Luxfer PLC(LXFR) - 2019 Q4 - Annual Report

Part I Business Luxfer Holdings PLC operates as a global industrial materials manufacturer through its Elektron and Gas Cylinders segments 2019 Financial Highlights | Metric | Value (in millions) | | :--- | :--- | | Net Sales | $443.5 | | Net Income | $3.1 | - The company operates through two primary business segments, Elektron and Gas Cylinders, which contributed approximately 50% each to the consolidated net sales in 2019[15][16][19] 2019 Sales by End-Market | End-Market | Percentage of 2019 Sales | | :--- | :--- | | General Industrial | 36% | | Transportation | 32% | | Defense and Emergency Response | 27% | | Healthcare | 5% | - Key raw materials include magnesium (sourced ~50% from China), zircon sand, aluminum (sourced ~60% from Rio Tinto Alcan), and carbon fiber (sourced from Toray and Mitsubishi)[21][22][27][29] - Research and development expenditures amounted to $5.7 million in 2019, focusing on new products like soluble magnesium alloys (SoluMag®) and ultra-lightweight composite cylinders (G-StorTM)[41][44] Risk Factors The company faces operational, financial, and compliance risks, including market cyclicality, raw material costs, and a material weakness in internal controls - The company has significant exposure to cyclical end-markets, including automotive, aerospace, defense, and healthcare[51][52] - Global operations expose Luxfer to political and economic risks, such as U.S. tariffs and Brexit, which could create trade restrictions and increase regulatory complexity[54][56] - The company is exposed to fluctuations in raw material costs, with the LME three-month cost of aluminum fluctuating between approximately $1,700 and $2,000 per metric ton in 2019[71] - The company's defined benefit pension plans have significant funding deficits, with the largest U.K. plan showing an accounting deficit of $30.5 million as of December 31, 2019[84][85] - A material weakness in internal control over financial reporting was identified as of December 31, 2019, which could adversely affect financial reporting[139][140] - The company is exposed to cybersecurity threats and data protection laws like GDPR, where non-compliance can lead to fines of up to €20 million or 4% of annual turnover[117][119] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[143] Properties The company owns and leases numerous manufacturing and distribution facilities globally across its two operating segments Key Manufacturing Properties | Division | Location | Principal Products | Ownership | | :--- | :--- | :--- | :--- | | Elektron | Manchester, England | Magnesium alloys / zirconium chemicals | Split Lease / Own | | | Madison, IL | Magnesium sheet | Lease | | | Tamaqua, PA | Magnesium powders | Own | | | Flemington, NJ | Zirconium chemicals | Own | | Gas Cylinders | Nottingham, England | Aluminum cylinders | Lease | | | Calgary, Canada | Composite cylinders | Lease | | | Riverside, CA | Composite cylinders | Lease / Own | | | Graham, NC | Aluminum cylinders | Own | Legal Proceedings The company states that there are no material pending legal proceedings to which it or any of its subsidiaries is a party - There are no material pending legal proceedings against the Company or its subsidiaries[148] Mine Safety Disclosures This item is not applicable to the company - Not applicable[149] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, it paid consistent quarterly dividends in 2019, and made no share repurchases Dividend Payments | Year | Total Dividends Paid (in millions) | Quarterly Dividend per Share | | :--- | :--- | :--- | | 2019 | $13.6 | $0.125 | | 2018 | $13.4 | $0.125 | | 2017 | $13.3 | $0.125 | - The company's common stock is listed on the NYSE under the symbol "LXFR"[152] - No repurchases of the company's equity securities were made during the fourth quarter or the entire fiscal year of 2019[166] Selected Financial Data This section presents a five-year summary of key historical consolidated financial data from 2015 to 2019 Selected Financial Data (2015-2019) | In millions (except per-share data) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $443.5 | $487.9 | $441.3 | $414.8 | $460.3 | | Operating income | $12.4 | $30.0 | $21.9 | $32.9 | $15.0 | | Net income / (loss) | $3.1 | $25.0 | $16.6 | $17.8 | $(0.4) | | Diluted EPS | $0.11 | $0.90 | $0.62 | $0.67 | $(0.01) | | Total assets | $390.3 | $408.8 | $415.8 | $399.8 | $449.9 | | Total shareholders' equity | $174.4 | $184.3 | $174.5 | $150.4 | $183.8 | Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales and operating income declined in 2019 due to lower product sales and significant restructuring charges - Full-year 2019 results were below expectations, with sales falling 9% year-over-year, led by a 62% decline in sales of the Solumag® product line[177] Consolidated Results of Operations (2017-2019) | In millions | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net sales | $443.5 | $487.9 | $441.3 | | Gross profit | $108.0 | $122.1 | $108.6 | | Operating income | $12.4 | $30.0 | $21.9 | | Net income | $3.1 | $25.0 | $16.6 | - Restructuring charges significantly increased to $25.9 million in 2019, up from $13.4 million in 2018, primarily due to costs related to a plant closure in France[184][186] - The Gas Cylinders segment sales decreased 6.1% in 2019, while the Elektron segment sales decreased 12.0%[197][200] - The company's primary liquidity sources are cash from operations and credit facilities, with total long-term debt at $91.4 million as of Dec 31, 2019[204][303] Quantitative and Qualitative Disclosures About Market Risk Luxfer is exposed to market risks from foreign currency exchange rates, commodity prices, and interest rates - The company is exposed to foreign currency risk and uses short-duration currency contracts to hedge these exposures[276][277] - Luxfer faces commodity price risk from aluminum and uses LME-related derivative contracts to mitigate price volatility[280] - Risks for magnesium, zirconium, or carbon fiber are managed through fixed-price supply contracts as financial hedging markets are unavailable[281] - As of December 31, 2019, the company had both fixed-rate and variable-rate debt outstanding, exposing it to interest rate risk[282] Financial Statements and Supplementary Data This section contains the audited consolidated financial statements for fiscal year 2019, which received an adverse opinion on internal controls - The independent auditor's report identified a material weakness in internal control over financial reporting as of December 31, 2019[289][290] Consolidated Income Statement Summary (2019) | In millions | 2019 | | :--- | :--- | | Net sales | $443.5 | | Gross profit | $108.0 | | Operating income | $12.4 | | Net income | $3.1 | | Diluted EPS | $0.11 | Consolidated Balance Sheet Summary (As of Dec 31, 2019) | In millions | 2019 | | :--- | :--- | | Total current assets | $176.1 | | Total assets | $390.3 | | Total current liabilities | $74.0 | | Long-term debt | $91.4 | | Total liabilities | $215.9 | | Total shareholders' equity | $174.4 | - Net cash provided by operating activities was $5.8 million in 2019, a significant decrease from $63.2 million in 2018, primarily due to cash spent on restructuring[208][304] - The adoption of the new lease accounting standard (ASC 842) resulted in the recognition of right-of-use assets of $14.8 million and lease liabilities of $15.0 million[357][523] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on any matter of accounting principles or practices - None reported[539] Controls and Procedures Management concluded that disclosure controls were not effective as of year-end 2019 due to a material weakness in internal control - A material weakness was identified in internal control over financial reporting as of December 31, 2019[544][545] - The weakness stemmed from the implementation of a new ERP system, leading to deficiencies in IT general controls and process-level controls[541][546] - A remediation plan is being implemented to enhance controls for system access and process-level reviews[550][553] - Despite the material weakness, management concluded that the consolidated financial statements are fairly presented in all material respects[540] Other Information This item is not applicable to the company - Not applicable[552] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Required information on governance, compensation, and accountant fees is incorporated by reference from the 2020 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's 2020 Proxy Statement[554][555][556][557] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed with the annual report, including debt and equity plan agreements - The financial statements listed in Item 8 are filed as part of this report[558] - A list of exhibits is provided, including debt agreements, equity incentive plans, and certifications required by the Sarbanes-Oxley Act[560][562] Form 10-K Summary The company has not provided a summary for its Form 10-K - None provided[561]