required. The Company continues to cooperate fully with the authoritiesremaining narrowed inquiry by the U.S. Environmental Protection Agency and is providing information in response to the subpoena.Department of Justice criminal divisions. The Company’s production across its sites was not affectedremains unaffected by these events and the Company expects to continue operating safely at plan moving forward. While the Company may incur penalties or fines in connection with the remaining federal inquiry, the amount of such penalties or fines, if any, cannot be reasonably estimated at this time.


On MayFebruary 19, 2019, the Company announced that it filed anti-dumping duty petitions covering imports of acetone with the International Trade Commission ("ITC") and U.S. Department of Commerce. The petitions allege that dumped acetone imports into the United States from Belgium, Korea, Saudi Arabia, Singapore, South Africa, and Spain have caused material injury to the domestic industry. On April 4, 2018,2019, the ITC voted to continue the anti-dumping duty investigations concerning imports of acetone from all such nations other than Saudi Arabia. The Company continues to expect the investigation process to be completed over the next 10 to 12 months.

19

On February 22, 2019, the Company announced that its Board of Directors authorized a share repurchase program of up to an additional $75 million of the Company’s common stock. This authorization is in addition to the remaining capacity under our $75 million share repurchase program previously announced in May 2018. Repurchases may be made from time to time on the open market, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act. The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The share repurchase program has no expiration date and may be modified, suspended or discontinued at any time. The Company had approximately 30.4 million shares of common stock outstanding as of June 30, 2018. See Part II, Item 2 of this Form 10-Q for information regarding the Company's repurchase activity during the three months ended June 30, 2018.March 31, 2019.


2019 Operational Events

On March 11, 2019, the Company announced that it declared force majeure on its phenol product line as a result of shortages and delivery delays of its key raw material, cumene. The Company's cumene deliveries were reduced due to weather related logistics disruptions in the Gulf Coast area and supplier operational constraints. As a result of this force majeure event, phenol production at the Company's Frankford, Pennsylvania facility and caprolactam production at its Hopewell, Virginia facility were reduced. The Company incurred an approximately $6.9 million unfavorable impact to pre-tax income in the first quarter of 2019, including the unfavorable impact of fixed cost absorption and incremental logistics costs. In addition, the Company incurred an approximately $1.4 million unfavorable impact to pre-tax income in the first quarter of 2019 due to lost sales.

2018 Operational Events


On January 17, 2018, the Company announced that it had experienced a temporary production issue at its Hopewell, Virginia facility related to the severe winter weather. As a result of this unplanned interruption, caprolactam and resin production had been reduced at the Hopewell and Chesterfield, Virginia facilities. As a result of these events, theThe Company incurred a $20 million unfavorable impact to pre-tax income in the first quarter of 2018 including the impact of fixed cost absorption, maintenance expense and incremental raw material costs. In addition, the Company incurred an approximately $10 million unfavorable impact to pre-tax income in the first quarter of 2018 due to lost sales. The Company informed its customers of this force majeure event and actively worked to mitigate the impact of reduced production output on its customers’ operations. As previously disclosed, the required mechanical repair work was completed as expected. The Company has submitted a business interruption insurance claim.claim and recorded a total benefit of $9.4 million to date, of which a $6.6 million benefit was recorded to cost of goods sold in the first quarter of 2019.




Results of Operations
(Dollars in thousands, unless otherwise noted)
 
Sales

Three Months Ended
June 30,		 Six Months Ended
June 30,		Three Months Ended
March 31,
2018 2017 2018 201720192018
Sales$400,459 $361,441 $759,697 $738,145Sales$314,895 $359,238 
% change compared with prior year period10.8%   2.9% 
% change compared with prior year period(12.3)% 

The change in sales compared to the prior year period is attributable to the following:

 Three Months Ended
June 30, 2018		 
Six Months Ended
 June 30, 2018
Volume4.0% (1.9)%
Price6.8% 4.8%
 10.8% 2.9%
Three Months Ended
March 31, 2019
Volume(3.2)%
Price(9.1)%
(12.3)%


Sales increaseddecreased in the three months ended June 30, 2018March 31, 2019 compared to the prior year period by $39.0$44.3 million or approximately 11%(approximately 12%) due primarily to higherlower sales prices of 7%(approximately 9%) driven by (i) formula-based pass-through pricing (approximately 12% unfavorable impact), particularly for benzene and propylene (inputs to cumene which is a key feedstock material for our products), and volume(ii) market-based price increases of 4% driven by(3% favorable impact) in nylon, ammonium sulfate and caprolactam partially offset by decreases in chemical intermediates, particularly acetone. Volume decreased by approximately 3% due primarily to the phenol force majeure event discussed above and chemical intermediates.continued challenging acetone industry dynamics, partially offset by improved nylon production.

Sales increasedCosts of Goods Sold
20

Three Months Ended
March 31,
20192018
Costs of goods sold$266,880 $321,320 
% change compared with prior year period(16.9)% 
Gross Margin percentage15.2%  10.6%  

Costs of goods sold decreased in the sixthree months ended June 30, 2018March 31, 2019 compared to the prior year period by $21.6$54.4 million or approximately 3% due to higher sales prices of 5% driven by (i) formula-based pass-through pricing (approximately 4% favorable impact), and (ii) market-based price increases in nylon, ammonium sulfate and caprolactam (approximately 1% favorable impact) offset partially by volume decreases of 2% associated with the unplanned outage in January 2018.

Costs of Goods Sold
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
Costs of goods sold$342,958 $299,298 $664,278 $613,193
% change compared with prior year period14.6%   8.3%  
Gross Margin percentage14.4% 17.2% 12.6% 16.9%
Costs of goods sold increased in the three months ended June 30, 2018 compared to the prior year period by $43.7 million or approximately 15%17%) due primarily to (i) higherlower prices of raw materials, particularly benzene and propylene (approximately 9%13%), (ii) lower manufacturing costs versus higher sales volumes of ammonium sulfate, caprolactam and chemical intermediatesspend in the prior year driven primarily by the first quarter 2018 weather event (approximately 3%), and (iii) increased manufacturing costs including purchases of feedstocksbusiness interruption insurance proceeds related to the first quarter 2018 weather event claim (approximately 2%) which are normally manufactured by the Company (approximately 3%).

Costs of goods sold increasedwere recorded in the six months ended June 30, 2018 compared to the prior year period by $51.1 million or approximately 8% due primarily to the (i) the unplanned outage in January 2018 in which the Company incurred an unfavorable impactfirst quarter of approximately $20 million for the impact of fixed cost absorption, maintenance expense and higher costs associated with the purchase of feedstocks which are normally manufactured by the Company (approximately 5%), and (ii) higher prices of raw materials, particularly benzene and propylene (approximately 5%) offset partially by lower sales volumes (approximately 1%).2019.


Gross margin percentage decreasedincreased by approximately 3%5% in the three months ended June 30, 2018 compared to the prior year period due primarily to increased manufacturing costs including purchases of feedstocks which are normally manufactured by the Company as well as the impact of formula-based pass-through pricing as discussed above.

Gross margin percentage decreased by approximately 4% in the six months ended June 30, 2018 compared to the prior year period due primarily to the impact of the unplanned outage in January 2018 as discussed above.




Selling, General and Administrative Expenses
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
Selling, general and administrative expenses$17,919 $18,095 $37,132 $34,865
Percent of sales4.5% 5.0% 4.9% 4.7%
Selling, general and administrative expenses decreased by $0.2 million in the three months ended June 30, 2018March 31, 2019 compared to the prior year period due to (i) the impact of market-based pricing discussed above (approximately 3%), (ii) lower IT infrastructuremanufacturing costs associated withversus the exitimpact of Honeywell transition services,the first quarter 2018 weather event (approximately 3%), and (iii) business interruption insurance proceeds related to the first quarter 2018 weather event claim (approximately 2%) partially offset by legal costs associated with the federal inquiry atunfavorable impact of the Hopewell facility discussed above.phenol force majeure event, overall operating performance and challenging acetone industry dynamics.

Selling, General and Administrative Expenses

Three Months Ended
March 31,
20192018
Selling, general and administrative expenses$19,413 $19,213 
Percent of sales6.2%  5.3%  

Changes in Selling, general and administrative expenses increased by $2.3 million inwere not materially different when comparing the sixthree months ended June 30, 2018 compared to the prior year period due primarily to legal costs associated with the federal inquiry at the Hopewell facilityMarch 31, 2019 and stand-alone costs related to the build-out of IT infrastructure.2018.

Tax Expense

Three Months Ended
June 30,		 Six Months Ended
June 30,		Three Months Ended
March 31,
2018 2017 2018 201720192018
Tax expense$9,590 $15,317 $13,156 $32,265Tax expense$6,824 $3,566 
Effective tax rate25.2% 37.3% 24.7% 37.8%Effective tax rate25.3%  23.5%  

The Company’s effective tax rate for the three and six months ended June 30,March 31, 2019 and 2018 was higher compared to the U.S. federal statutory rate due primarily to state taxes and executive compensation deduction limitations resulting from the passage of the Tax Act offset partially by the newly enacted foreign-derived intangible income deduction and the discreteexcess tax benefitbenefits related to vesting of restricted stock units.units and the research and development tax credit. The Company’s effective tax rate for the three and six months ended June 30, 2018March 31, 2019 was lowerhigher than the prior year period due primarily to an increase in expected non-deductible executive compensation amounts for 2019, a decrease in the passagebenefits from the vesting of restricted stock units and a lower benefit anticipated from the Tax Act which reducedforeign-derived intangible income deduction in the corporate tax ratefirst quarter of 2019 compared to 21% from 35% for periods beginning after December 31, 2017.2018.


Net Income

Three Months Ended
March 31,
20192018
Net income$20,174 $11,593 

21
 Three Months Ended
June 30,		 Six Months Ended
June 30,
 2018 2017 2018 2017
Net income$28,410 $25,766 $40,003 $53,059

As a result of the factors described above, Net income was $28.4 million and $40.0$20.2 million for the three and six months ended June 30, 2018, respectively,March 31, 2019 as compared to $25.8 million and $53.1$11.6 million in the corresponding prior year period.


Non-GAAP Measures
(Dollars in thousands, unless otherwise noted)
 
The following tables set forth the non-GAAP financial measures of EBITDA and EBITDA Margin. EBITDA is defined as Net income before Interest, Income taxes, Depreciation and amortization. EBITDA Margin is equal to 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 are not considered core to the Company’s 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 GAAP. Non-GAAP financial measures should be read only in conjunction with the comparable GAAP financial measures. The Company's non-GAAP measures may not be comparable to other companies' non-GAAP measures.




The following is a reconciliation between the non-GAAP financial measures of EBITDA and EBITDA Margin to their most directly comparable GAAP financial measure:

Three Months Ended
June 30,		 Six Months Ended
June 30,		Three Months Ended
March 31,
2018 2017 2018 201720192018
Net income$28,410
 $25,766
 $40,003
 $53,059
Net income$20,174 $11,593 
Interest expense, net1,598
 1,873
 4,688
 3,412
Interest expense, net1,107 3,089 
Income taxes9,590
 15,317
 13,156
 32,265
Income taxes6,824 3,566 
Depreciation and amortization13,371
 11,663
 25,913
 22,959
Depreciation and amortization13,915 12,542 
EBITDA (non-GAAP)$52,969
 $54,619
 $83,760

$111,695
EBITDA (non-GAAP)$42,020 $30,790 
       
Sales$400,459
 $361,441
 $759,697
 $738,145
Sales$314,895 $359,238 
       
EBITDA Margin (non-GAAP)13.2% 15.1% 11.0% 15.1%EBITDA Margin (non-GAAP)13.3%  8.6%  

Liquidity and Capital Resources
(Dollars in thousands, unless otherwise noted)
 
We believe that cash balances and operating cash flows, together with available capacity under our credit agreement, will provide adequate funds to support our current annualshort-term operating and longer termobjectives as well as our longer-term strategic plans, subject to the risks and uncertainties outlined below and in the risk factors as previously disclosed in our 20172018 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 as well as the prices of our raw materials and general economic and industry trends. We utilize asupply chain financing and trade receivables discount arrangementarrangements with a third partythird-party financial institutioninstitutions which enhancesenhance liquidity and enablesenable us to efficiently manage our working capital needs. 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 growth and cost savings investments, share repurchases, employee benefit obligations, interest payments, debt management and strategic acquisitions. 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. Our ability to fund our capital needs, however, will depend on our ongoing ability to generate cash from
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operations and access to credit and capital markets, both of which are subject to the risk factors previously disclosed in our 20172018 Form 10-K, as well as general economic, financial, competitive, regulatory and other factors that are beyond our control.
 
We assumed from Honeywell all health, safety and environmental (“HSE”) liabilities and compliance obligations related to the past and future operations of our current business, as well as all HSE liabilities associated with our three current manufacturing locations and the other locations used in our current operations including any cleanup or other liabilities related to any contamination that may have occurred at such locations in the past. Honeywell retained all HSE liabilities related to former business locations or the operation of our former businesses. Although we have ongoing environmental remedial obligations at certain of our facilities, in the past three years, the associated remediation costs have not been material, and we do not expect our known remediation costs to be material for 2018.2019.
 
We expect that our primary cash requirements for the remainder of 20182019 will be to fund costs associated with ongoing operations, costs associated with planned plant outages, capital expenditures, share repurchases pension benefit obligations, and amounts related to other contractual obligations.


The Company plans to make totalmade no pension plan contributions during 2018the three months ended March 31, 2019. However, the Company will make contributions during 2019 sufficient to satisfy pension funding requirements in an aggregate amount of approximately $10.0$3 to $15.0 million. In 2018, the Company made$8 million and will make additional contributions of approximately $2.0 million during the first quarter and $6.6 million in the second quarter.future years sufficient to satisfy pension funding requirements in those periods. 


On May 4, 2018, the Company announced that its Board of Directors authorized a share repurchase program of up to $75 million of the Company’s common stock. Repurchases may be made from time to time on the open market, including through the use of


trading plans intended to qualify under Rule 10b5-1 of the Exchange Act. The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The repurchase program has no expiration date and may be modified, suspended or discontinued at any time. TheOn February 22, 2019, the Company had approximately 30.4announced that its Board of Directors authorized a share repurchase program of up to an additional $75 million shares of the Company’s common stock outstanding as of June 30, 2018.stock. This authorization is in addition to the remaining capacity authorized under our $75 million share repurchase program previously announced in May 2018, which is described above.


As of June 30, 2018,March 31, 2019, the Company had repurchased 70,1071,977,668 shares of common stock for an aggregate of $2.7$61.3 million under the share repurchase program authorized in May 2018 at a weighted average market price of $39.10$31.00 per share. As of June 30, 2018, $72.3March 31, 2019, $88.7 million remained available for repurchase under the currently authorized program.programs. During the period JulyApril 1, 20182019 through July 31, 2018,April 26, 2019, we repurchased an additional 124,767210,273 shares at a weighted average market price of $38.32$29.90 per share. After giving effect to these repurchases, we have approximately $67.5 million$82.4 million of remaining capacity authorized under the currently authorized program.programs.


Credit Agreement
 
On February 21, 2018 (the “Amendment Date”), the Company entered into Amendment No. 1 (the “Amendment”) to the Credit Agreement, dated September 30, 2016 (the “Original Credit Agreement”), among the Company, the guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent (the Original Credit Agreement, after giving effect to the Amendment, the “Amended and Restated Credit Agreement”).


The credit facilities under the Original Credit Agreement consisted of a senior secured term loan in an aggregate principal amount of $270 million, of which $267 million was outstanding just prior to entering into the Amendment, and a senior secured revolving credit facility in a principal amount of $155 million. Pursuant to the Amendment, (i) the term loan facility under the Original Credit Agreement was terminated and the entire outstanding balance of the term loan facility (the “Term Loan”) thereunder was paid in full, and (ii) the maximum aggregate principal amount of the senior secured revolving credit facility (the “Revolving Credit Facility”) was increased to $425 million.


On the Amendment Date, the Company borrowed $242 million under the Revolving Credit Facility. The proceeds of such loans, as well as cash on hand, were used to repay the outstanding Term Loan under the Original Credit Agreement. The Revolving Credit Facility under the Amended and Restated Credit Agreement has a 5-year term with a scheduled maturity date of February 21, 2023. The Amendment resulted in an increase in the Revolving Credit Facility to replace the Term Loan and provides increased borrowing flexibility and reduced overall borrowing costs with an approximate 50 basis point reduction in the interest rate spread.


The Amended and Restated 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
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assets, as well as financial covenants that require the Company to maintain interest coverage and leverage ratios at levels specified in the Amended and Restated 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 June 30, 2018.March 31, 2019. As of June 30, 2018, $213.9March 31, 2019, $204 million is available for use out of the total credit facility of $425 million under the Amended and RestatedRevolving Credit Agreement.Facility.


In addition to the amount borrowed on the Amendment Date, the Company has since borrowed an incremental $19$86 million ($4 million in first quarter and $15 million in second quarter) for working capital purposes under the Revolving Credit Facility and repaid $51$66 million ($16 million in first quarter and $35 million in second quarter) to bring the balance under the Revolving Credit Facility to $210$220 million at June 30, 2018.March 31, 2019. Going forward, we expect that cash provided by operating activities will fund future interest payments on the Company's outstanding indebtedness.


For additional details regarding the Amended and Restated Credit Agreement, refer to “Note 7. Long-term Debt and Credit Agreement” to the Condensed Consolidated Financial Statements.



Cash Flow Summary
 Six Months Ended June 30,
 2018 2017
Cash provided by (used for): 
  
Operating activities$77,221
 $60,792
Investing activities(54,677) (51,847)
Financing activities(61,262) (70)
Net change in cash and cash equivalents$(38,718) $8,875


Three Months Ended
March 31,
20192018
Cash provided by (used for):
Operating activities$42,076 $44,067 
Investing activities(40,099)(31,715)
Financing activities(3,982)(38,432)
Net change in cash and cash equivalents$(2,005)$(26,080)

Cash provided by operating activities increaseddecreased by $16.4$2.0 million for the sixthree months ended June 30, 2018March 31, 2019 versus the prior year period due primarily to (i) a $51.4$7.1 million improvement in working capital (comprised of Accounts receivables, Inventories, Accounts payable and Deferred income and customer advances) with higher collections providing $43.9 million of cash from Accounts and other receivables duringfor the sixfirst three months ended June 30, 2018 compared toMarch 31, 2019 versus a $7.9$21.9 million unfavorable cash impactimprovement in the prior year period, partially offset by (i) a $19.3$8.6 million reduction in Accounts payable due to the timing of payments during the six months ended June 30, 2018, (ii) a $13.1 million decreaseincrease in Net income versus the prior year period, due primarily to the January 2018 unplanned outage, and (iii)(ii) a $13.7 million less favorable cash impact from changes inthe timing of cash payments on Accrued liabilities and Deferred income taxes of $2.4 million and $2.0 million, respectively, versus the prior year period due primarily to the utilization of net operating losses in 2017.period.


Cash used for investing activities increased by $2.8$8.4 million for the sixthree months ended June 30, 2018March 31, 2019 versus the prior year period due primarily to an increase in cash paid for capital expenditures of $5.6 million.expenditures.

Cash used for financing activities increaseddecreased by $61.2$34.5 million for the sixthree months ended June 30, 2018March 31, 2019 versus the prior year period primarily due to the repayment of borrowings as described above. Duringin the six months ended June 30, 2018,prior year period and the Company amended its Credit Facility, asimpact of the share repurchase program, both of which are 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:

 
Six Months Ended
 June 30, 2018
Capital expenditures in Accounts payable at December 31, 2017$25,222
Purchases of property, plant and equipment35,905
Less: Capital expenditures in Accounts payable at June 30, 2018(7,704)
Cash paid for capital expenditures$53,423
Three Months Ended
March 31, 2019
Capital expenditures in Accounts payable at December 31, 2018$27,258 
Purchases of property, plant and equipment26,293 
Less: Capital expenditures in Accounts payable at March 31, 2019(14,039)
Cash paid for capital expenditures$39,512 

For the full year 2018,2019, we expect the Company’s total capital expenditures to be in the range of $110 - $115$140 million to $150 million.

Critical Accounting Policies
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The preparation of our Condensed Consolidated Financial Statements in accordance with U.S. GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider these accounting policies to be critical to the understanding of our Condensed Consolidated Financial Statements. For a full description of our critical accounting policies, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 20172018 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.during the first quarter of 2019, as described in “Note 2. Recent Accounting Pronouncements,” the Company changed the manner in which it accounts for leases under guidance that became effective January 1, 2019.




Off-Balance Sheet Arrangements and Contractual Obligations
 
As of June 30, 2018,March 31, 2019, the Company 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 the commitments or contractual obligations detailed in the Company's 20172018 Form 10-K. The Company has not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

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


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Interest Rate Risk
 
Our exposure to risk based on changes in interest rates relates primarily to our Amended and Restated Credit Agreement. We have not used derivative financial instruments in our investment portfolio. The Amended and Restated Credit Agreement 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 Amended and Restated Credit Agreement.

On November 6, 2018, we entered into an interest rate swap for a notional amount of $50 million whereby we exchanged floating for fixed rate interest payments for our LIBOR based borrowing under our Revolving Credit Facility. As a result of the interest rate swap, approximately 23% of our total borrowing under our Revolving Credit Facility is now at a fixed interest rate.

We designated the $50 million interest rate swap, with a fair value of zero at inception, as a cash flow hedge against the risk of changes in the benchmark interest rate (1-Month LIBOR). A hedge effectiveness assessment was completed by comparing the critical terms of the hedged item with the hedging instrument, and also by reviewing the credit standing of the counterparty. As of March 31, 2019, it was determined that the critical terms continued to exactly match, and that the counterparty still had the ability to honor their obligation. As a result, the hedge continued to be deemed effective.

Based on current borrowing levels at March 31, 2019, net of the interest rate swap, a 25-basis point fluctuation in interest rates for the sixthree months ended June 30, 2018March 31, 2019 would resulthave resulted in an increase or decrease to our interest expense of approximately $0.3$0.4 million.


See "Note 12. Derivative and Hedging Instruments" to the Condensed Consolidated Financial Statements, included in this Form 10-Q, for a discussion relating to market 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.
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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, 2019, the end of the period covered by this quarterly report.
 
Changes in Internal Control over Financial Reporting

Management has not identified anyThe implementation of a lease tracking system designed to facilitate the required disclosures under the new lease accounting standard is a change in the Company’sCompany's internal control over financial reporting that occurred during the quarter ended June 30, 2018March 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.

There were no other changes to the Company's internal control over financial reporting that occurred during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
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 any claims or actions against us, the ultimate disposition of which would have a material adverse effect on our consolidated financial position, results of operations or liquidity.operating cash flows.


On March 13, 2018, a federal search warrant was executed at the Company’s Hopewell, Virginia manufacturing facility. On the same date, the Company was separately served with a grand jury subpoena issued by the U.S. District Court for the Eastern District of Virginia, which requested documents related to the Hopewell facility’s air emissions and its compliance with the terms of a previously disclosed 2013 consent decree with the federal government and the Commonwealth of Virginia. As previously reported in our 2018 Form 10-K, the Company was notified during the first quarter of 2019 that the U.S. Attorney’s Office for the Eastern District of Virginia has closed its investigation and no further action by the Company is required. The Company continues to cooperate fully with the authoritiesremaining narrowed inquiry by the U.S. Environmental Protection Agency and is providing information in response to the subpoena.Department of Justice criminal divisions. The Company’s production across its sites was not affectedremains unaffected by these events and the Company expects to continue operating safely at plan moving forward. While the Company may incur penalties or fines in connection with the remaining federal inquiry, the amount of such penalties or fines, if any, cannot be reasonably estimated at this time.


Environmental Matters Involving Potential Monetary Sanctions in Excess of $100,000

As previously reported in our 2018 Form 10-K, the Virginia Department of Environmental Quality (“Virginia DEQ”) notified the Company in October 2018 that alleged violations involving emissions exceedances and monitoring requirements at the Company’s manufacturing facility in Hopewell, Virginia may subject the Company to certain specified penalties under the Virginia Air Pollution Control Law and applicable regulatory requirements. In March 2019, the Virginia DEQ and the Company agreed in a consent order that AdvanSix would pay a civil charge of $202,221. After all conditions were satisfied, the Virginia DEQ terminated the consent order. The resolution of this matter did not have a material adverse effect on our ongoing operations, consolidated financial position, results of operations or operating cash flows.

ITEM 1A. RISK FACTORS
 
Except as set forth in the new risk factor included below, thereThere have been no material changes to our risk factors as previously disclosed in the Company’s 20172018 Form 10-K.


Data privacy, information security and protection of confidential information may require significant resources and presents certain risks.


We maintain, have access to and process certain confidential or sensitive data, including proprietary business information, personal data and other information, that may be subject to privacy and security laws, regulations and/or customer-imposed controls. Despite our efforts to protect such information and data, we may be vulnerable to material security breaches, theft, misplaced or lost data, or errors by employees or third-party providers that could potentially cause such information and data to be compromised, or lead to improper use of our systems or networks, unauthorized access, use, disclosure, modification or destruction of information, and operational disruptions. In addition, there are different and potentially conflicting data privacy laws in effect in the domestic and foreign jurisdictions in which we operate, including the General and Data Protection Regulations (GDPR) recently implemented in the European Union, and we must comply with all applicable laws and standards. Noncompliance with these laws can result in reputational damage, fine and penalties, and enforcement proceedings and litigation, any of which may adversely affect our business, reputation and financial statements.

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


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


The below table sets forth the repurchases of Company common stock, by month, for the quarter ended June 30, 2018:March 31, 2019:


ISSUER PURCHASES OF EQUITY SECURITIES
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced PlanApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
January 2019305,736 $27.58 305,736 $28,832,206 
February 2019
(1), (2)
209,364 32.44 201,742 97,302,547 
March 2019278,654 30.91 278,441 88,697,287 
Total793,754 $30.03 785,919 $— 
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced PlanApproximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
April 1 - April 30—
$—
—
$—
May 1 - May 31—
—
—
75,000,000
June 1 - June 3070,107
39.10
70,107
72,258,879
Total70,107
$39.10
70,107
$72,258,879


(1) Total number of shares purchased includes 7,835 shares covering tax withholding obligations in connection with the vesting of equity awards.

(2) Approximate dollar value of shares that may yet be purchased under the plan includes the $75 million authorized under the plan announced on February 22, 2019.

During the period JulyApril 1, 20182019 through July 31, 2018,April 26, 2019, we repurchased an additional 124,767210,273 shares at a weighted average market price of $38.32$29.90 per share. After giving effect to these repurchases, we have approximately $67.5 million$82.4 million of remaining capacity authorized under the currently authorized program.programs.

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ITEM 6. EXHIBITS
ExhibitDescription
3.1
3.2
10.1
31.1
31.2
32.1
32.2
101.INSXBRL 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.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document




*Confidential treatment has been granted for certain information contained in Exhibit 10.1, and the omitted portions have been filed separately with the SEC.
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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
ADVANSIX INC.
ADVANSIX INC.
Date: AugustMay 3, 20182019By:/s/ Michael Preston
Michael Preston
Senior Vice President and Chief Financial Officer



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