What changed in this filing

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Item 1A. Risk Factors

2021-02-19 compared with 2020-02-21 · 163 added, 126 removed, 237 unchanged (55% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other parts of this Form 10-K regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

When used in this Form 10-K, words such as “anticipate,” “believe,” “will,” “estimate,” “expect,” “plan,” “intend” and similar expressions identify forward-looking statements.

When used in this Form 10-K, words such as “expect,” “anticipate,” “estimate,” “outlook,” “project,” “strategy,” “intend,” “plan,” “target,” “goal,” “may,” “will,” “should,” and “believe,” and other variations or similar terminology and expressions identify forward-looking statements.

Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management.

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• Under difficult market conditions, there can be no assurance that access to credit or the capital markets would be available or sufficient, and as such, we may not be able to successfully obtain additional financing on reasonable terms, or at all;

• Market conditions and credit availability could adversely affect the financial situation of raw material suppliers’ ability to deliver key materials, thus impacting our ability to run our production facilities at the intended rates;

• Market conditions and credit availability could adversely affect the financial situation of raw material suppliers and their ability to deliver key materials, thus impacting our ability to run our production facilities at the intended rates;

• Market conditions could result in our key customers experiencing financial difficulties and/or electing to limit spending, which in turn could cause fluctuations in demand for our products, product prices, volumes and margins potentially resulting in decreased sales and earnings.

We are unable to predict the duration of economic conditions or their effects on financial markets or our business and results of operations.

Economic volatility and uncertainty about future economic conditions may at times make it challenging to identify risk that may affect our business, sources and uses of cash, financial conditions and results of operations.

Economic volatility and uncertainty surrounding future economic conditions may at times make it challenging to identify risk that may affect our business, sources and uses of cash, financial conditions and results of operations.

If economic conditions deteriorate, our results of operations, financial condition and cash flows could be materially adversely affected.

The industries in which we operate experience cyclicality which can cause significant fluctuations in our cash flows and may adversely affect our business, financial condition and results of operations.

Our historical operating results reflect the cyclical nature of the Nylon 6 resin, caprolactam, ammonium sulfate and chemical intermediates industries.

We experience cycles of fluctuating supply and demand for each of the products we sell resulting in changes in selling prices and margins.

Our historical operating results reflect the cyclical nature of the industries in which we operate including with respect to our Nylon 6 resin, caprolactam, nitrogen fertilizer, phenol and acetone products.

We experience cycles of fluctuating supply and demand for each of our products resulting in changes in selling prices and margins.

Periods of high demand, tight supply and increasing operating margins tend to result in increases in capacity and production until supply exceeds demand, generally followed by periods of oversupply and declining prices.

While we strive to maintain or increase our profitability by reducing costs through improving production efficiency, by emphasizing higher margin products and by controlling transportation, selling and administration expense, we cannot assure you that these efforts will be sufficient to offset fully the effect of possible decreases in pricing on our operating results.

Because of the cyclical nature of our businesses, we cannot assure you that pricing or profitability in the future will be comparable to any historical period, including the most recent period shown in our operating results.

we cannot assure you that these efforts will be sufficient to offset fully the effect of possible decreases in pricing on our operating results.

As a result of potential cyclicality, we cannot assure you that pricing or profitability in the future will be comparable to any historical period, including the most recent period shown in our operating results.

Structural changes in industry and customer trends for our products could adversely affect our business, financial condition and results of operations.

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While we have made significant annual capital improvements at our manufacturing plants, operational issues have occurred in the past and may occur in the future, which could cause damage to our manufacturing and production equipment and ancillary facilities.

Unplanned interruptions in our production capabilities adversely affect our production costs, product lead times and earnings during the affected period.

Unplanned interruptions in our production capabilities may adversely affect our production costs, product lead times and earnings during the affected period.

Although our integrated manufacturing, scale and the quantity and range of our product offerings make us one of the most efficient manufacturers in our industry, the significant level of integration across our manufacturing facilities exposes us to increased risk associated with unplanned downtime or material disruptions at any one of our production facilities which could impact our supply chain and our manufacturing process.

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We utilize maintenance excellence and mechanical integrity programs and maintain what we believe is an appropriate buffer inventory of intermediate chemicals necessary for our manufacturing process, both of which are intended to mitigate the extent of any production losses as a result of unplanned downtime.

However, unplanned interruptions may still occur, and we may not have enough intermediate chemical inventory at any given time to offset production losses.

However, unplanned interruptions have occurred in the past and may occur in the future, and we may not have enough intermediate chemical inventory at any given time to offset production losses.

Our business interruption insurance coverage may not cover all costs or losses associated with unplanned downtime, or such insurance may not continue to be available in amounts or on terms acceptable to us.

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Our ability to manage inventory and meet delivery requirements may be constrained by our suppliers’ inability to scale production and adjust delivery of long lead-time products during periods of fluctuating demand.

Our inability to fill our supply needs would jeopardize our ability to fulfill obligations under contracts, which could, in turn, result in reduced sales and profits, contract penalties or terminations and damage to customer relationships.

Our inability to satisfy our supply needs would jeopardize our ability to fulfill obligations under contracts, which could, in turn, result in reduced sales and profits, contract penalties or terminations and damage to customer relationships.

When possible, we have purchased, and we plan to continue to purchase, raw materials, including cumene, natural gas and sulfur, through negotiated medium- or long-term contracts.

To the extent we have been able to achieve favorable terms in our existing negotiated contracts, we may not be able to renew such contracts at the current terms or at all, and

this may adversely impact our results of operations.

To the extent we have been able to achieve favorable terms in our existing negotiated contracts, we may not be able to renew such contracts at the current terms or at all, and this may adversely impact our results of operations.

To the extent the markets for our raw materials significantly change, we may be bound by the terms of our existing supplier contracts and obligated to purchase raw materials at disadvantaged terms as compared to other market participants.

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Our capital projects and other growth investments may have lengthy deadlines during which market conditions may deteriorate between the capital expenditure’s approval date and the conclusion of the project, negatively impacting projected returns on our investments.

Delays or cost increases related to capital and other spending programs, including those relating to plant improvements and development of new technologies, could materially adversely affect our ability to achieve forecasted operating results.

Delays or cost increases related to capital and other spending programs, including those relating to plant improvements and development of new technologies, could materially

adversely affect our ability to achieve forecasted operating results.

In addition, we may need to seek additional capital in the future, and debt or equity financing may not be available to us on terms we find acceptable, if at all.

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However, we may need additional capital resources in the future, and if we are unable to obtain sufficient resources for our operating needs, capital expenditures and other cash requirements for any reason, our business, financial condition and results of operations could be adversely affected.

We are subject to certain risks associated with our indebtedness.

We are a borrower of funds under a credit facility.

Our ability to make payments on and to refinance our indebtedness, including the debt incurred, as well as any future debt that we may incur, will depend on our ability to generate cash in the future from operations or financings.

Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

In addition, the terms of our indebtedness include a number of restrictive covenants that impose significant operating and financial restrictions on us and our subsidiaries and limit our ability to engage in actions that may be in our long-term best interests.

These may restrict our and our subsidiaries’ ability to take some or all of the following actions:

• Incur or guarantee additional indebtedness or sell disqualified or preferred stock;

• Pay dividends on, make distributions in respect of, repurchase or redeem capital stock;

• Make investments or acquisitions;

• Sell, transfer or otherwise dispose of certain assets;

• Create liens;

• Enter into sale/leaseback transactions;

• Enter into agreements restricting the ability to pay dividends or make other intercompany transfers;

• Consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries’ assets;

• Enter into transactions with affiliates;

• Prepay, repurchase or redeem certain kinds of indebtedness;

• Issue or sell stock of our subsidiaries;

• Significantly change the nature of our business.

These restrictions may impact our current and future operations, how we conduct our business and pursue our strategy, as well as our ability to incur debt that we may need to fund initiatives associated with our strategy, ongoing operations, competitive industry dynamics and new business opportunities.

A breach of any of these covenants, if applicable, could result in an event of default under the terms of this indebtedness.

If an event of default occurs, the lenders would have the right to accelerate the repayment of such debt and the event of default or acceleration may result in the acceleration of the repayment of any other debt to which a cross-default or cross-acceleration provision applies.

Substantially all domestic tangible and intangible assets of the Company and its subsidiaries are pledged as collateral to secure the obligation under our credit facility and, in the event we were unable to repay any amount of this indebtedness when due and payable, the lenders could proceed against the pledged collateral.

In the event our creditors accelerate the repayment of our borrowings, we may not have sufficient assets to repay such indebtedness, which could adversely affect our business, financial condition and results of operations.

Furthermore, our credit facility currently uses LIBOR as a benchmark for establishing the interest rate.

LIBOR will be discontinued by the end of 2021 and other regulators have suggested reforming or replacing LIBOR with other benchmark rates.

The consequences of these developments with respect to LIBOR cannot be entirely predicted but could cause volatility or disruption in the overall financial market, result in an increase in the cost of our variable rate debt or adversely affect our cost of funding, any of which could adversely affect our financial condition and results of operations.

Additionally, while our credit facility contains a provision providing for an alternative rate calculation in the event LIBOR is unavailable, this provision may not adequately address the actual changes to LIBOR or successor rates.

Our results of operations have been, and in the future may be, materially adversely impacted by the coronavirus (COVID-19) pandemic and the measures implemented to contain the spread of the virus.

The continued spread of the coronavirus (COVID-19) pandemic and the resulting containment measures have created significant volatility, uncertainty and economic disruption globally and have had, and in the future may have, a material impact on the Company's results of operations.

Department of Homeland Security has designated our industry as "essential critical infrastructure" during the response to COVID-19 for both public health and safety as well as community well-being.

The Company takes its obligation to produce materials that support the broader population seriously, all while maintaining a prioritized focus on the health and safety of its employees and the communities in which it operates, and assuring the continuity of its business operations.

As a global provider of products that are key inputs for our customers’ processes serving a variety of end-markets, a pandemic presents obstacles that can adversely affect our supply chain effectiveness and efficiencies, our manufacturing operations and customer demand for our products and, ultimately, our financial results.

We believe we are positioned to respond to and mitigate the potential impacts of rapidly evolving market dynamics.

While the Company was not materially impacted by COVID-19 in the first quarter of 2020, the Company experienced lower demand, particularly in nylon, caprolactam and phenol, during the second quarter of 2020, resulting in a reduction of utilization rates and a decrease in overall sales volume compared to the prior year period, primarily related to global markets and the economic impact of COVID-19.

During the second half of 2020, the Company experienced an improvement of demand to approximately pre-COVID-19 levels;

however, there is no assurance that sales volumes will remain stable or that demand will fully recover or continue given the recent resurgence of COVID-19 cases in the U.S.

and abroad, increases in restrictions imposed by governments, or other factors resulting from sustained, or further resurgences in, infection rates.

While the COVID-19 pandemic may impact the Company's results of operations, financial position and liquidity in the near-term and potentially beyond, we are unable to predict the extent or nature of these impacts at this time.

The extent of the future and overall impact from the COVID-19 pandemic on our business depends on numerous evolving factors and future developments that cannot be accurately predicted at this time, including, but not limited to:

the scope and duration of the pandemic, including the extent of any resurgences, and the pace of recovery;

the timing of the development and distribution of an effective vaccine or treatments for COVID-19;

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic, including our business continuity and cash optimization plans that have been, and may in the future be, implemented;

the impact of social and economic restrictions and other containment measures taken to combat virus transmission;

the effect on our customers’ demand for our products and our suppliers’ ability to manufacture and deliver our raw materials, including implications of reduced refinery utilization in the U.S.;

our ability to sell and provide our goods and services, including as a result of travel and other COVID-19-related restrictions;

the ability of our customers to pay for our products;

any closures of our and our customers’ offices and facilities;

risks associated with increased phishing, compromised business emails and other cybersecurity attacks and disruptions to our technology infrastructure;

and risks associated with employees working remotely or operating with a reduced workforce.

Customers may also slow down decision-making, delay planned work or seek to terminate existing agreements.

Due to difficult market conditions created by the pandemic, there can be no assurance that access to credit or the capital markets would be available or sufficient, and as such, if needed, we may not be able to successfully obtain additional financing on reasonable terms, at a reasonable cost, or at all.

As a result, these market conditions may impact our ability to comply with financial covenants in our credit facility, increase our cost of capital or make additional capital, including the refinancing of our credit facility, more difficult or available only on terms less favorable to us, if at all.

A sustained downturn may also result in the carrying value of our goodwill or other assets exceeding their fair value, which may require us to recognize an impairment to those assets.

In addition, impacted financial markets and asset values may have the effect of increasing our pension funding obligations in order to ensure that our qualified pension plans continue to be adequately funded, which may divert cash flow from other uses.

The effects of the pandemic may also impact our financial reporting systems and internal control over financial reporting, including our ability to ensure information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Any of these events could materially adversely impact our business, financial condition, results of operations, cash flow, liquidity and/or stock price.

The COVID-19 pandemic, as well as future pandemics, could also cause or contribute to the other risk factors identified in this Form 10-K, as may be amended in our subsequent Quarterly Reports on Form 10-Q, which in turn could materially adversely affect our business, financial condition, results of operations, cash flow, liquidity and/or stock price.

Further, the COVID-19 pandemic may also affect our business, operations and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks to our operations.

For additional information regarding the impact of COVID-19 on our business, financial condition, results of operations, cash flow and liquidity, see the discussions under "Recent Developments - COVID-19" in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Our competitive position, as well as our failure to develop and commercialize new products or technologies to address our customers’ needs and to effectively compete, could adversely affect our business, financial condition and results of operations.

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Our ability to keep pace with our competitors and the success of any new products and technologies is uncertain and could adversely affect our business, financial condition and results of operations.

Our operations are dependent on numerous required permits and approvals.

We hold numerous environmental and other governmental permits and approvals authorizing operations at each of our facilities.

In addition, any expansion or major modification of our operations is dependent upon securing the necessary environmental or other permits or approvals.

A decision by a government agency to deny or delay issuing a new or renewed material permit or approval, or to revoke or substantially modify an existing material permit or approval, could have an adverse effect on our ability to continue operations at the affected facility and on our business, financial condition and results of operations.

The loss of one or more of our significant customers could adversely affect our business, financial condition and results of operations.

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The loss of one or several significant customers may have an adverse effect on our business, financial condition and results of operations.

In 2019, our 10 largest customers accounted for approximately 47% of our total sales.

In 2020, our 10 largest customers accounted for approximately 43% of our total sales across all product lines.

Our largest customer is Shaw, one of the world’s largest consumers of Nylon 6 resin and caprolactam.

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If one or more of our largest customers were to become bankrupt or insolvent, or otherwise were unable to pay for our products, we may incur significant write-offs of accounts that may have an adverse effect on our business, financial condition and results of operations.

We are subject to risks related to adverse trade policies inherent in international sales and associated regulations in certain important markets for our products.

We have exposure to risks inherent in international sales, including difficulties and costs associated with complying with a wide variety of complex laws, treaties and regulations including customs and international trade laws;

unexpected changes in political or regulatory environments;

earnings and cash flows that may be subject to tax withholding requirements or the imposition of tariffs, exchange controls or other restrictions;

political and economic instability;

import and export restrictions, tariffs, and other trade barriers or retaliatory actions;

fluctuations in foreign currency exchange rates;

government takeover or nationalization of business;

and government mandated price controls.

These considerations limit the countries in which we can do business, the persons or entities with whom we can do business, the products which we can buy or sell, and the terms under which we can do business.

As a U.S.-based producer, we are

impacted by anti-dumping investigations which have had, and may continue to impose, significant anti-dumping duties on our products.

Such duties place us at a significant competitive disadvantage in the applicable markets.

In each case, we diligently evaluate our commercial and legal options to defend these investigations and their subsequent sunset reviews and take steps we feel are prudent to protect our interests, including our filing anti-dumping petitions covering imports of acetone with the International Trade Commission in February 2019.

Historically, we have successfully mitigated these risks through geographical mix management so that the imposition of duties does not materially affect our business results.

However, such duties could have an adverse effect on the sales of key product lines and affect our business performance in the future.

There can be no assurance that, in the future, any governmental or international trade body will not institute trade policies or remedies that are adverse to exports from the United States.

Additionally, the U.S.

has recently imposed tariffs on certain U.S.

imports, and China and other countries have responded with retaliatory tariffs on certain U.S.

Any significant changes in international trade policies, practices or trade remedies, especially those instituted in our target markets or markets where our major customers are located, such as the United States-Mexico-Canada Agreement, could potentially increase the price of our products relative to our competitors or decrease our customers’ demand for our products, which in turn may adversely affect our business, financial condition and results of operations.

Extensive environmental, health and safety laws and regulations applicable to our operations, including initiatives related to discharges into the air and water, hazardous waste, sustainability, global warming and climate change, may result in substantial costs and unanticipated loss or liability, which could adversely affect our business, financial condition and results of operations.

Various federal, state, local and foreign governments regulate the discharge of materials into the environment and can impose substantial fines and criminal sanctions for violations and require installation of costly equipment or operational changes to limit emissions and/or decrease the likelihood of accidental hazardous substance releases.

If we are found to be in violation of these laws or regulations, we may incur substantial costs, including fines, damages, criminal or civil sanctions and remediation costs, or experience interruptions in our operations.

Business - Regulation and Environmental Matters” for more information on the environmental laws and regulations to which we are subject.

Primarily because of past operations at our current manufacturing locations and other locations used in our operations as currently conducted, we may be subject to potentially material liabilities related to the remediation of environmental hazards and to claims of personal injuries or property damages that may have been or may be caused by hazardous substance releases and exposures or other hazardous conditions.

Lawsuits, claims and costs involving these matters may arise in the future.

In addition, changes in laws, regulations and enforcement of policies, the discovery of previously unknown contamination or other information related to individual sites, the establishment of stricter state or federal toxicity standards with respect to certain contaminants or the imposition of new clean-up requirements or remedial techniques could require us to incur additional costs in the future that would have a negative effect on our business, financial condition and results of operations.

Additionally, there are substantial uncertainties as to the nature, stringency and timing of any future regulations or changes in regulations, including discharges into the air and water, handling and disposal of hazardous wastes, remediation of soil and groundwater, and greenhouse gas (“GHG”) and water nutrient regulations.

Due to the concerns about risks associated with air, water, global warming and climate change, more stringent regulations may require us to incur additional capital expenditures or make changes to our operating activities that would increase our operating costs, reduce our efficiency, limit our output, require us to make capital improvements to our facilities, increase our costs for or limit the availability of energy, raw materials or transportation or otherwise adversely affect our business, financial condition and results of operations.

If enacted, more stringent GHG limitations are likely to have a significant impact on us because our production facilities emit GHGs such as carbon dioxide and nitrous oxide and because natural gas, a fossil fuel, is a primary raw material used in our production process.

To the extent that GHG or other restrictions are not imposed in countries where our competitors operate or are less stringent than regulations that may be imposed in the United States, our competitors may have cost or other competitive advantages over us.

In addition, increasing regulation of fuel emissions could substantially increase the distribution and supply chain costs associated with our products.

Consequently, legislative and regulatory programs to reduce emissions of GHG could have an adverse effect on our business, financial condition and results of operations.

Further, there has been public discussion that climate change may be associated with more extreme weather conditions, such as increased frequency and severity of storms, droughts, and floods.

Extreme weather conditions can interfere with our operating activities, disrupt our maritime logistics and intraplant supply chain, increase our costs of operations or reduce the efficiency of our operations, and potentially increase costs for insurance coverage in the aftermath of such conditions.

Long-term, higher average global temperatures could result in changes in natural resources, growing seasons, precipitation patterns, weather patterns, species distributions, water availability, sea levels, and biodiversity.

These impacts could cause changes in supplies of raw materials used to maintain our production capacity and could lead to possible increased sourcing costs in the future.

We continually assess our manufacturing plants for risks and opportunities to increase our preparedness for climate change.

We are continuing to evaluate sea level rise and storm surge at our plants to understand potential impacts and response actions that may need to be taken.

Significant physical effects of climate change could also have an indirect effect on our financing and operations by disrupting the transportation or process-related services provided by companies or suppliers with whom we have a business relationship.

There is also a risk that one or more of our key raw materials or one or more of our products may be found to have, or be characterized as having, a toxicological or health-related impact on the environment or on our customers or employees, which could potentially result in us incurring liability in connection with such characterization and the associated effects of any toxicological or health-related impact.

If such a discovery or characterization occurs, we may incur increased costs to comply with new regulatory requirements, or the relevant materials or products, including products of our customers that incorporate our materials or products, may be recalled or banned.

Changes in laws and regulations, or their interpretations, and our customers’ perception of such changes or interpretations may also affect the marketability of certain of our products.

Additionally, sales of acetone, which is a List II Chemical under TSCA, are regulated by the Drug Enforcement Act.

This classification subjects us to periodic audits by the Drug Enforcement Administration and ongoing restrictions on our acetone sales activities.

Heightened public focus on climate change, sustainability, and environmental issues has also led to increased government regulation and may cause certain of our customers to impose environmental standards on us as a part of doing business with them, all of which could increase the costs incurred by our customers to use our products and otherwise limit the use of these products, which could lead to decreased demand for these products.

The occurrence or threat of extraordinary events, including terrorist attacks, may disrupt our operations and could adversely affect our business, financial condition and results of operations .

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In the ordinary course of business, we may make certain commitments, including representations, warranties and indemnities relating to current and past operations, including those related to divested businesses, and issue guarantees of third-party obligations.

Additionally, we will be required to indemnify Honeywell for amounts related to liabilities allocated to, or assumed by, us under each of the Separation and Distribution Agreement, the Employee Matters Agreement and the

Tax Matters Agreement entered into in connection with our spin-off.

Additionally, we may be required to indemnify Honeywell for amounts related to liabilities allocated to, or assumed by, us in connection with our spin-off.

If we are required to make any such payments, the payments could be significant and could exceed the amounts we have accrued with respect thereto, adversely affecting our business, financial condition and results of operations.

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However, we may be unable to obtain protection for our intellectual property in such key jurisdictions.

Although we own and have applied for numerous patents and trademarks, we may have to rely on judicial enforcement of our patents and other proprietary rights.

Although we own and have applied for numerous patents and trademarks, we may have to rely on judicial enforcement of our patents and other

proprietary rights.

Our patents and other intellectual property rights may be challenged, invalidated, circumvented, and rendered unenforceable or otherwise compromised.

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We may be required to make significant cash contributions to our defined benefit pension plan.

After our spin-off, we sponsored a defined benefit pension plan under which certain eligible AdvanSix employees will earn pension benefits following the spin-off as if they remained employed by Honeywell.

Significant changes in actual investment return on pension assets, discount rates, retirement rates and other factors could require cash pension contributions in future periods.

We sponsor a defined benefit pension plan under which certain eligible AdvanSix employees who were employed by Honeywell prior to the spin-off earn pension benefits as if they remained employed by Honeywell.

Significant changes in actual investment return on pension assets, discount rates, retirement rates and other factors could require unplanned cash pension contributions in future periods.

Changes in discount rates and actual asset returns different from our anticipated asset returns can result in significant non-cash actuarial gains or losses.

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Competition for qualified personnel in our industry is intense, and we may not be successful in attracting or retaining qualified personnel.

The loss of key employees, our inability to attract new, qualified employees or adequately train employees, or the delay in hiring key personnel, could negatively affect our business, financial condition and results of operations.

The loss of key employees, our inability to attract new, qualified employees or adequately train employees, or any delay in hiring key personnel, could negatively affect our business, financial condition and results of operations.

Cybersecurity threats and incidents continue to increase in frequency and sophistication.

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While we have experienced, and expect to continue to experience, these types of threats and incidents, none of them to date have been material to the Company.

Our information technology infrastructure, including cybersecurity controls, deploy comprehensive measures to deter, prevent, detect, respond and mitigate these threats including access controls, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems.

Our information technology infrastructure, including cybersecurity controls, deploys comprehensive measures to deter, prevent, detect, respond and mitigate these threats including access controls, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems.

We track cyber performance metrics and conduct training of our employees on protective measures regarding information security, data privacy, cyber-attacks and recognizing phishing attempts.

Despite these efforts, cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of our plant operations and business generally or the disruption of the operations and businesses of our vendors or customers.

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While our standard vendor terms and conditions include certain safeguards, including requiring the use of appropriate security measures to prevent unauthorized use or disclosure of our data, a breach at these third-party vendors may occur.

The potential consequences of a material cybersecurity incident of our own systems or the systems of those with whom we do business, include reputational consequences, safety risk, physical damage to our assets, claims from and litigation with third parties, fines levied by governmental authorities, diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs, which in turn could, individually or in the aggregate, adversely affect our competitiveness, plant operations, business, financial condition and results of operations.

The potential consequences of a material cybersecurity incident of our own systems or the systems of those with whom we do business, include

reputational consequences, safety risk, physical damage to our assets, claims from and litigation with third parties, fines levied by governmental authorities, diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs, which in turn could, individually or in the aggregate, adversely affect our competitiveness, plant operations, business, financial condition and results of operations.

We maintain cyber liability insurance, but this insurance may not be sufficient to cover the losses that may result from a cybersecurity incident.

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Noncompliance with these laws can result in reputational damage, fines and penalties, and enforcement proceedings and litigation, any of which may adversely affect our business, reputation, financial condition and results of operations.

Failure to maintain effective internal controls could adversely impact our ability to meet our reporting requirements.

We are required, under the Sarbanes-Oxley Act of 2002, to maintain effective internal control over financial reporting and disclosure controls and procedures.

This includes performing system and process evaluations and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by the Sarbanes-Oxley Act, with auditor attestation of the effectiveness of our internal controls.

If we are not able to comply with these requirements, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our common shares could decline and we could be subject to penalties or investigations by the NYSE, the SEC or other regulatory authorities, which would require additional financial and management resources.

Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports, and to effectively prevent fraud.

Internal controls over financial reporting may not prevent or detect misstatements because of inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud.

Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.

If we fail to maintain the effectiveness of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on our stock price.

The ongoing process of implementing internal controls requires significant attention from management and we cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future.

Difficulties encountered in their implementation could harm our results of operations or cause us to fail to meet our reporting obligations.

If we fail to obtain the quality of services necessary to operate effectively or incur greater costs in obtaining these services, our profitability, financial condition and results of operations may be materially and adversely affected.

Disruptions in transportation or significant changes in transportation costs could adversely impact our business financial condition and results of operations.

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We are exposed to risks from various events that are beyond our control, which may have significant effects on our results of operations.

While we attempt to mitigate these risks through appropriate loss prevention measures, insurance, contingency planning and other means, we may not be able to anticipate all risks or to reasonably or cost-effectively manage those risks that we do anticipate.

While we attempt to mitigate these risks through appropriate loss prevention measures, insurance, business contingency planning and other means, we may not be able to anticipate all risks or to reasonably or cost-effectively manage those risks that we do anticipate.

We maintain property, cyber liability, business interruption and casualty insurance but such insurance may not cover all risks, loss, damages or expenses associated with our business and is subject to limitations, including deductibles and limits on the liabilities covered.

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If any known or unknown risks and uncertainties develop into actual events, these developments could have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to Our Indebtedness

We are subject to certain risks associated with our indebtedness.

We are a borrower of funds under a credit facility.

Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

These may restrict our and our subsidiaries’ ability to take some or all of the following actions:

• Incur or guarantee additional indebtedness or sell disqualified or preferred stock;

• Pay dividends on, make distributions in respect of, repurchase or redeem capital stock;

• Make investments or acquisitions;

• Sell, transfer or otherwise dispose of certain assets;

• Create liens;

• Enter into sale/leaseback transactions;

• Enter into agreements restricting the ability to pay dividends or make other intercompany transfers;

• Consolidate, merge, sell or otherwise dispose of all or substantially all of our or our subsidiaries’ assets;

• Enter into transactions with affiliates;

• Prepay, repurchase or redeem certain kinds of indebtedness;

Issue or sell stock of our subsidiaries;

• Significantly change the nature of our business.

A breach of any of these covenants, if applicable, could result in an event of default under the terms of this indebtedness.

Furthermore, our credit facility currently uses LIBOR as a benchmark for establishing the interest rate.

LIBOR will be discontinued by the end of 2021 and other regulators have suggested reforming or replacing LIBOR with other benchmark rates.

Risks Relating to Legal and Regulatory Matters

Our operations are dependent on numerous required permits and approvals.

We hold numerous environmental and other governmental permits and approvals authorizing operations at each of our facilities.

In addition, any expansion or major modification of our operations is dependent upon securing the necessary environmental or other permits or approvals.

A decision by a government agency to deny or delay issuing a new or renewed material permit or approval, or to revoke or substantially modify an existing material permit or approval, could have an adverse effect on our ability to continue operations at the affected facility, or facilities, and on our business, financial condition and results of operations.

We are subject to risks related to adverse trade policies inherent in international sales and associated regulations in certain important markets for our products.

unexpected changes in political or regulatory environments;

earnings and cash flows that may be subject to tax withholding requirements or the imposition of tariffs, exchange controls or other restrictions;

political and economic instability;

import and export restrictions, tariffs, and other trade barriers or retaliatory actions;

fluctuations in foreign currency exchange rates;

government takeover or nationalization of business;

and government mandated price controls.

As a U.S.-based producer, we are impacted by anti-dumping investigations which have had, and may continue to impose, significant anti-dumping duties on our products.

Such duties place us at a significant competitive disadvantage in the applicable markets.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”).

Historically, we have successfully mitigated these risks through geographical mix management so that the imposition of duties does not materially affect our business results.

However, such duties could have an adverse effect on the sales of key product lines and affect our business performance in the future.

There can be no assurance that, in the future, any governmental or international trade body will not institute trade policies or remedies that are adverse to exports from the United States, and given the change in the U.S.

presidential administration, we may face additional uncertainty with regard to U.S.

government trade policy.

In recent years, the U.S.

imposed tariffs on certain U.S.

imports, and China and other countries responded with retaliatory tariffs on certain U.S.

Any significant changes in international trade policies, practices or trade remedies, especially those instituted in our target markets or markets where our major customers are located, such as the United States-Mexico-Canada Agreement which became effective in July 2020, could potentially increase the price of our products relative to our competitors or decrease our customers’ demand for our products, which in turn may adversely affect our business, financial condition and results of operations.

emissions and/or decrease the likelihood of accidental hazardous substance releases.

Business - Regulation and Environmental Matters” for more information on the environmental laws and regulations to which we are subject.

Lawsuits, claims and costs involving these matters may arise in the future.

Due to the concerns about risks associated with air, water, global warming and climate change, more stringent regulations, including those which could result from the recent change in the U.S.

presidential administration, may require us to incur additional capital expenditures or make changes to our operating activities that would increase our operating costs, reduce our efficiency, limit our output, increase our costs for or limit the availability of energy, raw materials or transportation or otherwise adversely affect our business, financial condition and results of operations.