0001673985us-gaap:RetainedEarningsMember2018-01-012018-03-31

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



(Mark One)
ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2018~~2019



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~AdvanSix Inc.~~

~~(Exact Name of Registrant as Specified in its Charter)~~



Delaware						81-2525089
(State or ~~Other Jurisdiction~~other jurisdiction of ~~Incorporation~~incorporation or ~~Organization)~~organization)						(I.R.S. Employer Identification No.)




300 Kimball Drive, Suite 101, Parsippany, New Jersey						07054
(Address of ~~Principal Executive Offices)~~principal executive offices)						(Zip Code)

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ASIX

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically ~~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 ☐

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

The Registrant had ~~30,331,069~~27,815,783 shares of common stock, $0.01 par value, outstanding at July ~~27, 2018.~~26, 2019.

ADVANSIX INC.

FORM 10-Q

TABLE OF CONTENTS



Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Operations for the Three and ~~Six~~S i x Months Ended June ~~30,~~ 3 0 , 2019 and 2018 ~~and 2017~~ (unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June ~~30,~~ 3 0 , 2019 and 2018 ~~and 2017~~ (unaudited)	4
	Condensed Consolidated Balance Sheets as of June ~~30, 2018~~ 3 0 , 2019 and December 31, ~~2017~~2018 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Si x Months Ended June ~~30,~~ 3 0 , 2019 and 2018 ~~and 2017~~ (unaudited)	6
	Condensed Consolidated Statements of Stockholders' Equity for the Six Months Ended June 3 0 , 2019 and 2018 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	79
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1520
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2228
Item 4.	Controls and Procedures	2228

Part II.	OTHER INFORMATION	2329

Item 1.	Legal Proceedings	2329
Item 1A.	Risk Factors	2329
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2329
Item 6.	Exhibits	2431
	Signature	2532

~~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 June 30,						Six Months Ended June 30,
	2018		2017		2018		2017			2019		2018		2019		2018
Sales	$	400,459	$	361,441	$	759,697	$	738,145	Sales	$	345,215	$	400,459	$	660,110	$	759,697
Costs, expenses and other:									Costs, expenses and other:
Costs of goods sold	342,958		299,298		664,278		613,193		Costs of goods sold	303,128		342,958		570,008		664,278
Selling, general and administrative expenses	17,919		18,095		37,132		34,865		Selling, general and administrative expenses	20,009		17,919		39,422		37,132
Other non-operating expense (income), net	1,582		2,965		5,128		4,763		Other non-operating expense (income), net	1,452		1,582		3,056		5,128
	362,459		320,358		706,538		652,821
Total costs, expenses and other									Total costs, expenses and other	324,589		362,459		612,486		706,538

Income before taxes	38,000		41,083		53,159		85,324		Income before taxes	20,626		38,000		47,624		53,159
Income taxes	9,590		15,317		13,156		32,265
Income tax expense									Income tax expense	5,280		9,590		12,104		13,156
Net income	$	28,410	$	25,766	$	40,003	$	53,059	Net income	$	15,346	$	28,410	$	35,520	$	40,003

Earnings per common share									Earnings per common share
Basic	$	0.93	$	0.85	$	1.31	$	1.74	Basic	$	0.54	$	0.93	$	1.25	$	1.31
Diluted	$	0.91	$	0.83	$	1.28	$	1.71	Diluted	$	0.53	$	0.91	$	1.21	$	1.28
Weighted average common shares outstanding									Weighted average common shares outstanding
Basic	30,481,627		30,482,966		30,485,095		30,482,966		Basic	28,162,007		30,481,627		28,489,486		30,485,095
Diluted	31,305,168		30,986,854		31,294,323		30,977,472		Diluted	29,136,979		31,305,168		29,460,149		31,294,323

See accompanying notes to Condensed Consolidated Financial Statements.

ADVANSIX INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
Net income	$	15,346	$	28,410	$	35,520	$	40,003
Foreign exchange translation adjustment	4		(17)		3		(18)

Cash-flow hedges	(429)		—		(621)		—
Pension obligation adjustments	—		—		—		410
Other comprehensive income (loss), net of tax	(425)		(17)		(618)		392
Comprehensive income	$	14,921	$	28,393	$	34,902	$	40,395

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.

ADVANSIX INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except share and per share amounts)


	June 30, 2018			December 31, 2017				June 30, 2019		December 31, 2018
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	16,714		$	55,432		Cash and cash equivalents	$	17,057	$	9,808
Accounts and other receivables – net	155,724			196,003			Accounts and other receivables – net	127,526		160,266
Inventories – net	122,129			129,208			Inventories – net	138,234		137,182
Other current assets	5,869			7,130			Other current assets	10,496		3,807
Total current assets	300,436			387,773			Total current assets	293,313		311,063
Property, plant and equipment – net	619,267			612,612			Property, plant and equipment – net	701,120		672,210
Operating lease right-of-use assets							Operating lease right-of-use assets	115,284		—
Goodwill	15,005			15,005			Goodwill	15,005		15,005

Other assets	36,443			34,884			Other assets	38,164		36,348
Total assets	$	971,151		$	1,050,274		Total assets	$	1,162,886	$	1,034,626

LIABILITIES							LIABILITIES
Current liabilities:							Current liabilities:
Accounts payable	$	176,589		$	227,711		Accounts payable	$	192,614	$	231,720
Accrued liabilities	28,208			35,013			Accrued liabilities	31,907		30,448
Income taxes payable	3,258			1

Operating lease liabilities – short-term							Operating lease liabilities – short-term	26,022		—
Deferred income and customer advances	2,425			17,194			Deferred income and customer advances	3,184		22,556
Line of credit – short-term	18,300			—
Current portion of long-term debt	—			16,875

Total current liabilities	228,780			296,794			Total current liabilities	253,727		284,724
Deferred income taxes	99,121			92,276			Deferred income taxes	113,685		103,783
Operating lease liabilities – long-term							Operating lease liabilities – long-term	89,503		—
Line of credit – long-term	191,700			—			Line of credit – long-term	255,000		200,000
Long-term debt	—			248,339

Postretirement benefit obligations	29,212			33,396			Postretirement benefit obligations	24,381		21,080
Other liabilities	4,261			3,144			Other liabilities	6,027		4,701
Total liabilities	553,074			673,949			Total liabilities	742,323		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; 30,591,472 shares issued and 28,008,959 outstanding at June 30, 2019; 30,555,715 shares issued and 29,345,001 outstanding at December 31, 2018							Common stock, par value $0.01; 200,000,000 shares authorized; 30,591,472 shares issued and 28,008,959 outstanding at June 30, 2019; 30,555,715 shares issued and 29,345,001 outstanding at December 31, 2018	306		306
Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at June 30, 2019 and December 31, 2018							Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at June 30, 2019 and December 31, 2018	—		—
Treasury stock at par (2,582,513 shares at June 30, 2019; 1,210,714 shares at December 31, 2018)							Treasury stock at par (2,582,513 shares at June 30, 2019; 1,210,714 shares at December 31, 2018)	(26)		(12)
Additional paid-in capital	264,849			263,081			Additional paid-in capital	200,036		234,699
Retained earnings	161,578			121,985			Retained earnings	223,339		187,819
Accumulated other comprehensive loss	(8,654		)	(9,046		)	Accumulated other comprehensive loss	(3,092)		(2,474)
Total stockholders' equity	418,077			376,325			Total stockholders' equity	420,563		420,338
Total liabilities and stockholders' equity	$	971,151		$	1,050,274		Total liabilities and stockholders' equity	$	1,162,886	$	1,034,626

See accompanying notes to Condensed Consolidated Financial Statements.

ADVANSIX INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


	Six Months Ended June 30,							Six Months Ended June 30,
	2018			2017				2019		2018
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	40,003		$	53,059		Net income	$	35,520	$	40,003
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 amortization	25,913			22,959			Depreciation and amortization	27,872		25,913
Loss on disposal of assets	1,336			1,189			Loss on disposal of assets	1,901		1,336
Deferred income taxes	6,845			20,500			Deferred income taxes	10,109		6,845
Stock based compensation	4,880			3,619			Stock based compensation	5,574		4,880
Accretion of deferred financing fees	1,589			296			Accretion of deferred financing fees	214		1,589
Restructuring charges							Restructuring charges	12,623		—
Changes in assets and liabilities:							Changes in assets and liabilities:
Accounts and other receivables	43,913			(7,945		)	Accounts and other receivables	32,743		43,913
Inventories	7,079			(2,509		)	Inventories	(2,494)		7,079
Accounts payable	(33,442		)	(14,157		)	Accounts payable	(30,586)		(30,185)
Income taxes payable	3,257			4,949

Accrued liabilities	(6,805		)	(227		)	Accrued liabilities	(1,771)		(6,805)
Deferred income and customer advances	(14,769		)	(23,982		)	Deferred income and customer advances	(19,372)		(14,769)
Other assets and liabilities	(2,578		)	3,041			Other assets and liabilities	(4,970)		(2,578)
Net cash provided by operating activities	77,221			60,792			Net cash provided by operating activities	67,363		77,221

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	(71,201)		(53,423)

Other investing activities	(1,254		)	(4,062		)	Other investing activities	(1,285)		(1,254)
Net cash used for investing activities	(54,677		)	(51,847		)	Net cash used for investing activities	(72,486)		(54,677)

Cash flows from financing activities:							Cash flows from financing activities:
Payment of long-term debt	(266,625		)	—

Payments of long-term debt							Payments of long-term debt	—		(266,625)

Borrowings from line of credit	261,000			276,000			Borrowings from line of credit	210,250		261,000
Payments of line of credit	(51,000		)	(276,000		)	Payments of line of credit	(155,250)		(51,000)
Payment of line of credit fees	(1,362		)	—
Principal payments under capital lease	(162		)	(70		)
Purchase of treasury shares	(3,113		)	—
Net cash used for financing activities	(61,262		)	(70		)
Payment of line of credit facility fees							Payment of line of credit facility fees	—		(1,362)

Principal payments of finance leases							Principal payments of finance leases	(2,377)		(162)
Purchase of treasury stock							Purchase of treasury stock	(40,267)		(3,113)
Issuance of common stock							Issuance of common stock	16		—

Net cash provided by (used for) financing activities							Net cash provided by (used for) financing activities	12,372		(61,262)

Net change in cash and cash equivalents	(38,718		)	8,875			Net change in cash and cash equivalents	7,249		(38,718)
Cash and cash equivalents at beginning of period	55,432			14,199			Cash and cash equivalents at beginning of period	9,808		55,432
Cash and cash equivalents at the end of period	$	16,714		$	23,074		Cash and cash equivalents at the end of period	$	17,057	$	16,714

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	$	18,451	$	7,704

Supplemental cash investing activities:
Supplemental cash activities:							Supplemental cash activities:
Cash paid for interest	$	3,204		$	5,244		Cash paid for interest	$	2,295	$	3,204
Cash paid for income taxes	$	2,240		$	6,671		Cash paid for income taxes	$	6,576	$	2,240

See accompanying notes to Condensed Consolidated Financial Statements.

ADVANSIX INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(Dollars in thousands)


	Common Stock							Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)			Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Equity
		Shares			Amount





































Balance at December 31, 2018	30,555,715		$	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 stock	22,497		—			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, 2019	30,578,212		306			213,632		207,993			(20)		(2,667)		419,244

Net Income	—		—			—		15,346			—		—		15,346
Comprehensive income
Foreign exchange translation adjustments	—		—			—		—			—		4		4
Cash-flow Hedges	—		—			—		—			—		(429)		(429)
Pension obligation adjustments	—		—			—		—			—		—		—
Other comprehensive income (loss), net of tax	—		—			—		—			—		(425)		(425)
Issuance of common stock	13,260		—			—		—			—		—		—
Purchase of treasury stock (578,045 shares)	—		—			(16,408)		—			(6)		—		(16,414)
Stock-based compensation	—		—			2,812		—			—		—		2,812
Balance at June 30, 2019	30,591,472		$	306		$	200,036	$	223,339		$	(26)	$	(3,092)	$	420,563

ADVANSIX INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(Dollars in thousands)


	Common Stock							Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)			Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Equity
		Shares			Amount
Balance at December 31, 2017	30,482,966		$	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 stock	25,356														—
Purchase of treasury stock (8,995 shares)	—		—			(370)		—			—		—		(370)
Stock-based compensation	—		—			2,281		—			—		—		2,281
Balance at March 31, 2018	30,508,322		305			264,992		133,168			—		(8,637)		389,828

Net Income	—		—			—		28,410			—		—		28,410
Comprehensive income
Foreign exchange translation adjustments	—		—			—		—			—		(17)		(17)
Cash-flow Hedges	—		—			—		—			—		—		—
Pension obligation adjustments	—		—			—		—			—		—		—
Other comprehensive income (loss), net of tax	—		—			—		—			—		(17)		(17)
Issuance of common stock	16,416		—			—		—			—		—		—
Purchase of treasury stock (70,107 shares)	—		—			(2,742)		—			(1)		—		(2,743)
Stock-based compensation	—		—			2,599		—			—		—		2,599
Balance at June 30, 2018	30,524,738		$	305		$	264,849	$	161,578		$	(1)	$	(8,654)	$	418,077

See accompanying notes to Condensed Consolidated Financial Statements.

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,~~2019, and its results of operations and cash flows for the three and six months ended June 30, ~~2018~~2019 and ~~2017, and cash flows for the six months ended June 30, 2018 and 2017.~~2018. The Condensed Consolidated Balance ~~Sheets~~Sheet at December 31, ~~2017 were~~2018 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 June 30, 2019 and 2018 were June 29, 2019 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,~~2019 and December 31, ~~2017~~2018 aggregated ~~$5.7~~$6.7 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 first quarter 2018 weather event and recorded a benefit of $6.6 million and $2.3 million to Cost of goods sold in the first and second quarters of 2019, respectively. The business interruption claim has been closed with a total recorded benefit of approximately of $12 million.

On May 4, 2018, the Company announced that its Board of Directors (the “Board”) authorized a share repurchase program of up to $75 million of the Company’s common stock. On February 22, 2019, the Company announced that the Board authorized a share repurchase program of up to an additional $75 million of the Company's common stock, which was in addition to the remaining capacity available under the May 2018 share repurchase program. Repurchases may be made from time to time on the open market, including through the use of trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange ~~Act.~~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.

As of June 30, ~~2018,~~2019, the Company had repurchased ~~70,107~~2,555,713 shares of common stock for an aggregate of ~~$2.7~~$77.7 million ~~under the currently authorized program~~ at a weighted average market price of ~~$39.10~~$30.40 per share. As of June 30, ~~2018,~~2019, $72.3 million remained available for share repurchases under the ~~currently authorized program.~~current authorization.

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

2. Recent Accounting Pronouncements

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

In ~~February~~October 2018, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ASU ~~2018-02,~~ ~~Income Statement – Reporting Comprehensive Income~~No. 2018-16, Derivatives and Hedging (Topic ~~220)~~815): Inclusion of the 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 the interest rates on direct Treasury obligations of the U.S. government (“UST”), ~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,~~ ~~that allows companies~~the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate and the SIFMA Municipal Swap Rate. Pursuant to ~~reclassify~~the amendments, SOFR will be an option to ~~Retained earnings the stranded tax effects in Accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act (the "Tax Act").~~replace LIBOR as it is phased out. The amendments inof ASU ~~2018-02~~No. 2018-16 are effective for ~~all entities~~companies that have adopted ASU 2017-12 for fiscal years beginning after December 15, 2018, ~~and~~including interim periods within ~~those~~that fiscal ~~years.~~year or at such time a company adopts ASU 2017-12. Early adoption of ~~the amendments in this update~~ASU 2018-16 is not permitted ~~including~~without previous adoption ~~in any interim period. The~~of ASU 2017-12. As the Company elected to early adopt ~~this guidance~~ASU 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’s~~Company's consolidated financial position ~~and~~or 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). ~~The~~Initial 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. 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 ~~continue~~have implemented internal controls and key system functionality to ~~evaluate~~enable 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 have~~to 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 on~~in the recognition, measurement or presentation of lease expenses within the Condensed Consolidated Statements of Operations or the Condensed Consolidated Statements of Cash Flows. ~~Information about~~The most significant impact was the recognition of right-of-use (“ROU”) assets and liabilities for operating leases, while our ~~undiscounted future lease payments~~accounting for finance leases remained substantially unchanged. See "Note 8. Leases" for further information.

3. Revenues

Revenue Recognition

We serve approximately 500 customers annually in more than 40 countries and across a wide variety of industries. For the ~~timing~~three months ended June 30, 2019 and 2018, the Company's ten largest customers accounted for approximately 47% and 45% of ~~those payments is provided under “Contractual Obligations” in Management’s Discussion~~total sales, respectively. For the six months ended June 30, 2019 and ~~Analysis~~2018, the Company's ten largest customers accounted for approximately 46% and 45% of ~~Financial Condition and Results of Operations in the 2017 Form 10-K. The Company plans to adopt this standard effective January 1, 2019.~~ total sales, respectively.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~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 servicesWe typically sell to customers atunder master service agreements, with one- to two-year terms on average, or by purchase orders. We have historically experienced low customer turnover and have an ~~amount that reflects the consideration expected to be received. Since its issuance, the FASB amended several aspects~~average customer relationship of approximately 20 years. Our largest customer is Shaw Industries Group Inc. (“Shaw”), one of the ~~new guidance, including provisions that address revenue recognition associated with~~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 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, revenuethree months ended June 30, 2019

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~~and 2018, our sales to ~~customers at amounts that reflect the consideration expected to be received. AdvanSix primarily recognizes revenues when title~~Shaw were 19% 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~~22%, respectively, 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 than 500 customers annually in more than 40 countries and across a wide variety of industries. For the three months ended June 30, 2018 and 2017, the Company's ten largest customers accounted for approximately 45% of total ~~sales for each period.~~sales. For the six months ended June 30, 2019 and 2018, our sales to Shaw were 21% and ~~2017, the Company’s ten largest customers accounted for approximately 45% and 43%~~22%, respectively, of our total ~~sales, respectively.~~sales.

~~We typically sell to customers under contracts, with one- to two-year terms on average, or by purchase orders. We have historically experienced low customer turnover.~~

Each of the Company’s product lines represented the following approximate percentage of total sales for the three and six months ended June 30, ~~2018~~2019 and ~~2017:~~2018:


	Three Months Ended June 30,			Six Months Ended June 30,
	2019	2018	2019	2018
Nylon	27%	27%	29%	28%
Caprolactam	20%	19%	20%	18%
Ammonium Sulfate Fertilizers	27%	21%	25%	20%
Chemical Intermediates	26%	33%	26%	34%
	100%	100%	100%	100%

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
Nylon 27% 29% 28% 29%
Caprolactam 19% 18% 18% 19%
Ammonium Sulfate Fertilizers 21% 21% 20% 20%
Chemical Intermediates 33% 32% 34% 32%
100% 100% 100% 100%

The Company's revenues by geographic area for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 were as follows:

~~ADVANSIX INC.~~


	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
United States	$	289,551	$	342,497	$	547,193	$	640,145
International	55,664		57,962		112,917		119,552
Total	$	345,215	$	400,459	$	660,110	$	759,697

~~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
International 57,962
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 income and customer advances for the six months ended June 30, ~~2018:~~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 advances	1,083

Less amounts recognized in revenues	(20,455)

Ending balance June 30, 2019	$	3,184

The Company expects to recognize as revenue the June 30, ~~2018~~2019 ending balance of Deferred ~~Income~~income and ~~Customer Advances~~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~~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, 2019 and 2018 ~~and 2017~~ were asas follows:

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 June 30,						Six Months Ended June 30,
	2018		2017		2018		2017			2019		2018		2019		2018
Basic									Basic
Net Income	$	28,410	$	25,766	$	40,003	$	53,059	Net Income	$	15,346	$	28,410	$	35,520	$	40,003
Weighted average common shares outstanding	30,481,627		30,482,966		30,485,095		30,482,966		Weighted average common shares outstanding	28,162,007		30,481,627		28,489,486		30,485,095
EPS – Basic	$	0.93	$	0.85	$	1.31	$	1.74	EPS – Basic	$	0.54	$	0.93	$	1.25	$	1.31
Diluted									Diluted
Dilutive effect of unvested equity awards and other stock-based holdings	823,541		503,888		809,228		494,506
Dilutive effect of equity awards and other stock-based holdings									Dilutive effect of equity awards and other stock-based holdings	974,972		823,541		970,663		809,228
Weighted average common shares outstanding	31,305,168		30,986,854		31,294,323		30,977,472		Weighted average common shares outstanding	29,136,979		31,305,168		29,460,149		31,294,323
EPS – Diluted	$	0.91	$	0.83	$	1.28	$	1.71	EPS – Diluted	$	0.53	$	0.91	$	1.21	$	1.28

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 (which includes units allocated to the AdvanSix stock unit fund under the AdvanSix Inc. Deferred Compensation Plan) 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, ~~2018~~2019 and ~~2017,~~2018, stock options of ~~128,777~~539,054 and ~~175,026,~~128,777, respectively, were anti-dilutive and excluded from the computations of dilutive EPS.

5. Accounts and Other Receivables – Net


	June 30, 2019		December 31, 2018
Accounts receivables	$	125,887	$	166,017
Other	3,901		1,716
Total accounts and other receivables	129,788		167,733
Less – allowance for doubtful accounts	(2,262)		(7,467)
Total accounts and other receivables – net	$	127,526	$	160,266

The decrease in Total accounts and other receivables – net at June 30, 2019 versus December 31, 2018 was due primarily to lower sales. The change in the ~~Company granted equity awards representing 231,162 shares~~allowance for doubtful accounts relates to an accounts receivable write-off of ~~common stock under~~approximately $5.1 million related to a customer bankruptcy as previously reported in the ~~2016 Stock Incentive Plan~~2018 Form 10-K.


	June 30, 2019		December 31, 2018
Raw materials	$	46,109	$	55,002
Work in progress	54,030		46,728
Finished goods	45,333		39,368
Spares and other	24,313		24,555
	169,785		165,653
Reduction to LIFO cost basis	(31,551)		(28,471)
Total inventories – net	$	138,234	$	137,182

Total inventories – net at June 30, 2019 were relatively flat compared to the balance at December 31, 2018. The shift in inventory categories reflects the normal course of ~~AdvanSix Inc.~~operations including the timing of cumene deliveries and ~~its Affiliates (the "2016 Stock Plan") to Company employees consisting~~the fulfillment 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 customer orders.

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, a total of 5,331 units were allocated to the AdvanSix stock unit fund under the DCP during 2018.

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~~

June 30, 2018 December 31, 2017
Accounts receivables $ 155,185
$ 188,477
Other 2,235
8,936
Total accounts and other receivables 157,420
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, 2018 versus December 31, 2017 was due primarily to increased collections during the six months ended June 30, 2018 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.

~~6. Inventories~~

June 30, 2018 December 31, 2017
Raw materials $ 50,151
$ 48,502
Work in progress 43,269
50,511
Finished goods 32,816
35,430
Spares and other 24,364
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 Facility 210,000
Total outstanding indebtedness 210,000
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 million of the Revolving Credit Facility for the issuance of letters of credit and up to $40 million for swing line loans. The Company has the option to 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 ending December 31, 2019, (ii) 3.25 to 1.00 or less for the fiscal quarter ending March 31, 2020, through and including

~~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. Postretirement Benefit Cost

The components of ~~net~~Net periodic benefit cost of the Company’s pension plan are as follows:


														Three Months Ended June 30,						Six Months Ended June 30,
														2019		2018		2019		2018
Service cost													Service cost	$	1,714	$	2,001	$	3,427	$	4,003
Interest cost													Interest cost	521		469		1,042		938
Expected return on plan assets													Expected return on plan assets	(334)		(287)		(668)		(575)

	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 costs	469			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	$	3,801	$	4,366

The Company made contributions to the defined benefit pension plan of $0.5 million in the second quarter of 2019. No contributions were made in the first quarter of 2019. The Company plans to make pension plan contributions during ~~calendar year 2018~~2019 sufficient to satisfy pension funding requirements ~~under the AdvanSix Retirement Earnings Plan~~ in an aggregate amount of approximately ~~$10.0~~$4 to ~~$15.0~~$6 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.

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 Sheets.

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:

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, 2019		Six Months Ended June 30, 2019
Finance lease cost:
Amortization of right-of-use asset	$	157	$	305
Interest on lease liabilities	17		35
Total finance lease cost	174		340
Operating lease cost	7,931		15,501
Short-term lease cost	4,116		8,397

Total lease cost	$	12,221	$	24,238

Supplemental cash flow information related to leases was as follows:


	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	15,295
Operating cash flows from finance leases	30
Financing cash flows from finance leases	2,377
Non-cash information:
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	9,419
Finance leases	593

Supplemental balance sheet information related to leases was as follows:


	June 30, 2019
Operating Leases
Operating lease right-of-use assets	$	115,284
Operating lease liabilities – short term	26,022
Operating lease liabilities – long term	89,503
Total operating lease liabilities	$	115,525
Finance Leases
Property, plant and equipment – gross	$	2,354
Accumulated depreciation	(1,034)
Property, plant and equipment – net	$	1,320
Accounts payable	591
Other liabilities	739
Total finance lease liabilities	$	1,330
Weighted Average Remaining Lease Term
Operating leases	10.64 years
Finance leases	2.38 years
Weighted Average Discount Rate
Operating leases	6.14		%
Finance leases	5.20		%

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:

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 adjustments		Adjustments due to the adoption of the new leasing standard		Balance 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 assets	1,034,626		$	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 liabilities	284,724		24,794		309,518
Operating lease liabilities – long term	—		93,127		93,127
Other liabilities	762		—		762
Total liabilities	614,288		117,921		732,209
Total equity	420,338		—		420,338
Total liabilities and equity	1,034,626		$	117,921	1,152,547

Maturities of lease liabilities were as follows:


Year Ending December 31,	Operating Leases		Finance Leases
2019 (remainder)	$	16,402	$	332
2020	31,412		610
2021	19,736		374
2022	14,973		99
2023	12,350		—
Thereafter	70,291		—
Total lease payments	165,164		1,415
Less imputed interest	(49,639)		(85)
Total	$	115,525	$	1,330

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 Leases		Capital Leases
2019	$	36,110	$	239
2020	29,318		212
2021	16,111		131
2022	11,571		89
2023	9,104		—
Thereafter	26,627		—
Total lease payments	$	128,841	$	671

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

9. Commitments and Contingencies

The Company is subject to a number of lawsuits, investigations and disputes, ~~(some~~some of which involve substantial amounts ~~claimed)~~claimed, arising out of the conduct of the Company or other ~~third parties~~third-parties in the normal and ordinary course of business. A liability is recognized for any contingency that is probable of occurrence and reasonably estimable. The Company continually assesses the likelihood of adverse judgments or outcomes in these matters, as well as potential ranges of possible losses (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 ~~continues to cooperate fully with~~was notified during the ~~authorities~~first quarter of 2019 that the U.S. Attorney’s Office for the Eastern District of Virginia had closed its investigation and ~~is providing information in response to the subpoena. The Company’s production across its sites was not affected~~no further action by ~~these events and~~ the Company ~~expects to continue operating safely at plan moving forward. While~~was required. On May 13, 2019, the Company ~~may incur penalties or fines in connection~~announced that the United States government notified the Company that the balance of the criminal investigation concluded with ~~the federal inquiry, the amount of such penalties or fines, if any, cannot be reasonably estimated at this time.~~no further action required.

~~Following the Spin-Off, the Company~~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.

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~~$5.3 million and ~~$15.3~~$9.6 million for the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The provision for income taxes was ~~$13.2~~$12.1 million and ~~$32.3~~$13.2 million for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

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 adoption~~fair 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 ~~elected~~acquired 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 June 30, 2019. The fair value of the interest rate swap at June 30, 2019 was a loss of approximately $1.7 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.

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 credit and market, commodity price and interest rate risks to which the Company is exposed in connection with its ongoing business operations are described below. This discussion includes an explanation of the hedging instrument, 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 13% and 22% of trade Accounts receivable – net at June 30, 2019 and December 31, 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 June 30, 2019 and 2018, we had no financial contracts related to forward commodity agreements.

Interest Rate Risk Management – On November 6, 2018, the Company entered into an interest rate swap agreement for a notional amount of $50 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings. This interest rate swap had a fair value of zero at inception and was effective November 30, 2018. In accordance with FASB Accounting Standards Codification (“ASC”) ASC 815, the Company designated the interest rate swap as a cash flow hedge of floating-rate borrowings. This interest rate swap, with a maturity date of November 30, 2021, converts the Company’s interest rate payments on the first $50 million of variable-rate, 1-month LIBOR-based debt to a fixed interest rate. This interest rate swap involves the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the interest rate swap without an exchange of the underlying principal amount.

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

Liability Derivatives

June 30, 2019

December 31, 2018

Balance Sheet Classification

Fair Value

Balance Sheet Classification

Fair Value

Derivatives designated as hedging instruments under ASC 815:

Interest Rate Contracts

Accrued liabilities and Other liabilities

(1,661)

Accrued liabilities and Other liabilities

(833)

Total Derivatives

(1,661)

(833)

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


	June 30, 2019
Loss on derivative instruments included in Accumulated other comprehensive income at December 31, 2018		$	(833)
Fair value adjustment		(828)
Loss on derivative instruments included in Accumulated other comprehensive income at June 30, 2019		$	(1,661)

At June 30, 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 from~~earnings during the ~~remeasurement of deferred taxes pursuant~~next 12 months due to the ~~Tax Act~~payment of variable interest associated with the floating rate debt.

Restructuring costs consist of long-lived asset impairments, facility exit costs, employee separations and inventory write-downs. Facility exit costs include demolition, equipment relocation, contract terminations and project management costs. These costs are included in Cost of goods sold in the Condensed Consolidated Statements of Operations. The Company does not expect to incur any additional restructuring charges related to the ~~Company’s pension plan that was recognized as a component~~closure of ~~Income taxes related to continuing operations~~its films plant.

Restructuring costs 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.

~~The Company has not made any adjustments in the six~~three months ended June 30, ~~2018 related~~2019 were as follows:


	Three Months Ended June 30, 2019
Write-off of equipment and facility	$	7,131
Facility exit costs	2,686
Employee separations	1,364
Inventory write-downs	1,442
Total restructuring charges	$	12,623

ADVANSIX INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts and as otherwise noted)

The following table summarizes the components of restructuring activities and the remaining balances of accrued restructuring charges as of June 30, 2019:


	Employee Separation Benefits		Facility Exit Costs		Total
Accrual balance at December 31, 2018	$	—	$	—	$	—
Charges	1,364		2,686		4,050
Cash payments	—		—		—
Accrual balance at June 30, 2019	$	1,364	$	2,686	$	4,050

The balance of accrued restructuring charges are expected to be settled within the next twelve months.

14. Subsequent Events

On July 15, 2019, the Company entered into an additional interest rate swap agreement for an incremental notional amount of $50 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings. This interest rate swap is in addition to the ~~financial impacts~~$50 million interest rate swap entered into in November 2018, had a fair value of zero at inception, is effective July 31, 2019 and has been designated as a cash flow hedge. This interest rate swap agreement, with a maturity date of February 21, 2023, converts the ~~Tax Act recorded as provisional amounts in 2017 under Staff Accounting Bulletin No. 118.~~Company's interest rate payments on an incremental $50 million of variable-rate, 1-month LIBOR-based debt to a fixed interest rate.

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

The following discussion and analysis of the Company’s financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto contained elsewhere in this ~~Report,~~Form 10-Q, as well as the MD&A section included in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the ~~SEC~~Securities and Exchange Commission (“SEC”) on February ~~27, 2018~~22, 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,~~Form 10-Q as such factors may be revised or supplemented in subsequent filings with the SEC, as well as those discussed in the section entitled “Note Regarding Forward-Looking Statements” below.

Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this ~~Report~~Form 10-Q including, without limitation, statements in this MD&A regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking ~~statements.~~statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this ~~Report,~~Form 10-Q, words such as “anticipate,” “believe,” “will,” “estimate,” “expect,” “plan,” “intend” and similar expressions identify forward-looking statements. ~~Such~~Although we believe forward-looking statements are based onupon reasonable assumptions, such statements involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and difficult to predict, which may cause the ~~beliefs~~actual results or performance of ~~management,~~the company to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: the impact of scheduled turnarounds and significant unplanned downtime and interruptions of production or logistics operations as ~~well~~a result of mechanical issues or other unanticipated events such as ~~assumptions made by,~~fires, severe weather conditions, and ~~information then available~~natural disasters; price fluctuations and supply of raw materials; our operations requiring substantial capital; general economic and financial conditions in the U.S. and globally; growth rates and cyclicality of the industries we serve; risks associated with our indebtedness including with respect to restrictive covenants; failure to develop and commercialize new products or technologies; loss of significant customer relationships; adverse trade and tax policies; extensive environmental, health and safety laws that apply to our ~~management at~~operations; hazards associated with chemical manufacturing, storage and transportation; litigation associated with chemical manufacturing and our business operations generally; inability to acquire and integrate businesses, assets, products or technologies; protection of our intellectual property and proprietary information; prolonged work stoppages as a result of labor difficulties; cybersecurity and data privacy incidents; failure to maintain effective internal controls; disruptions in transportation and logistics; our inability to achieve some or all of the ~~time such~~anticipated benefits of our spin-off including uncertainty regarding qualification for expected tax treatment; fluctuations in our stock price; and changes in laws or regulations applicable to our business. Forward-looking statements are ~~made. Actual~~not guarantees of future performance and actual results could differ materially from those contemplated by the forward-looking statements as a result of a number of risks, uncertainties and other factors including those noted above and those detailed in Item 1A of Part I and elsewhere in our 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.

We produce and sell ~~our Nylon 6 resin and~~ caprolactam as a commodity ~~products~~product and produce and sell our Nylon 6 resin as both a ~~specialized~~commoditized and differentiated 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 and value-based pricing ~~models for most of our products.~~models. 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~~differentiated nylon resin products. Our ~~specialized~~differentiated Nylon 6 products are typically valued at a higher level than commodity resin products.

~~Since the~~Following 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 new~~was the result of Chinese manufacturers, ~~resulting in margin compression~~which compressed industry margins for Nylon 6 resin and caprolactam ~~in recent years~~

to historic lows. ~~Beginning in~~Since 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,~~the Nylon 6 end-market growth will continue to generally track global GDP ~~with certain~~over the long-term; applications ~~including engineered~~such as packaging and engineering plastics ~~and packaging, growing~~have potential to grow at faster ~~rates.~~rates given certain macrotrends. Additionally, one of our strategies is to continue developing ~~specialty nylon~~higher-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. Our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition to increase yields of key crops.

We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, but quarterly sales experience ~~cyclicality~~seasonality 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 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. WeWhile our integration, scale and range of product offerings make us one of the most efficient manufacturers in our industry, these attributes also expose us to increased risk associated with material disruptions at any one of our production facilities or logistics operations which could impact the overall manufacturing supply chain. Further, although we believe that our sources of supply for our raw materials, including cumene, natural gas and sulfur, are generally robust, it is difficult to predict the impact that shortages, increased costs and related supply chain logistics considerations may have in the future. In order to mitigate the risk of unplanned interruptions, we schedule several planned ~~outages~~plant turnarounds 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 our production facilities. We also utilize maintenance excellence and mechanical integrity programs, ~~and maintain appropriate~~targeted buffer inventory of intermediate chemicals necessary for our manufacturing process, and co-producer swap arrangements, which are intended to mitigate the extent of any production losses as a result of planned and unplanned ~~downtime.~~

~~While our integrated manufacturing, scale and~~downtime; however, the ~~quantity and range~~mitigation of ~~our product offerings make us one~~all or part of ~~the most efficient manufacturers in our industry, it also exposes 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 outages 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~~impact cannot be ~~an expensive and time-consuming operation with risk that discoverable items and delays during the repair process may cause unplanned downtime as well.~~assured.

On May 2, 2019, the Company approved the closure of its Pottsville, Pennsylvania films plant as part of its broader strategic efforts to improve the Company’s competitive position in providing quality film products and services to its customers. The Company has also announced a strategic alliance with Oben Holdings Group S.A. (“Oben”), a third-party producer of films for the flexible packaging industry, leveraging the Company's sales channels and Nylon 6 resin supply with Oben's new state-of-the-art manufacturing facility. The Company expects the closure to be completed during the third quarter of 2019. We recognized restructuring costs of $12.6 million during the second quarter of 2019. See “Note 13. Restructuring” to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for further information.

On February 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, 2019, the ITC voted to continue the anti-dumping duty investigations concerning imports of acetone from all such nations other than Saudi Arabia. On July 30, 2019, the U.S. Department of Commerce announced its preliminary affirmative determination regarding anti-dumping duties for Singapore and Spain. Any preliminary duty determinations for the remaining three countries are expected to be announced by the end of the third quarter of 2019. The Company continues to ~~cooperate fully with~~expect the ~~authorities and is providing information in response~~full investigation process to be completed over the ~~subpoena. The Company’s production across its sites was not affected by these events and the Company expects~~next 7 to continue operating safely at plan moving forward. While the Company may incur penalties or fines in connection with the federal inquiry, the amount of such penalties or fines, if any, cannot be reasonably estimated at this time.9 months.

2019 Operational Events

On ~~May 4, 2018,~~March 11, 2019, the Company announced that it declared force majeure on its ~~Board~~phenol product line as a result of ~~Directors authorized~~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 ~~share repurchase program~~result of upthis 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 ~~$75~~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 and an approximately $2.3 million unfavorable impact to pre-tax income in the second quarter of 2019 due to lost sales. The Company remains on force majeure with phenol customers.

On June 24, 2019, the Company announced that it was assessing the potential business impact of the ~~Company’s common stock. Repurchases may be made from time~~fire that occurred at Philadelphia Energy Solutions' (“PES”) refinery in Philadelphia. PES is one of multiple suppliers to ~~time on~~ the ~~open market, including through the use~~Company of ~~trading plans intended~~cumene, a feedstock material used 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~~produce phenol, acetone and other ~~factors. The repurchase program has no expiration date and may be modified, suspended or discontinued at any time.~~chemical intermediates. The Company ~~had~~continues to operate its facilities while implementing its mitigation plans, including evaluation of business interruption insurance. The PES fire did not have a material impact on second quarter 2019 financial results; however, the Company anticipates an approximately ~~30.4~~$6 to $8 million ~~shares~~and $5 to $7 million unfavorable impact to pre-tax income in the third and fourth quarters of ~~common stock outstanding~~2019, respectively, including incremental raw material and logistics costs as ~~of June 30, 2018. See Part II, Item 2 of this Form 10-Q~~well as a modest unfavorable impact from fixed cost absorption. The Company continues to assess long-term optionality for ~~information regarding the Company's repurchase activity during the three months ended June 30, 2018.~~cumene supply and logistics, while optimizing expected base feedstock and logistic cost increases as it realigns its supply chain into 2020.

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, the~~The 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 related to the first quarter 2018 weather event and recorded a benefit of $6.6 million and $2.3 million to Cost of goods sold in the first and second quarters of 2019, respectively. The business interruption claim has been closed with a total recorded benefit of approximately $12 million.

Results of Operations

(Dollars in thousands, unless otherwise noted)

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

Sales ~~increased~~decreased in the three months ended June 30, ~~2018~~2019 compared to the prior year period by ~~$39.0~~$55.2 million ~~or approximately 11%~~(approximately 14%) due primarily to ~~higher~~lower sales prices ~~of 7%~~(approximately 9%) driven by formula-based pass-through pricing (approximately 9% unfavorable impact), particularly for benzene and propylene (inputs to cumene which is a key feedstock material for our products) ~~and volume~~. Our market-based pricing was relatively flat with increases ~~of 4% driven by~~in ammonium sulfate ~~caprolactam~~offset by decreases in chemical intermediates, particularly acetone. Volume decreased by approximately 5% due primarily to continued challenging acetone industry dynamics, the previously disclosed phenol force majeure and ~~chemical intermediates.~~decreased nylon volume, partially offset by improved ammonium sulfate volume.

Sales ~~increased~~decreased in the six months ended June 30, ~~2018~~2019 compared to the prior year period by ~~$21.6~~$99.6 million ~~or approximately 3%~~(approximately 13%) due primarily to ~~higher~~lower sales prices ~~of 5%~~(approximately 9%) driven by ~~(i)~~ formula-based pass-through pricing (approximately ~~4% favorable~~10% unfavorable impact), particularly for benzene and ~~(ii)~~propylene, partially offset by market-based price increases (1% favorable impact) in ~~nylon,~~ ammonium sulfate, nylon and caprolactam ~~(approximately 1% favorable impact)~~partially offset by decreases in chemical intermediates, particularly acetone. Volume decreased by approximately 4% due primarily to the phenol force majeure discussed above and continued challenging acetone industry dynamics, partially offset by ~~volume decreases of 2% associated with the unplanned outage in January 2018.~~improved caprolactam production and sales.


	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
Costs of goods sold	$	303,128	$	342,958	$	570,008	$	664,278
% change compared with prior year period	(11.6)%				(14.2)%
Gross Margin percentage	12.2%		14.4%		13.6%		12.6%

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 period 14.6% 8.3%
Gross Margin percentage 14.4% 17.2% 12.6% 16.9%

Costs of goods sold ~~increased~~decreased in the three months ended June 30, ~~2018~~2019 compared to the prior year period by ~~$43.7~~$39.8 million ~~or approximately 15%~~(approximately 12%) due primarily to (i) ~~higher~~lower prices of raw materials, particularly benzene and propylene (approximately 9%12%), and (ii) lower manufacturing costs driven by improved operational performance (approximately 2%), partially offset by the Pottsville restructuring costs (approximately 4%).

Costs of goods sold decreased in the six months ended June 30, 2019 compared to the prior year period by $94.3 million (approximately 14%) due primarily to (i) lower prices of raw materials, particularly benzene and propylene (approximately 12%), (ii) ~~higher sales volumes of ammonium sulfate, caprolactam and chemical intermediates (approximately 3%), and (iii) increased~~lower manufacturing costs versus higher spend in the prior year as a result of the first quarter 2018 weather event, including purchases of feedstocks which are normally manufactured by the Company (approximately 3%2%), and (iii) the benefit of business interruption insurance proceeds recognized in 2019 related to the first quarter 2018 weather event claim (approximately 1%), partially offset by the Pottsville restructuring costs (approximately 2%).

~~Costs~~Gross margin percentage decreased by approximately 2% in the three months ended June 30, 2019 compared to the prior year period primarily due to (i) lower sales volume related primarily to challenging acetone industry dynamics (approximately 4%) and (ii) the Pottsville restructuring costs (approximately 4%), partially offset by (i) the net favorable impact of ~~goods sold~~lower raw material and customer pricing (approximately 3%) and (ii) lower manufacturing costs driven by improved operational performance (approximately 2%).

Gross margin percentage increased by approximately 1% 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 impact 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%).

Gross margin percentage decreased by approximately 3% 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 sales 4.5% 5.0% 4.9% 4.7%

~~Selling, general and administrative expenses decreased by $0.2 million in the three months ended June 30, 2018~~2019 compared to the prior year period due to (i) the net favorable impact of lower raw material and customer pricing (approximately 3%), (ii) lower manufacturing costs versus the impact of the first quarter 2018 weather event (approximately 2%) and (iii) the benefit of business interruption insurance proceeds (approximately 1%) discussed above, partially offset by (i) lower sales volume related to challenging acetone industry dynamics and phenol force majeure (approximately 3%) and (ii) Pottsville restructuring costs (approximately 2%).

Selling, General and Administrative Expenses


	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
Selling, general and administrative expenses	$	20,009	$	17,919	$	39,422	$	37,132
Percent of sales	5.8%		4.5%		6.0%		4.9%

Selling, general and administrative expenses increased in the three and six months ended June 30, 2019 compared to the prior period due primarily to higher legal and IT infrastructure costs, partially offset by lower costs associated with the exit of Honeywell transition services ~~partially offset by legal costs associated with the federal inquiry at the Hopewell facility discussed above.~~in 2018.

Selling, general and administrative expenses increased by $2.3 million in the six months ended June 30, 2018 compared to the prior year period due primarily to legal costs associated with the federal inquiry at the Hopewell facility and stand-alone costs related to the build-out of IT infrastructure.

The Company’s effective tax rate for the three ~~and six~~ months ended June 30, 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~~research and ~~the discrete~~development tax ~~benefit related to vesting of restricted stock units.~~credit. The Company’s effective tax rate for the three and six months ended June 30, ~~2018~~2019 was ~~lower~~higher than the prior year period due primarily to an increase in expected non-deductible executive compensation amounts for 2019 and a decrease in the ~~passage~~benefits from the vesting of ~~the Tax Act which reduced the corporate tax rate to 21% from 35% for periods beginning after December 31, 2017.~~restricted stock units.

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
Net income	$	15,346	$	28,410	$	35,520	$	40,003

As a result of the factors described above, Net income was ~~$28.4~~$15.3 million and ~~$40.0~~$35.5 million for the three and six months ended June 30, ~~2018, respectively,~~2019 as compared to ~~$25.8~~$28.4 million and ~~$53.1~~$40.0 million in the corresponding prior year period.

(Dollars in thousands, unless otherwise noted)

The following tables set forth the non-GAAP financial measures of EBITDA and EBITDA ~~Margin.~~Margin, and EBITDA and EBITDA Margin excluding the one-time Pottsville restructuring charges described below. EBITDA is defined as Net income before Interest, Income taxes and 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, and EBITDA and EBITDA Margin excluding the one-time Pottsville restructuring charges, to their most directly comparable GAAP financial measure:

One-time Pottsville restructuring charges ⁽¹⁾

(1) Current year one-time Pottsville restructuring charges reflect the closure of the Company's Pottsville, Pennsylvania films plant. See “Note 13. Restructuring” to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for further information.

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 ~~annual~~short-term operating ~~and longer term~~objectives as well as our longer-term strategic plans, subject to the risks and uncertainties outlined below, in our "Note Regarding Forward-Looking Statements" above, and in the risk factors as previously disclosed in our ~~2017~~2018 Form 10-K. Our principal source of liquidity is our cash flow generated from operating activities, which is expected to provide us with the ability to meet the majority of our short-term funding requirements. Our ~~operating~~ cash flows are affected by capital requirements and production volume, which may be materially impacted by unanticipated events such as unplanned downtime, material disruptions at our production facilities as well as the prices of our raw materials and general economic and industry trends. We utilize asupply chain financing and trade receivables discount ~~arrangement~~arrangements with ~~a third party~~third-party financial ~~institution~~institutions which ~~enhances~~enhance liquidity and ~~enables~~enable 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, strategic acquisitions and debt ~~management and strategic acquisitions.~~management. 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 operations and access to credit and capital markets, both of which are subject to the risk factors previously disclosed in our ~~2017~~2018 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 ~~2018~~2019 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 made contributions to the defined benefit pension plan of $0.5 million in the second quarter 2019. No contributions were made in the first quarter of 2019. The Company plans to make ~~total~~ pension plan contributions during ~~2018~~2019 sufficient to satisfy pension funding requirements in an aggregate amount of approximately ~~$10.0~~$4 to ~~$15.0 million. In 2018, the Company made~~$6 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.

trading plans intended to qualify under Rule 10b5-1 of the Exchange Act. The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The repurchase program has no expiration date and may be modified, suspended or discontinued at any time. ~~The Company had approximately 30.4 million shares of common stock outstanding as of June 30, 2018.~~

As of June 30, ~~2018,~~2019, the Company had repurchased ~~70,107~~2,555,713 shares of common stock for an aggregate of ~~$2.7~~$77.7 million ~~under the share repurchase program~~ at a weighted average market price of ~~$39.10~~$30.40 per share. As of June 30, ~~2018,~~2019, $72.3 million remained available for repurchase under the ~~currently authorized program.~~current authorization. During the period July 1, ~~2018~~2019 through July ~~31, 2018,~~26, 2019, we repurchased an additional ~~124,767~~193,176 shares at a weighted average market price of ~~$38.32~~$24.82 per share. After giving effect to these repurchases, we have approximately $67.5 million ~~million~~ of remaining capacity ~~authorized under the currently authorized program.~~authorized.

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.

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, 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.~~2019. As of June 30, ~~2018, $213.9~~2019, $169 million is available for use out of the total ~~credit facility~~ of $425 million under the ~~Amended and Restated~~Revolving Credit ~~Agreement.~~Facility.

In addition to the amount borrowed on the Amendment Date, the Company ~~has since~~ borrowed an incremental ~~$19~~$210 million ~~($4 million in first quarter and $15 million in second quarter)~~ for working capital purposes under the Revolving Credit Facility and repaid ~~$51~~$155 million ~~($16 million in first quarter and $35 million in second quarter)~~ to bring the balance under the Revolving Credit Facility to ~~$210~~$255 million at June 30, ~~2018.~~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.~~

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


	Six Months Ended June 30,
	2019		2018
Cash provided by (used for):
Operating activities	$	67,363	$	77,221
Investing activities	(72,486)		(54,677)
Financing activities	12,372		(61,262)
Net change in cash and cash equivalents	$	7,249	$	(38,718)

Cash provided by operating activities ~~increased~~decreased by ~~$16.4~~$9.9 million for the six months ended June 30, ~~2018~~2019 versus the prior year period due primarily to ~~(i)~~ a ~~$51.4~~$19.7 million ~~improvement~~reduction in cash flow from 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 during~~for the first six months ended June 30, ~~2018 compared to~~2019 versus a ~~$7.9~~$6.0 million ~~unfavorable cash impact~~improvement in the prior year period, partially offset by a ~~$19.3 million reduction in Accounts payable due to~~favorable impact from the timing of cash payments ~~during~~on Accrued liabilities and Deferred income taxes of $5.0 million and $3.3 million, respectively, versus the prior year period. The Pottsville restructuring charge had a net neutral impact on operational cash flows for the six months ended June 30, 2018, (ii) a $13.1 million decrease in Net income versus the prior year period due primarily to the January 2018 unplanned outage, and (iii) a $13.7 million less favorable cash impact from changes in Deferred income taxes versus the prior year period due primarily to the utilization of net operating losses in 2017.2019.

Cash used for investing activities increased by ~~$2.8~~$17.8 million for the six months ended June 30, ~~2018~~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~~provided by financing activities increased by ~~$61.2~~$73.6 million for the six months ended June 30, ~~2018~~2019 versus the prior year period ~~primarily~~ due to ~~the repayment~~net borrowings of ~~borrowings, as described above. During~~$55.0 million for the six months ended June 30, ~~2018,~~2019 compared to net repayments of $56.6 million during the ~~Company amended its Credit Facility, as~~prior year period, offset by $40.3 million in cash outflows for share repurchases during the six months ended June 30, 2019 compared to $3.1 million in cash outflows during the prior year period, 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 equipment 35,905
Less: Capital expenditures in Accounts payable at June 30, 2018 (7,704 )
Cash paid for capital expenditures $ 53,423


	Six Months Ended June 30, 2019
Capital expenditures in Accounts payable at December 31, 2018	$	27,258
Purchases of property, plant and equipment	62,394
Less: Capital expenditures in Accounts payable at June 30, 2019	(18,451)
Cash paid for capital expenditures	$	71,201

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

Critical Accounting Policies

The preparation of our Condensed Consolidated Financial Statements in accordance with U.S. GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions about the effects of matters that are inherently uncertain. We consider these accounting policies to be critical to the understanding of our Condensed Consolidated Financial Statements. For a full description of our critical accounting policies, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our ~~2017~~2018 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,~~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 ~~2017~~2018 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,I. Item 1 of this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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, the Company entered into an interest rate swap agreement for a notional amount of $50 million to exchange floating for fixed rate interest payments for our LIBOR-based borrowings.

This interest rate swap had a fair value of zero at inception, was effective November 30, 2018 and has been designated as a cash flow hedge. This interest rate swap, with a maturity date of November 30, 2021, converts the Company’s interest rate payments on the first $50 million of variable-rate 1-month LIBOR-based debt to a fixed interest rate. As a result of this interest rate swap, approximately 20% of our total borrowings as of June 30, 2019 are at a fixed interest rate. This interest rate swap involves the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the swap without an exchange of the underlying principal amount.

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 June 30, 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 June 30, 2019, net of the interest rate swap, a 25-basis point fluctuation in interest rates for the six months ended June 30, ~~2018~~2019 would ~~result~~have resulted in an increase or decrease to our interest expense of approximately ~~$0.3~~$0.5 million.

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains ~~a system of~~ disclosure controls and procedures designed to ~~give~~provide reasonable assurance that information required to be disclosed in ~~the Company’s~~ reports filed or submitted under the ~~Securities~~ Exchange Act, ~~of 1934, as amended (the “Exchange Act”)~~ is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud have been, or will be, detected.

Our Chief Executive Officer and Chief Financial Officer, with the assistance of other members of our management, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at a reasonable assurance level as of June 30, 2019, the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

Management has not identified any change in the ~~Company’s~~Company's internal control over financial reporting that occurred during the quarter ended June 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, the ~~Company’s~~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 ~~out~~outside 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. ~~The Company continues to cooperate fully with the authorities and is providing information~~As previously reported in ~~response to the subpoena. The Company’s production across its sites was not affected by these events and~~our 2018 Form 10-K, the Company ~~expects to continue operating safely at plan moving forward. While~~was notified during the first quarter of 2019 that the U.S. Attorney’s Office for the Eastern District of Virginia had closed its investigation and no further action by the Company ~~may incur penalties or fines in connection~~was required. On May 13, 2019, the Company announced that the United States government notified the Company that the balance of the criminal investigation concluded with ~~the federal inquiry, the amount of such penalties or fines, if any, cannot be reasonably estimated at this time.~~no further action required.

ITEM 1A. RISK FACTORS

~~Except as set forth in the new risk factor included below, there~~There have been no material changes to our risk factors as previously disclosed in Item 1A of Part I of the Company’s ~~2017~~2018 Form ~~10-K.~~ 10-K, which are hereby incorporated by reference.

~~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.

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

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

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
April 1 - April 30 —
$ —
—
$ —
May 1 - May 31 —
—
—
75,000,000
June 1 - June 30 70,107
39.10
70,107
72,258,879
Total 70,107
$ 39.10
70,107
$ 72,258,879

During the period July 1, ~~2018~~2019 through July ~~31, 2018,~~26, 2019, we repurchased an additional ~~124,767~~193,176 shares at a weighted average market price of ~~$38.32~~$24.82 per share. After giving effect to these repurchases, we have approximately $67.5 million ~~million~~ of remaining capacity authorized under the ~~currently authorized program.~~current authorization.

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: August ~~3, 2018~~1, 2019

By:

/s/ Michael Preston

Michael Preston

Senior Vice President and Chief Financial Officer


	Three Months Ended June 30, 2018	Six Months Ended June 30, 2018		Three Months Ended June 30, 2019	Six Months Ended June 30, 2019
Volume	4.0%	(1.9)%	Volume	(5.1)%	(4.2)%
Price	6.8%	4.8%	Price	(8.7)%	(8.9)%
	10.8%	2.9%		(13.8)%	(13.1)%


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan
April 2019	226,626	$	29.90	226,626	$	81,920,399
May 2019	231,964	28.20		231,964	75,380,096
June 2019	119,455	25.83		119,455	72,294,632
Total	578,045	$	28.38	578,045



Exhibit		Description
3.1		Amended and Restated Certificate of Incorporation of AdvanSix Inc. ~~(incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 3, 2016).~~ (co nformed copy )
3.2		Amended and Restated By-laws of AdvanSix Inc. ~~(incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 3, 2016).~~
~~10.1~~31.1		~~Form of Noncompete Agreement for Senior Executives.~~
~~31.1~~	Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Executive Officer.
31.2		Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Financial Officer.
32.1		Section 1350 Certification of the Company’s Principal Executive Officer. The information contained in this Exhibit shall not be deemed filed with the SEC nor incorporated by reference in any registration statement filed by the registrant under the Securities Act of 1933, as amended.
32.2		Section 1350 Certification of the Company’s Principal Financial Officer. The information contained in this Exhibit shall not be deemed filed with the SEC nor incorporated by reference in any registration statement filed by the registrant under the Securities Act of 1933, as amended.
101.INS		XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document


AdvanSix Inc.
(Exact name of registrant as specified in its charter)



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



Total term loan outstanding	$	—
Amounts outstanding under the Revolving Credit Facility	210,000
Total outstanding indebtedness	210,000
Less: Line of credit – short-term	(18,300		)
Line of credit – long-term	$	191,700



	Six Months Ended June 30, 2018
Capital expenditures in Accounts payable at December 31, 2017	$	25,222
Purchases of property, plant and equipment	35,905
Less: Capital expenditures in Accounts payable at June 30, 2018	(7,704		)
Cash paid for capital expenditures	$	53,423