What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-19 compared with 2020-02-21 · 188 added, 104 removed, 329 unchanged (47% of the section changed)

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Our differentiated Nylon 6 products are typically valued at a higher level than commodity resin products.

We believe that the Nylon 6 end-market growth will continue to generally track global GDP over the long-term.

We believe that Nylon 6 end-market growth will continue to generally track global GDP over the long-term.

Applications such as engineered plastics and packaging have potential to grow at faster rates given certain macrotrends.

Additionally, one of our strategies is to continue developing higher-value, differentiated Nylon 6 products, such as our co-polymer offerings, in current and new customer applications.

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 continue to invest in and grow our differentiated product offerings in high-purity applications and high-value intermediates including our oximes-based EZ-Blox™ anti-skinning agent used in paints and Nadone® cyclohexanone, which is a solvent used in various high-value applications.

Our ammonium sulfate is used by customers as a fertilizer containing nitrogen and sulfur, two key crop nutrients.

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Our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition to increase yields of key crops.

In addition, due to its nutrient density, the typical ammonium sulfate product delivers pound for pound the most readily available sulfur and nitrogen to crops than other fertilizers.

We produce ammonium sulfate fertilizer continuously throughout the year as part of our manufacturing process, but quarterly sales experience seasonality based on the timing and length of the growing seasons in North and South America.

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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.

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Recent Developments

In March 2020, the World Health Organization categorized the novel coronavirus (COVID-19) as a global pandemic with numerous countries around the world declaring national emergencies, including the United States.

Since early 2020, COVID-19 has continued to spread rapidly, with most countries and territories worldwide having confirmed cases, and with certain jurisdictions experiencing resurgences.

The spread has resulted in authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business shutdowns.

The pandemic and these containment measures have had, and are expected to continue to have, a substantial negative impact on businesses around the world and on global, regional and national

economies, including disruptions to supply chains, reduced demand and production sales across most industries, declines and volatility within global financial markets, and decreased workforces causing increased unemployment.

The continuously evolving nature of this pandemic and the responses to combat the pandemic, such as governmental restrictions on non-essential business and travel, continue to have a negative impact on the United States and global economies.

While various jurisdictions have ended, or have implemented policies to phase out, these containment measures, increases in new COVID-19 cases have caused certain jurisdictions to re-implement restrictions.

Department of Homeland Security 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 seriously to produce materials that support the broader population, 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 the rapidly evolving market dynamics.

For a description of risks in relation to the COVID-19 pandemic, see "Risks Relating to Our Business" under "Risk Factors" in Item 1A.

In the first quarter of 2020, the Company began executing its business continuity plans with dedicated teams chartered to proactively implement measures to mitigate COVID-19 impacts while continuing to operate all of its manufacturing facilities to meet customer demand.

In response to COVID-19, the Company took many actions to protect its employees, customers, suppliers, shareholders and surrounding communities including, but not limited to:

(i) 100% thermal screening process at all manufacturing facilities and restrictions on non-essential visitors;

(ii) telecommuting across all sites, where possible;

(iii) prohibiting all non-essential domestic and international business travel;

(iv) establishing social distancing while limiting the number of employees in control rooms, labs and in-person meetings;

and (v) maintaining policies and practices consistent with CDC and government guidelines including upgraded personal protective equipment, face coverings at all facilities, and exposure management protocols.

Our telecommuting policies have been designed to allow for continued operation of non-production business-critical functions, including financial reporting systems and internal controls.

The Company has protocols in place at all sites, including on-site medical personnel at manufacturing facilities to actively monitor employees and contractors who report symptoms of or exposure to COVID-19.

In addition, the Company has trained a contingent workforce to operate the plants as part of its business continuity planning.

The Company continued its execution of these measures at all sites through the fourth quarter of 2020 and into 2021.

We believe our competitive strengths are serving us well during this time including our vertically integrated asset base and global low-cost advantage as well as driving disciplined cost and cash management across the organization with further reductions of capital expenditures and discretionary spending.

During the fourth quarter of 2020, the Company continued to support safe and stable operations while serving its customers by adjusting output to changes in mix and demand.

From an industry perspective, building and construction demand has improved, particularly in residential applications, however, commercial construction remains soft.

Auto demand has also been improving with the U.S.

and Europe experiencing a slower recovery, while China and other Asia markets saw a faster rebound.

Export demand for textiles out of Asia has been soft, which has had an impact on nylon supply and demand conditions.

The nylon product line has seen an improvement in demand domestically as end markets improved from a challenging first half of 2020.

Ammonium Sulfate and acetone demand have not been significantly impacted by COVID-19 to date.

Ammonium Sulfate has experienced steady demand through the peak second quarter domestic planting season and into the new season fill, while the North American acetone industry supply and demand balance has continued to be favorable following the affirmative final anti-dumping duties and robust demand for isopropyl alcohol (IPA), used for hand sanitizer and other disinfectants, and methyl methacrylate (MMA), used for acrylic screens, and other solvents.

As a result of COVID-19, demand reduction for transportation fuels and resultant inventory builds have reduced refinery utilization rates, which the Company continues to monitor as it relates to potential impacts on its supply chain and availability of key raw materials.

The Company’s 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 Consolidated Financial Statements and reported amounts of revenue and expenses during the reporting periods presented.

The Company considered the impact of COVID-19 on the assumptions and estimates used and determined that there was a material impact on the Company’s second quarter 2020 results of operations.

In particular, the Company experienced lower demand, particularly in nylon, caprolactam and phenol, resulting in a reduction of plant utilization rates and a decrease in overall sales volume (approximately 19%) in the second quarter of 2020 compared to the prior year period, primarily related to global markets and the economic impact of COVID-19.

During the third quarter of 2020, the Company experienced an improvement in demand to approximately pre-COVID-19 levels.

During the fourth quarter of 2020, the Company experienced greater demand than in the third quarter whereby demand and volume exceeded pre-COVID-19 levels overall as compared to 2019.

With states, regions and countries in various phases of re-opening and the continued development and distribution of vaccines for COVID-19, we expect demand to continue to gradually improve through 2021, although there is no assurance demand recovery will continue given the potential for increased restrictions imposed by governments due to a surge in infection rates.

We will continue to monitor developments and execute our operational and safety mitigation plans.

The situation surrounding COVID-19 remains fluid and unpredictable, and the potential for a continued material impact on the Company increases the longer the social and economic restrictions which impact the overall level of consumer and business activity in the United States and globally, remain in place or are reinstituted.

For this reason, 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, see below in the MD&A under "Liquidity and Capital Resources" and Part I, Item 1A, "Risk Factors".

The Company continues to evaluate the potential impact of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), enacted on March 27, 2020 and the Consolidated Appropriations Act, 2021 which was enacted on December 27, 2020.

The CARES Act, and other government stimulus programs are intended to provide economic relief resulting from the COVID-19 pandemic which includes, but is not limited to, provisions for taxes, employment related costs, deferral of pension payments and options for liquidity.

Income Taxes" below for further discussion of the CARES Act.

Credit Agreement

On February 19, 2020, the Company entered into Amendment No.

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2 to the Credit Agreement, please refer to "Note 9.

Subsequent Events."

Long-term Debt and Credit Agreement" under "Financial Statements and Supplementary Data" in Item 8.

Anti-Dumping Duty Petitions

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 ("Commerce").

The petitions allege that dumped acetone imports into the United States from Belgium, Saudi Arabia, Singapore, South Africa, South Korea, 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.

During the third quarter of 2019, Commerce announced its preliminary affirmative dumping determination regarding imports from Singapore, Spain, Belgium, South Africa and South Korea.

On October 21, 2019, Commerce published its final affirmative determination of dumping regarding imports from Singapore and Spain, and on December 10, 2019, the ITC issued its final determination of material injury to the industry by reason of imports from Singapore and Spain.

Effective December 20, 2019, Commerce imposed anti-dumping orders and applicable duties on imports of acetone from Singapore and Spain for a five-year period.

On February 13, 2020, Commerce published its final affirmative determination of dumping regarding imports from Belgium, South Africa and South Korea and on March 17, 2020, the ITC issued its final determination of material injury to the industry by reason of imports from Belgium, South Africa and South Korea.

Effective March 31, 2020, Commerce imposed anti-dumping orders and applicable duties on imports of acetone from Belgium, South Africa and South Korea for a five-year period.

The anti-dumping orders are subject to annual administrative review, which may change the applicable level of duties.

On May 26, 2020, LG Chem, Ltd., and LG Chem America, Inc., filed a motion with the U.S.

Court of International Trade contesting the final determination made by Commerce concerning imports from South Korea, and on June 19, 2020, the Company filed a motion to intervene.

The anti-dumping orders applicable to imports from all other sources were not appealed.

2019 Developments

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The Company ceased operations at the Pottsville, Pennsylvania plant in July 2019.

We recognized a restructuring charge of $11 million during 2019 and do not expect to incur any additional restructuring charges related to the closure.

We recognized a restructuring charge of approximately $11 million during 2019 and do not expect to incur any additional restructuring charges related to the closure.

See “Note 18.

Restructuring” to the Consolidated Financial Statements included in Item 8 of this Form 10-K for further information.

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 May 4, 2018, the Company announced that the 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.

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The share repurchase program has no expiration date and may be modified, suspended or discontinued at any time.

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.

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.

During the third quarter of 2019, the U.S.

Department of Commerce announced its preliminary affirmative determination regarding anti-dumping duties for Singapore, Spain, Belgium, South Africa and South Korea.

During the fourth quarter of 2019, the U.S.

Department of Commerce issued final duties on acetone from Singapore and Spain, and the ITC issued final determination of material injury to the industry by reason of imports from Singapore and Spain.

On February 7, 2020, the U.S.

Department of Commerce issued final duties on acetone from Belgium, South Africa and South Korea.

The Company expects a final determination from the ITC regarding the remaining three countries to be completed during the first quarter of 2020.

On March 13, 2018, a federal search warrant was executed at the Company’s Hopewell, Virginia manufacturing facility.

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On May 13, 2019, the Company announced that the United States government notified the Company that the balance of the criminal investigation concluded with no further action required.

2018 Developments

On December 6, 2018, the Company and Shaw Industries Group, Inc.

entered into an Amended and Restated Caprolactam and Polymer Supply Agreement, dated as of January 1, 2019 (the “Amended and Restated Agreement”).

The Amended and Restated Agreement incorporates prior amendments and provides for adjusted pricing and volume terms.

A copy of the Amended and Restated Agreement is filed as Exhibit 10.33 to this Form 10-K.

On February 21, 2018 (the “Closing Date”), the Company and its lenders amended the Credit Agreement to provide the Company with additional operating flexibility and lower borrowing costs.

Under the amended Credit Agreement, the Company has a single $425 million revolving credit facility which replaces the former $270 million term loan and $155 million revolving credit facility.

On the Closing Date, the Company borrowed $242 million in loans under the revolving credit facility, and the proceeds of such loans were used to repay the outstanding term loan facility.

For a discussion of the amendment to the Credit Agreement, please refer to "Note 9.

Long-term Debt and Credit Agreement."

Operational Events

On June 24, 2019, the Company announced that it was assessing the potential business impact of the fire that occurred at Philadelphia Energy Solutions' (“PES”) refinery in Philadelphia, Pennsylvania.

PES was one of multiple suppliers to the Company of cumene, a feedstock material used to produce phenol, acetone and other chemical intermediates.

The PES disruption did not have a material impact on second quarter 2019 financial results.

The Company incurred an approximately $10 million unfavorable impact to pre-tax income in the second half of 2019, including incremental raw material and logistics costs as well as a modest unfavorable impact from fixed cost absorption.

As the PES refinery remains shutdown, the Company submitted a business interruption insurance claim and has realigned its supply chain to ensure the continuity of cumene supply.

The Company had an approximately $11 million unfavorable impact to pre-tax income in 2020, associated with its realigned supply chain, which was comparable to full-year impact in 2019.

On March 11, 2019, the Company announced that it declared force majeure on its phenol product line as a result of shortages and delivery delays of its key raw material, cumene.

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The Company is no longer on force majeure with phenol customers.

PES was one of multiple suppliers to the Company of cumene, a feedstock material used to produce phenol, acetone and other chemical intermediates.

The PES disruption did not have a material impact on second quarter 2019 financial results.

The Company incurred approximately $4 million and $6 million of unfavorable impact to pre-tax income in the third and fourth quarters, respectively, of 2019, including incremental raw material and logistics costs as well as a modest unfavorable impact from fixed cost absorption.

As the PES refinery remains shutdown, the Company is evaluating business interruption insurance and assessing long-term optionality for cumene supply and logistics, while optimizing expected base feedstock and logistics cost increases as it realigns its supply chain into 2020.

The Company anticipates an approximately $10 to $15 million unfavorable impact to pre-tax income in 2020, an incremental $0 to $5 million compared to full-year 2019.

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 ("first quarter 2018 weather event").

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2020 compared with 2019

Sales decreased in 2019 compared to 2018 by $217.6 million, or approximately 14%, due primarily to (i) lower sales prices (approximately 10%) driven by formula-based pass-through pricing, particularly for benzene and propylene (inputs to cumene which is a key feedstock material for our products) and (ii) market-based price decreases (approximately 1%) in acetone and nylon partially offset by increases in ammonium sulfate.

Volume decreased by approximately 4% due primarily to (i) the phenol force majeure, (ii) challenging acetone industry conditions, and (iii) unfavorable mix across our nylon and ammonium sulfate product lines, partially offset by improved caprolactam volume due to increased utilization rates.

Sales decreased in 2020 compared to 2019 by $139.5 million (approximately 11%) due primarily to lower sales prices (approximately 11%) driven primarily by (i) lower prices of raw materials (approximately 7%), following a net decrease in the cost of benzene and propylene (inputs to cumene which is a key feedstock material for our products) and (ii) lower market-based pricing (approximately 5%) in nylon, ammonium sulfate and caprolactam product lines partially offset by increases in chemical intermediates, specifically

Volume showed a slight increase (approximately 1%) due primarily to favorable mix and sales timing related to the ammonium sulfate product line, partially offset by decreases in caprolactam and chemical intermediates related to global markets and the economic impact of COVID-19.

Cost of Goods Sold

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2020 compared with 2019

Costs of goods sold decreased in 2019 compared to 2018 by $178.6 million, or approximately 13%, due primarily to (i) the lower price of benzene and propylene (approximately 12%), (ii) improved operational performance, including lower manufacturing costs and improved yields (approximately 2%) and (iii) lower sales volume (approximately 1%), partially offset by (i) increased raw material and logistics costs related to the PES plant disruption and shutdown (approximately 1%) and the Pottsville restructuring (approximately 1%).

Gross margin percentage decreased by approximately 1% in 2019 compared to 2018 due primarily to (i) lower sales volume and unfavorable product mix (approximately 3%), (ii) lower market-based pricing in nylon and acetone (approximately 1%), (iii) increased raw material and logistics costs related to the PES plant disruption and shutdown (approximately 1%) and (iv) the Pottsville restructuring (approximately 1%), partially offset by the impact of formula-based pass-through pricing (approximately 3%) and lower plant spend and improved yields (approximately 2%).

Costs of goods sold decreased in 2020 compared to 2019 by $137.8 million (approximately 12%) due primarily to (i) lower prices of raw materials, particularly benzene and propylene (approximately 11%), (ii) the net impact of lower plant spend and construction-related expenses, and lower production (approximately 2%) and (iii) the absence of the restructuring charge from the closure of the Pottsville films plant in 2019 (approximately 1%), partially offset by (i) increased sales volume (approximately 1%) and (ii) the absence of insurance proceeds received in 2019 (approximately 1%).

Gross margin percentage increased by approximately 1% in 2020 compared to 2019 due primarily to (i) lower raw material pricing (approximately 4%), (ii) the net favorable impact of lower plant spend and construction-related expenses, and lower production (approximately 1%), (iii) absence of the Pottsville restructuring (approximately 1%), partially offset by lower market based pricing (approximately 5%) and the absence of insurance proceeds (approximately 1%).

Selling, General and Administrative Expenses

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% of sales 6.1 % 5.8 % 5.4 %

Selling, general and administrative expenses decreased in 2019 compared to 2018 by $5.8 million, or approximately 7%, due primarily to a $6 million charge to bad debt expense during 2018 related to a Brazilian fertilizer customer filing a petition for judicial reorganization.

2020 compared with 2019

Selling, general and administrative expenses decreased in 2020 compared to 2019 by $4.5 million, or approximately 6%, due primarily to decreased legal expenses, lower IT spending and reduced compensation costs related to performance incentives.

Interest Expense, Net

2020 2019 2018

Interest Expense, net $ 7,792 $ 5,454 $ 7,492

2020 compared with 2019

Interest expense, net, increased in 2020 compared to 2019 by $2,338, or approximately 42.9%, due primarily to higher average borrowings and lower amounts of interest capitalized associated with capital projects.

Other Non-operating Expense (Income), Net

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Other non-operating expense (income), net $ 53 $ 1,295 $ 3

The decrease in Other non-operating expense (income), net in 2019 compared to 2018 was due primarily to higher amounts of interest capitalized associated with capital projects partially offset by increased interest expense from higher debt levels.

Income Tax Expense (Benefit)

2020 compared with 2019

The decrease in Other non-operating expense (income), net in 2020 compared to 2019 was due primarily to the decrease of severance accruals and environmental remediation costs in the current year.

Income Tax Expense

2020 2019 2018

Income tax expense (benefit) $ 12,001 $ 19,524 $ (2,067)

Income tax expense $ 8,956 $ 12,001 $ 19,524

Effective tax rate 16.3 % 22.5 % 22.8 %

On December 22, 2017 the U.S.

government enacted significant changes to federal tax law following the passage of the Tax Cuts and Jobs Act (the “2017 Act”).

government passed the Tax Cuts and Jobs Act (the “2017 Act”).

In 2017, the Company reasonably estimated the accounting for the effects of the 2017 Act.

In 2018, we finalized the accounting for the 2017 Act and our financial statements for the years ended December 31, 2018 and 2017 reflect certain effects of the 2017 Act including a reduction in the corporate tax rate to 21% from 35% and changes made to executive compensation rules.

As a result of changes to tax laws and tax rates under the 2017 Act, the Company incurred a reduction in income tax expense of $1,651 and $53,424 primarily related to the reduction in the federal corporate tax rate to 21% during the years ended December 31, 2018 and 2017, respectively.

In 2018, under Staff Accounting Bulletin No.

118 (“SAB 118”), we finalized the accounting for the 2017 Act and our financial statements for the year ended December 31, 2018 reflect certain effects of the 2017 Act including a reduction in the corporate tax rate to 21% from 35% and changes made to executive compensation rules.

As a result of the 2017 Act, the Company recorded a reduction in income tax expense of $1,651 during the year ended December 31, 2018.

The CARES Act includes various modifications to current tax law and is intended to provide economic relief in response to the COVID-19 pandemic.

One provision included in the CARES Act allows for a five-year carryback of Federal net operating losses (NOLs) generated in tax years beginning in 2018, 2019 and 2020.

The Company finalized its 2019 U.S.

federal income tax return which reflected a net operating loss, on a tax basis, and certain tax credits which were carried back to earlier tax years.

This carryback claim generated a refund of previously paid taxes in the amount of $12.2 million which is recorded in Taxes receivable.

We anticipate receiving the refund in the first half of 2021.

The Company's income tax expense for 2020 and 2019 was $8,956 and $12,001, respectively.

In the absence of the changes due to the 2017 Act and the related one-time remeasurement of deferred tax assets and liabilities to account for the reduction in the corporate tax rate to 21%, tax expense for 2018 and 2017 would have been $21,175 and $51,357, respectively.

The Company's effective income tax rate for 2020 was lower compared to the U.S.

Federal statutory rate of 21% due primarily to the impact of research tax credits as well as an energy tax credit described in more detail in “Note 4.

Income Taxes”.

This was partially offset by state taxes, executive compensation deduction limitations and a shortfall on the vesting of equity compensation.

The Company's effective income tax rate for 2019 was slightly higher compared to the U.S.

Federal statutory rate of 21% due primarily to state taxes and executive compensation deduction limitations, partially offset by the vesting of restricted stock units as well as current year research tax credits and additional credits claimed on the Company's 2018 U.S.

federal income tax return.

Federal statutory rate of 21% due primarily to state taxes and executive compensation deduction limitations, partially offset by the vesting of restricted stock units and research tax credits.

The Company's effective income tax rate for 2018 was higher compared to the U.S.

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federal income tax return and the related completion of the accounting for the tax impacts of the 2017 Act.

The Company’s effective income tax rate for 2017 was lower compared to the U.S.

Federal statutory rate of 35% due primarily to the enactment of the 2017 Act and the related remeasurement of deferred tax assets and liabilities.

Additionally, the Company made certain state tax apportionment elections in 2017 which resulted in a state income tax rate change and related income tax benefit.

For 2019, 2018 and 2017, there were no unrecognized tax benefits recorded by the Company.

As of December 31, 2020, 2019 and 2018, there were no unrecognized tax benefits recorded by the Company.

Although there are no unrecognized income tax benefits, when applicable, the Company’s policy is to report interest expense and penalties related to unrecognized income tax benefits in the income tax provision.

For additional discussion of income taxes and the effective income tax rate, see “Note 4.

Income Taxes” in the Notes accompanying the audited Consolidated Financial Statements.

Income Taxes” in the Notes accompanying the audited Consolidated Financial Statements included in Item 8 of this Form 10-K.

2020 2019 2018

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Non-GAAP Measures

The following tables set forth the non-GAAP financial measures of EBITDA and EBITDA 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, Depreciation and Amortization.

The following tables set forth the non-GAAP financial measures of EBITDA and EBITDA margin.

EBITDA is defined as Net income before Interest, Income taxes and Depreciation and amortization.

EBITDA margin is equal to EBITDA divided by Sales.

The following tables also present each of these measures as further adjusted.

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.

These non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with U.S.

Non-GAAP financial measures should be read only in conjunction with the comparable U.S.

GAAP financial measures.

The Company’s non-GAAP measures may not be comparable to other companies’ non-GAAP measures.

The following is a reconciliation between the non-GAAP financial measures of EBITDA and EBITDA margin, and EBITDA and EBITDA Margin excluding the one-time Pottsville restructuring charges, to their most directly comparable GAAP financial measure:

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

GAAP financial measure:

(Dollars in thousands, except per share amounts or unless otherwise noted)

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EBITDA margin % excluding one-time Pottsville restructuring charges (non-GAAP) 10.7 % 9.8 % 9.7 %

(1) Current year one-time Pottsville restructuring charges reflect the closure of the Company's Pottsville, Pennsylvania films plant.

(1) Prior year one-time Pottsville restructuring charges reflect the closure of the Company's Pottsville, Pennsylvania films plant.

See "Note 18.

Restructuring" to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for further information.

Restructuring" to the Consolidated Financial Statements included in Item 8 of this Form 10-K for further information.

The following are reconciliations between the non-GAAP financial measure of Net Income and EPS excluding the one-time net tax benefit to its most directly comparable GAAP financial measure of Net Income and EPS:

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One-time net tax benefit (2)

— (1,651) (53,424)

Net Income excluding one-time net tax benefit $ 46,077 $ 41,347 $ 64,593

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One-time net tax benefit (2)

— (0.05) (1.75)

EPS excluding one-time net tax benefit $ 1.64 $ 1.47 $ 2.15

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One-time net tax benefit (2)

— (0.05) (1.72)

EPS excluding one-time net tax benefit $ 1.64 $ 1.43 $ 2.09

(2) Reflects a net tax benefit primarily related to re-measurement of net deferred tax liability at a lower corporate tax rate pursuant to the 2017 Act.

Income Taxes".

Income Taxes" in the Notes accompanying the audited Consolidated Financial Statements included in Item 8 of this Form 10-K.

Liquidity and Capital Resources

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 short-term operating objectives as well as our longer-term strategic plans, subject to the risks and uncertainties outlined below and in the risk factors as previously disclosed in in Item 1A.

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 (i) capital requirements and production volume, which may be materially impacted by unanticipated events such as unplanned downtime and material disruptions at our production facilities, (ii) the prices of our raw materials and (iii) general economic and industry trends.

Our 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, and customer demand.

The Company applies a proactive and disciplined approach to working capital management to optimize cash flow and to enable capital allocation options in support of the Company’s strategy.

We utilize supply chain financing and trade receivables discount arrangements with third-party financial institutions which enhance liquidity and enable us to efficiently manage our working capital needs.

Although we continue to optimize supply chain financing and trade receivable programs in the ordinary course, our utilization of these arrangements, both prior to and during the COVID-19 pandemic, has not had a material impact on our liquidity.

In addition, we monitor the third-party depository institutions that hold our cash and cash equivalents.

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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.

We believe that our future cash from operations, together with cash on hand and our access to credit and capital markets, will provide adequate resources to fund our expected operating and financing needs.

On a recurring basis, our primary future cash needs will be centered on operating activities, working capital, and capital expenditures reflecting disciplined capital deployment and following the completion of several high-return growth and cost savings investments.

Capital expenditures are deployed for various ongoing investments and initiatives to improve reliability, yield and quality, expand production capacity and comply with HSE regulations.

While the COVID-19 pandemic has created and continues to create volatility in funding markets, we expect that our future cash from operations, together with cash on hand and our access to credit and capital markets, will provide adequate resources to fund our expected operating and financing needs and obligations.

Our ability to fund our capital needs, however, will depend on our ongoing ability to generate cash from operations and access to credit and capital markets, both of which are subject to the risk factors previously disclosed in Item 1A, 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.

As of the end of 2020, the Company had approximately $11 million of cash on hand with approximately $149 million of additional capacity available under the revolving credit facility.

Given the uncertain environment in light of the COVID-19 pandemic, the Company maintained higher cash balances as a precautionary measure in the second quarter of 2020 for its working capital needs and other general corporate purposes.

Cash balances were reduced in the second half of 2020 in order to decrease debt levels and minimize interest cost.

The Company’s Consolidated Leverage Ratio financial covenant of its credit facility allows it to net up to $75 million of cash with debt.

The Second Amendment to the credit facility also provided leverage ratio covenant flexibility in 2020.

In response to the current environment, the Company took certain actions to improve liquidity and optimize cash flow in 2020.

Capital expenditures were approximately $83 million in 2020, which represents a decrease of approximately $67 million versus 2019, as we continued to prioritize investments and assess opportunities to maximize free cash flow by deferring, or reducing, non-critical repair and maintenance capital expenditures in light of current and anticipated economic conditions.

The Company is also driving disciplined cost management across the organization including all discretionary spending.

As a result of its actions, the Company executed approximately $26 million in cost reductions in 2020 versus the prior year.

Given several of the cost actions were temporal in nature, the Company expects approximately 50% of the expenses to return in 2021.

The CARES Act is intended to provide economic relief resulting from the COVID-19 pandemic and includes, but is not limited to provisions for taxes, employment related costs, deferral of pension funding obligations and options for liquidity.

While we continue to evaluate all the impacts and benefits of the CARES Act and the Consolidated Appropriations Act, 2021, the Company deferred payment of approximately $6.5 million of social security taxes in 2020 and anticipates receiving a $12 million federal income tax refund in the first half of 2021.

For social security taxes that have been deferred, 50% will be due by December 31, 2021 with the remainder due by December 31, 2022.

We assumed from Honeywell all 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 2020.

We expect that our primary cash requirements for 2020 will be to fund costs associated with on-going operations, capital expenditures and amounts related to contractual obligations noted in the tables below.

We expect that our primary cash requirements for 2021 will be to fund costs associated with ongoing operations, capital expenditures and amounts related to contractual obligations noted in the tables below.

See the items noted below in “Contractual Obligations” and “Capital Expenditures” for more information.

The Company made contributions to the defined benefit pension plan of $8.1 million during the year ended December 31, 2020 sufficient to satisfy pension funding requirements for 2020 under the AdvanSix Retirement Earnings Plan.

The Company made contributions of $0 in the first quarter of 2019, $0.5 million in the second quarter of 2019 and $3.7 million in the third quarter of 2019.

No payments were made in the fourth quarter of 2019.

The Company plans to make $5.0 to $10.0 million of contributions in 2020 and additional contributions in future years sufficient to satisfy pension funding requirements in those periods as outlined in the contractual obligations table.

The Company made contributions to the defined contribution plan of $5.9 million and $5.5 million for the years ended December 31, 2019 and 2018, respectively.

Cash contributions of $1.7 million and $6.4 million were made in the first and the fourth quarters of 2020, respectively.

No cash contributions were made during the second and third quarters of 2020.

The Company plans to make $8.0 million to $10.0 million of cash contributions in 2021 and additional contributions in future years sufficient to satisfy pension funding requirements in those periods as outlined in the contractual obligations table.

The Company made cash contributions to the defined contribution plan of $6.1 million and $5.9 million for the years ended December 31, 2020 and 2019, respectively.

On May 4, 2018, the Company announced that the Board authorized a share repurchase program of up to $75 million of the Company’s common stock.

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As of December 31, 2020, the Company had repurchased 3,593,912 shares of common stock, including 504,150 shares withheld to cover tax withholding obligations in connection with the vesting of equity awards, for an aggregate of $101.7 million at a weighted average market price of $28.30 per share.

As of December 31, 2019, $59.6 million remained

available for repurchase under the current authorization.

During the period January 1, 2020 through February 3, 2020, no additional shares were repurchased under the currently authorized repurchase program.

As of December 31, 2020, $59.6 million remained available for repurchase under the currently authorized repurchase program.

During 2020 and the period January 1, 2021 through February 1, 2021, no additional shares were repurchased under the currently authorized repurchase program.

Credit Agreement

On September 30, 2016, in connection with the consummation of the Spin-Off, the Company as the borrower, entered into a Credit Agreement with Bank of America, as administrative agent (the “Original Credit Agreement”).

The Original Credit Agreement consisted of a $270 million term loan (the “Original Term Loan”) and a $155 million revolving loan facility (the “Original Revolving Credit Facility”).

The Original Revolving Credit Facility included a $25 million letter-of-credit sub-facility and a $20 million Swing-Line Loan sub-facility, issuances against which reduce the available capacity for borrowing.

On February 21, 2018 (the “First Amendment Date”), the Company entered into Amendment No.

1 (the “First Amendment”) to the 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 First Amendment, the “First Amended and Restated Credit Agreement”).

As discussed above, 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 First Amendment, and a senior secured revolving credit facility in a principal amount of $155 million.

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 First Amendment, and a senior secured revolving credit facility in a principal amount of $155 million.

Pursuant to the First 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.

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On February 19, 2020, the Company entered into Amendment No.

2 (the “Second Amendment”) to the First Amended and Restated Credit Agreement (after giving effect to the Second Amendment, the “Second Amended and Restated Credit Agreement”).

The Second Amendment amended the consolidated leverage ratio financial covenant of the Credit Agreement and requires the Company to maintain a Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement) of (i) 3.50 to 1.00 or less for the fiscal quarter ending March 31, 2020, (ii) 4.50 to 1.00 or less for the fiscal quarter ending June 30, 2020, (iii) 4.25 to 1.00 or less for the fiscal quarter ending September 30, 2020, (iv) 3.50 to 1.00 or less for the fiscal quarter ending December 31, 2020, (v) 3.25 to 1.00 or less for the fiscal quarter ending March 31, 2021 through and including the fiscal quarter ending December 31, 2021, and (vi) 3.00 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).

2 (the “Second Amendment”) to the First Amended and Restated Credit Agreement (the First Amended and Restated Credit Agreement, after giving effect to the Second Amendment, the “Second Amended and Restated Credit Agreement”).

The Second Amendment amends the consolidated leverage ratio financial covenant of the First Amended and Restated Credit Agreement and requires the Company to maintain a Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement) of (i) 3.50 to 1.00 or less for the fiscal quarter ending March 31, 2020, (ii) 4.50 to 1.00 or less for the fiscal quarter ending June 30, 2020, (iii) 4.25 to 1.00 or less for the fiscal quarter ending September 30, 2020, (iv) 3.50 to 1.00 or less for the fiscal quarter ending December 31, 2020, (v) 3.25 to 1.00 or less for the fiscal quarter ending March 31, 2021 through and including the fiscal quarter ending December 31, 2021, and (vi) 3.00 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).

The consolidated interest coverage ratio financial covenant of the First Amended and Restated Credit Agreement was not changed and continues to require the Company to maintain a Consolidated Interest Coverage Ratio (as defined in the Second Amended and Restated Credit Agreement) of not less than 3.00 to 1.00.

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The Company is also required to pay a commitment fee in respect of unused commitments under the credit facility, if any, at a rate ranging from 0.20% to 0.50% per annum depending on the Company’s Consolidated Leverage Ratio.

Based on 2019 year-end results, the applicable margin under the Second Amended and Restated Credit Agreement is expected to be 1.25% for base rate loans and 2.25% for Eurodollar rate loans and the applicable commitment fee rate is expected to be 0.35% per annum.

The initial margin under the Second Amended and Restated Credit Agreement was 1.25% for base rate loans and 2.25% for Eurodollar rate loans and the applicable commitment fee rate is expected to be 0.35% per annum.

In addition, the Second Amendment also amended certain administrative provisions associated with the LIBOR Successor Rate (as defined in the Second Amended and Restated Credit Agreement).

The obligations under the Second Amended and Restated Credit Agreement are secured by a pledge of assets and liens on substantially all of the assets of AdvanSix.

The Company had approximately $4.2 million of letter of credit agreements outstanding at December 31, 2019, of which $3.2 million are bi-lateral letters of credit outside the Revolving Credit Facility with $1.0 million outstanding under the Revolving Credit Facility.

The Second 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 Second 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 December 31, 2020 and through the date of the filing of this Form 10-K.

The situation surrounding COVID-19 remains fluid and unpredictable, and the potential for a material impact on the Company increases the longer the social and economic restrictions remain in place or are reinstituted, which impacts the overall level of consumer and business activity in the United States and globally.

For this reason, 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.

For further information regarding risk and the impact COVID-19 could have on our business, financial condition, results of operations and liquidity, including our ability to comply with financial covenants in our credit facility and our access to, and cost of, capital, see Part 1, Item 1A.

"Risk Factors".

The Company had approximately $1.0 million of letter of credit agreements outstanding under the Revolving Credit Facility at December 31, 2020.

There was no amount associated with bilateral letters of credit outside the Revolving Credit Facility.

Cash Flow Summary for the Years Ended December 31, 2020, 2019 and 2018

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2020 compared with 2019

Net cash provided by operating activities decreased by $53.0 million for the year ended December 31, 2019 versus the prior year period due primarily to a $24.9 million decrease in net income, a $5.1 million reduction in cash flow from working capital (comprised of Accounts receivables, Inventories, Accounts payable and Deferred income and customer advances) for the year ended December 31, 2019 versus a $35.4 million increase in cash flow from working capital in the prior year period.

The Pottsville restructuring charge had an unfavorable impact of approximately $2.8 million on operational cash flows for the year ended December 31, 2019.

Cash used for investing activities increased by $40.9 million for the year ended December 31, 2019 versus the prior year period due primarily to an increase in cash paid for capital expenditures.

Cash provided by financing activities increased by $136.8 million for the year ended December 31, 2019 versus the prior year due to net borrowings of $97.0 million for the year ended December 31, 2019 compared to net repayments of $66.6 million during the prior year, offset by $62.2 million in cash outflows for share repurchases during the year ended December 31, 2019 compared to $38.5 million in cash outflows during the prior year, both of which are described above.

Net cash provided by operating activities decreased by $8.5 million for the year ended December 31, 2020 versus the prior year period due primarily to a $20.2 million unfavorable impact from working capital (comprised of Accounts receivables, Inventories, Accounts payable and Deferred income and customer advances) for the year ended December 31, 2020 versus a $4.4 million unfavorable impact from working capital in the prior year period and a $9.5 million unfavorable cash impact from taxes receivable.

These decreases were partially offset by a favorable impact from the timing of payments for Accrued liabilities of $13.9 million for year ended December 31, 2020 versus a $4.6 million impact the same period in the prior year and a $9.2 million favorable impact from deferred income taxes.

A majority of the remaining variances were non-cash in nature, such as the 2019 Pottsville restructuring charge, loss on disposal of assets and depreciation and amortization.

Cash used for investing activities decreased by $69.0 million for the year ended December 31, 2020 versus the prior year period due to a decrease in cash paid for capital expenditures driven by disciplined capital deployment following the completion of several high-return growth and cost saving investments.

Cash used for financing activities increased by $54.2 million for the year ended December 31, 2020 versus the prior year due to net payments of $22.0 million for the year ended December 31, 2020 compared to net borrowings of $97.0 million during the prior year, offset by $1.1 million in cash outflows for share repurchases during the year ended December 31, 2020 compared to $62.2 million in cash outflows during the prior year, both of which are described above.

Contractual Obligations

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20,621 9,625 9,625 1,371 — — —

Operating leases 185,026 44,454 32,264 22,602 13,033 11,166 61,507

Finance leases 1,496 762 522 193 11 8 —

Leases 160,916 35,729 25,787 17,762 15,853 13,247 52,538

Estimated environmental compliance costs (2)

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Purchases of property, plant and equipment $ 82,918 $ 150,322 $ 109,215

Capital expenditures increased $41.1 million from 2018 to 2019 due primarily to an increase in spend on high-return growth and cost savings projects and higher repair and maintenance spend including an increase in capital expenditures associated with the timing of 2020 planned plant turnarounds.

Capital expenditures decreased $67.4 million from 2019 to 2020 due to disciplined capital deployment following the completion of several high-return growth and cost saving investments.

For 2021, we expect our total capital expenditures to be approximately $80 million to $90 million.

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The Company’s significant accounting policies are more fully described in "Note 2.

Summary of Significant Accounting Policies" to the Consolidated Financial Statements.

Summary of Significant Accounting Policies" to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Management believes that the application of these policies on a consistent basis enables the Company to provide the users of the financial statements with useful and reliable information about the Company’s operating results and financial condition.

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For derivatives designated as hedges of the fair value of assets or liabilities, the changes in fair values of both the derivatives and the hedged items are recorded in current earnings.

For derivatives designated as cash flow hedges, the changes in fair value

of the derivatives are recorded in Accumulated other comprehensive income (loss) and subsequently recognized in earnings when the hedged items impact earnings.

For derivatives designated as cash flow hedges, the changes in fair value of the derivatives are recorded in Accumulated other comprehensive income (loss) and subsequently recognized in earnings when the hedged items impact earnings.

Cash flows of such derivative financial instruments are classified consistent with the underlying hedged item.

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Goodwill is subject to impairment testing annually as of March 31, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.

The Company first assesses qualitative factors as described in ASC 350 to determine whether it is necessary to perform the quantitative goodwill impairment test.

The Company completed its annual goodwill impairment test as of March 31, 2019 and, based on the results of the Company's assessment of qualitative factors, it was determined that it was not necessary to perform the quantitative goodwill impairment test.

Management first assesses qualitative factors as described in ASC 350 to determine whether it is necessary to perform the quantitative goodwill impairment test.

Potential impairment is identified by comparing the fair value of a reporting unit to the carrying value, including goodwill.

In the first quarter 2020, the Company concluded that, due to the negative effects of the COVID-19 pandemic on revenue and profitability, a triggering event existed for the Company's reporting unit as of March 31, 2020.

Fair value for the reporting unit was determined based on a combination of the discounted future cash flow model (income approach) and the application of current market multiples for comparable publicly-traded companies (market approach).

Under the income approach, the fair value of the reporting unit is estimated based on the discounted present value of the projected future cash flows.

Management's cash flow projections for the reporting unit included significant judgements and assumptions, including revenue growth rate, EBITDA margin and WACC rate.

Under the market approach, management uses selected financial information of publicly-traded companies that compare to the reporting unit to derive a market-based multiple.

The Company completed its annual goodwill impairment test as of March 31, 2020 and, based on the results of the Company's assessment, we have concluded that the estimated fair value of the reporting unit was substantially in excess of its carrying value resulting in no impairment.

Although management believes its estimate of fair value is reasonable, it is dependent on numerous economic and business assumptions and reflects management’s best estimates

at a particular point in time.

Changes in the factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized.

If future financial performance falls below our expectations or there are negative revisions to significant assumptions, or if our market capitalization declines, and if such a decline becomes indicative that the fair value of our reporting unit has declined below its carrying value, we may need to record a material, non-cash goodwill impairment charge in a future period.

Revenue Recognition – The Company recognizes revenue upon the transfer of control of goods or services to customers at amounts that reflect the consideration expected to be received.

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Stock-Based Compensation Plans – The principal awards issued under our stock-based compensation plans, which are described in "Note 16.

Stock-Based Compensation Plans", are non-qualified stock options, performance share units and restricted stock units.

Stock-Based Compensation Plans" to the Consolidated Financial Statements included in Item 8 of this Form 10-K, are non-qualified stock options, performance share units and restricted stock units.

The cost for such awards is measured at the grant date based on the fair value of the award.

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Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted.

The effect on deferred tax assets and liabilities of a change in tax rates is

recognized in operations in the period enacted.

A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized.

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SAB 118 provides guidance for registrants under three scenarios where the measurement of certain tax items is either complete, can be reasonably estimated or cannot be reasonably estimated.

The Company has completed its evaluation

of the 2017 Act and the impacts of those items have been reflected in our Consolidated Financial Statements as of December 31, 2018 and 2017.

The Company has completed its evaluation of the 2017 Act and the impacts of those items have been reflected in our Consolidated Financial Statements.

The impacts of those changes are disclosed in “Note 4.

Income Taxes”.

Income Taxes” to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

Leases – The Company enters into agreements to lease transportation equipment, storage facilities, office space, dock access and other equipment.

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Finance leases are included as a component of Property, plant and equipment – net, Accounts payable and Other liabilities in our Consolidated Balance Sheets.

The Company has elected the following practical expedients available in Topic 842:

The Company adopted ASU 2016-02, Leases (Topic 842) effective January 1, 2019 and has elected the following practical expedients available in Topic 842:

• the package of three expedients which allows the Company to not 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;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis