10-Q 1 asix-20220930.htm 10-Q asix-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 1-37774
 AdvanSix Inc.
(Exact name of registrant as specified in its charter)
Delaware
81-2525089
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
300 Kimball Drive, Suite 101, Parsippany, New Jersey
07054
(Address of principal executive offices)
(Zip Code)
(973) 526-1800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareASIXNew York Stock Exchange


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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer o
Non-accelerated filer o
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No ý

The Registrant had 27,566,894 shares of common stock, $0.01 par value, outstanding at October 28, 2022.


ADVANSIX INC.
FORM 10-Q
 
TABLE OF CONTENTS


 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021 (unaudited)
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share and per share amounts)
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Sales$478,769 $446,495 $1,541,578 $1,260,561 
Costs, expenses and other:
Costs of goods sold443,646 366,180 1,296,128 1,040,965 
Selling, general and administrative expenses23,069 21,121 65,120 62,112 
Interest expense, net686 1,174 2,017 4,096 
Other non-operating (income) expense, net(1,394)331 (1,825)349 
Total costs, expenses and other466,007 388,806 1,361,440 1,107,522 
Income before taxes12,762 57,689 180,138 153,039 
Income tax expense2,730 13,747 41,876 36,835 
Net income$10,032 $43,942 $138,262 $116,204 
Earnings per common share
Basic$0.36 $1.56 $4.92 $4.13 
Diluted$0.35 $1.51 $4.74 $4.02 
Weighted average common shares outstanding
Basic27,944,494 28,182,810 28,103,255 28,136,511 
Diluted28,889,658 29,100,276 29,173,537 28,920,832 
 

See accompanying notes to Condensed Consolidated Financial Statements.
3

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

 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Net income $10,032 $43,942 $138,262 $116,204 
Foreign exchange translation adjustment(32)(15)(10)(20)
Cash-flow hedges57 415 864 1,300 
Other comprehensive income (loss), net of tax25 400 854 1,280 
Comprehensive income$10,057 $44,342 $139,116 $117,484 

See accompanying notes to Condensed Consolidated Financial Statements.
4

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

September 30,
2022
December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$24,694 $15,100 
Accounts and other receivables – net185,901 178,140 
Inventories – net158,432 149,570 
Taxes receivable14,930 947 
Other current assets14,399 6,097 
Total current assets398,356 349,854 
Property, plant and equipment – net803,188 767,964 
Operating lease right-of-use assets124,960 136,207 
Goodwill56,192 17,592 
Intangible assets50,004 17,980 
Other assets22,833 22,402 
Total assets$1,455,533 $1,311,999 
LIABILITIES
Current liabilities:
Accounts payable$265,090 $211,511 
Accrued liabilities44,068 49,712 
Income taxes payable24 9,723 
Operating lease liabilities – short-term38,913 36,127 
Deferred income and customer advances2,561 2,749 
Total current liabilities350,656 309,822 
Deferred income taxes152,412 133,330 
Operating lease liabilities – long-term86,304 100,580 
Line of credit – long-term135,000 135,000 
Postretirement benefit obligations6,868 18,243 
Other liabilities10,016 13,834 
Total liabilities741,256 710,809 
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; 200,000,000 shares authorized; 31,962,466 shares issued and 27,715,594 outstanding at September 30, 2022; 31,755,430 shares issued and 28,139,954 outstanding at December 31, 2021
320 318 
Preferred stock, par value $0.01; 50,000,000 shares authorized and 0 shares issued and outstanding at September 30, 2022 and December 31, 2021
  
Treasury stock at par (4,246,872 shares at September 30, 2022; 3,615,476 shares at December 31, 2021)
(42)(36)
Additional paid-in capital181,628 195,931 
Retained earnings538,056 411,516 
Accumulated other comprehensive loss(5,685)(6,539)
Total stockholders' equity714,277 601,190 
Total liabilities and stockholders' equity$1,455,533 $1,311,999 
5

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

See accompanying notes to Condensed Consolidated Financial Statements.
6

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

Nine Months Ended
September 30,
20222021
Cash flows from operating activities:
Net income$138,262 $116,204 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 51,870 49,058 
Loss on disposal of assets 1,303 842 
Deferred income taxes 8,696 11,235 
Stock-based compensation7,599 8,606 
Accretion of deferred financing fees464 424 
Changes in assets and liabilities, net of business acquisitions:
Accounts and other receivables 7,346 (46,549)
Inventories 27 37,885 
Taxes receivable(13,983)11,952 
Accounts payable 43,468 27,047 
Income taxes payable(9,699) 
Accrued liabilities (7,666)6,418 
Deferred income and customer advances (188)(23,241)
Other assets and liabilities (23,512)(14,358)
Net cash provided by operating activities 203,987 185,523 
Cash flows from investing activities:
Expenditures for property, plant and equipment (61,010)(37,471)
Acquisition of business(97,456)(9,523)
Other investing activities(1,587)(975)
Net cash used for investing activities (160,053)(47,969)
Cash flows from financing activities:
Borrowings from line of credit354,000 133,500 
Payments of line of credit(354,000)(273,500)
Principal payments of finance leases(712)(534)
Dividend payments(11,083) 
Purchase of treasury stock(23,591)(589)
Issuance of common stock1,046 202 
Net cash used for financing activities (34,340)(140,921)
Net change in cash and cash equivalents 9,594 (3,367)
Cash and cash equivalents at beginning of period15,100 10,606 
Cash and cash equivalents at the end of period$24,694 $7,239 
Supplemental non-cash investing activities:
Capital expenditures included in accounts payable $19,182 $6,783 
Supplemental cash activities:
Cash paid for interest$1,580 $3,785 
Cash paid for income taxes$55,840 $23,051 
See accompanying notes to Condensed Consolidated Financial Statements.
7

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

8

ADVANSIX INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Common StockAdditional Paid-In CapitalRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Total Equity
SharesAmount
Balance at December 31, 202031,627,139 $316 $184,732 $275,243 $(36)$(16,132)$444,123 
Net Income— — — 28,131 — — 28,131 
Comprehensive income
Foreign exchange translation adjustments— — — — — (70)(70)
Cash-flow hedges— — — — — 483 483 
Pension obligation adjustments— — — — — —  
Other comprehensive income (loss), net of tax— — — — — 413 413 
Issuance of common stock33,200 1 — — — — 1 
Purchase of treasury stock (15,371 shares)
— — (443)— — — (443)
Stock-based compensation— — 2,363 — — — 2,363 
Balance at March 31, 202131,660,339 317 186,652 303,374 (36)(15,719)474,588 
Net Income— — — 44,131 — — 44,131 
Comprehensive income
Foreign exchange translation adjustments— — — — — 65 65 
Cash-flow hedges— — — — — 402 402 
Pension obligation adjustments— — — — — —  
Other comprehensive income (loss), net of tax— — — — — 467 467 
Issuance of common stock72,450 — 45 — — — 45 
Purchase of treasury stock (4,919 shares)
— — (146)— — — (146)
Stock-based compensation— — 3,744 — — — 3,744 
Balance at June 30, 202131,732,789 317 190,295 347,505 (36)(15,252)522,829 
Net Income— — — 43,942 — — 43,942 
Comprehensive income
Foreign exchange translation adjustments— — — — — (15)(15)
Cash-flow hedges— — — — — 415 415 
Pension obligation adjustments— — — — — —  
Other comprehensive income (loss), net of tax— — — — — 400 400 
Issuance of common stock5,859 — 156 — — — 156 
Purchase of treasury stock (0 shares)
— —  — — —  
Stock-based compensation— — 2,499 — — — 2,499 
Dividends— — — (3,515)— — (3,515)
Balance at September 30, 202131,738,648 $317 $192,950 $387,932 $(36)$(14,852)$566,311 



See accompanying notes to Condensed Consolidated Financial Statements.
9

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




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

COVID-19

Since early 2020, the novel coronavirus (COVID-19) has continued to spread, with confirmed cases worldwide, and with certain jurisdictions experiencing resurgences, including as a result of variant strains. The pandemic and related containment measures have had a substantial impact on businesses around the world and on global, regional and national economies, including disruptions to supply chains, volatility in demand, production and sales across most industries, volatility within global financial markets, inflationary pressures in commodity pricing and an increasingly dynamic workforce environment. The continuously evolving nature of this pandemic and the pace and shape of a full recovery may continue to have an impact on the United States and global economies.

The Company’s Condensed Consolidated Financial Statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and reported amounts of revenue and expenses during the reporting periods presented. The Company continues to consider the impact of COVID-19 on the estimates and assumptions used for the financial statements. The Company experienced a material impact on its second quarter 2020 results of operations associated with lower demand, particularly in nylon, caprolactam and phenol, and a decrease in overall sales volume related to global markets and the economic impact of COVID-19. Starting in the second half of 2020, demand improved to pre-COVID-19 levels with states, regions and countries in various phases of re-opening and continued administration of vaccines for COVID-19. The Company will continue to monitor developments and execute operational and safety mitigation plans as previously disclosed.

As the situation surrounding COVID-19 remains fluid and unpredictable, the Company cannot reasonably estimate with any degree of certainty the future impact COVID-19 may have on the Company’s results of operations, financial position, and liquidity.

Basis of Presentation

The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company's financial position as of September 30, 2022, and its results of operations for the three and nine months ended September 30, 2022 and 2021 and cash flows for the nine months ended September 30, 2022 and 2021. The year-end Condensed Consolidated Balance Sheet data were derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K"). All intercompany transactions have been eliminated.
 
Certain prior period amounts have been reclassified for consistency with the current period presentation.

It is our practice to establish actual quarterly closing dates using a predetermined fiscal calendar, which requires our businesses to close their books on a Saturday in order to minimize the potentially disruptive effects of quarterly closing on our business processes. Historically, the effects of this practice have generally not been significant to reported results for any quarter and
10

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



only existed within a reporting year. In the event that differences in actual closing dates are material to year-over-year comparisons of quarterly or year-to-date results, we will provide the appropriate disclosures. Our actual closing dates for the three and nine months ended September 30, 2022 and 2021 were October 1, 2022 and October 2, 2021, respectively.

Liabilities to creditors to whom we have issued checks that remained outstanding at September 30, 2022 and December 31, 2021 aggregated to $2.5 million and $4.5 million, respectively, and were included in Cash and cash equivalents and Accounts payable in the Condensed Consolidated Balance Sheets.

On May 4, 2018, the Company announced that its Board of Directors (the “Board”) authorized a share repurchase program of up to $75 million of the Company’s common stock. On February 22, 2019, the Company announced that the Board authorized a share repurchase program of up to an additional $75 million of the Company's common stock, which was in addition to the remaining capacity available under the May 2018 share repurchase program. Repurchases may be made from time to time on the open market in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including through the use of trading plans intended to qualify under Rule 10b5-1 of the Exchange Act. The size and timing of these repurchases will depend on pricing, market and economic conditions, legal and contractual requirements and other factors. The share repurchase program has no expiration date and may be modified, suspended or discontinued at any time. The par value of the shares repurchased is applied to Treasury stock and the excess of the purchase price over par value is applied to Additional paid-in capital.

As of September 30, 2022, the Company has repurchased a total of 4,246,872 shares of common stock, including 592,976 shares withheld to cover tax withholding obligations in connection with the vesting of awards, for an aggregate of $125.9 million at a weighted average market price of $29.66 per share. As of September 30, 2022, $38.6 million remained available for share repurchases under the current authorization. During the period October 1, 2022 through October 28, 2022, the Company repurchased an additional 148,700 shares at a weighted average market price of $33.36 per share under the current authorized repurchase program.

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

3. Revenues

Revenue Recognition

We serve approximately 400 customers annually in approximately 50 countries across a wide variety of industries. For the three months ended September 30, 2022 and 2021, the Company's ten largest customers accounted for approximately 43% and 43% of total sales, respectively. For the nine months ended September 30, 2022 and 2021, the Company's ten largest customers accounted for approximately 39% and 41% of total sales, respectively.

We typically sell to customers under master service agreements, with primarily one-year terms, or by purchase orders. We have historically experienced low customer turnover and have long-standing customer relationships, which span decades. Our largest customer is Shaw Industries Group, Inc. (“Shaw”), a significant consumer of caprolactam and Nylon 6 resin, to whom we sell under a long-term agreement. For the three and nine months ended September 30, 2022, the Company's sales to Shaw were 16% and 12% of our total sales, respectively compared to 13% and 12% for the same periods in 2021.

The Company's revenue by product line, and related approximate percentage of total sales, for the three and nine months ended September 30, 2022 and 2021 were as follows:
11

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



Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Nylon$141,017 29%$122,110 27%$391,731 25%$317,608 25%
Caprolactam90,818 19%80,265 18%247,992 16%242,460 19%
Chemical Intermediates115,268 24%130,920 29%409,568 27%416,482 33%
Ammonium Sulfate131,666 28%113,200 26%492,287 32%284,011 23%
$478,769 100%$446,495 100%$1,541,578 100%$1,260,561 100%
The Company's revenues by geographic area, and related approximate percentage of total sales, for the three and nine months ended September 30, 2022 and 2021 were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
United States$393,447 82 %$365,210 82 %$1,290,621 84 %$1,039,291 82 %
International85,322 18 %81,285 18 %250,957 16 %221,270 18 %
Total$478,769 100 %$446,495 100 %$1,541,578 100 %$1,260,561 100 %
Deferred Income and Customer Advances
The Company defers revenues when cash payments are received in advance of our performance. Below is a roll-forward of Deferred income and customer advances for the nine months ended September 30, 2022:
Opening balance January 1, 2022$2,749 
Additional cash advances2,506 
Less amounts recognized in revenues(2,694)
Ending balance September 30, 2022$2,561 
The Company expects to recognize as revenue the September 30, 2022 ending balance of Deferred income and customer advances within one year or less.

4. Earnings Per Share
 
The computation of basic and diluted earnings per share ("EPS") is based on Net income divided by the basic weighted average number of common shares and diluted weighted average number of common shares, respectively. The details of the basic and diluted EPS calculations for the three and nine months ended September 30, 2022 and 2021 were as follows:
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Basic
Net income$10,032 $43,942 $138,262 $116,204 
Weighted average common shares outstanding27,944,494 28,182,810 28,103,255 28,136,511 
EPS – Basic$0.36 $1.56 $4.92 $4.13 
Diluted
Dilutive effect of equity awards and other stock-based holdings945,164 917,466 1,070,282 784,321 
Weighted average common shares outstanding28,889,658 29,100,276 29,173,537 28,920,832 
EPS – Diluted$0.35 $1.51 $4.74 $4.02 

12

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



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

The diluted EPS calculations exclude the effect of stock options when the options’ assumed proceeds exceed the average market price of the common shares during the period. The anti-dilutive common stock equivalents outstanding at the three and nine months ended September 30, 2022 and 2021 were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Options and stock equivalents 227,144 318,706 156,418 535,299 

Dividend activity for the three and nine months ended September 30, 2022 and 2021 was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Cash dividends declared per share$0.145 $0.125 $0.395 $0.125 
Aggregate dividends paid to shareholders$4,051 $ $11,083 $ 

5. Accounts and Other Receivables Net
September 30,
2022
December 31,
2021
Accounts receivables$182,179 $175,584 
Other4,203 4,051 
Total accounts and other receivables186,382 179,635 
Less – allowance for doubtful accounts(481)(1,495)
Total accounts and other receivables – net$185,901 $178,140 

6. Inventories
September 30,
2022
December 31,
2021
Raw materials$108,682 $56,961 
Work in progress34,413 43,526 
Finished goods51,925 27,961 
Spares and other28,242 27,150 
223,262 155,598 
Reduction to LIFO cost basis(64,830)(6,028)
Total inventories$158,432 $149,570 

Substantially all of the Company’s inventories at September 30, 2022 and December 31, 2021 are valued at the lower of cost or market using the last-in, first-out (“LIFO”) method. However, approximately 9% was valued at average cost using the first-in, first-out (“FIFO”) method at September 30, 2022.

The excess of replacement cost over the carrying value of total inventories subject to LIFO was $69.9 million and $29.4 million at September 30, 2022 and December 31, 2021, respectively.

7. Leases

We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets ("ROU"), Operating lease liabilities – short-term, and Operating lease liabilities – long-term in our Condensed Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment – net, Accounts payable, and Other liabilities in our Condensed Consolidated Balance Sheets.
13

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




The components of lease expense were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Finance lease cost:
Amortization of right-of-use asset$229 $185 $703 $527 
Interest on lease liabilities15 8 37 24 
Total finance lease cost244 193 740 551