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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Information regarding forward-looking statements

This Annual Report on Form 10-K contains certain statements, statistics and projections that are, or may be, forward-looking. These forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause our actual results of operations, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or suggested by, these forward-looking statements. The accuracy and completeness of all such statements, including, without limitation, statements regarding our future financial position, strategy, plans and objectives for the management of future operations, is not warranted or guaranteed. These statements typically contain words such as "believes," "intends," "expects," "anticipates," "estimates," "may," "will," "should" and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that the expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to be correct. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to, factors identified in "Business," "Risk factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," or elsewhere in this Annual Report, as well as:

•general economic conditions, or conditions affecting demand for the services offered by us in the markets in which we operate, both domestically and internationally, being less favorable than expected;

•worldwide economic and business conditions and conditions in the industries in which we operate;

•ongoing impact of COVID-19 and future pandemics;

•fluctuations in the cost of raw materials and utilities;

•currency fluctuations and other financial risks;

•our ability to protect our intellectual property;

•the significant amount of indebtedness we have incurred and may incur, and the obligations to service such indebtedness and to comply with the covenants contained therein;

•relationships with our customers and suppliers;

•increased competition from other companies in the industries in which we operate;

•changing technology;

•our ability to execute and integrate new acquisitions;

•claims for personal injury, death or property damage arising from the use of products produced by us;

•the occurrence of accidents or other interruptions to our production processes;

•changes in our business strategy or development plans, and our expected level of capital expenditure;

•our ability to attract and retain qualified personnel;

•restrictions on the ability of Luxfer Holdings PLC to receive dividends or loans from certain of its subsidiaries;

•regulatory, environmental, legislative and judicial developments; and

•our intention to pay dividends.

Please read the sections "Business," "Risk factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report on Form 10-K for a more complete discussion of the factors that could affect our performance and the industries in which we operate, as well as those discussed in other documents we file or furnish with the SEC.

About Luxfer

Luxfer Holdings PLC ("Luxfer," "the Company," "we") is a global producer of highly-engineered industrial materials focused on sustained value creation using its broad array of technical knowhow and proprietary materials technologies. The Company specializes in the design and manufacture of high-performance products for transportation, defense and emergency response, healthcare, and general industrial purposes. Luxfer customers include both end-users of its products and manufacturers that incorporate Luxfer products into finished goods.

Key trends and uncertainties regarding our existing business

Impact of COVID-19 on operations

Luxfer’s top priority during this global pandemic is the health and well-being of our employees, customers, shareholders, and the communities in which we operate. The Company continues to monitor the COVID-19 situation closely, while simultaneously executing business continuity plans. These business continuity plans include, but are not limited to, (i) retooling operations to maintain social distance and maximize employee safety; (ii) increasing resources and efforts to satisfy demand from the most impactful parts of our business; (iii) expanding flexible work arrangements and policies, where practical, to maximize employee safety; (iv) increased monitoring of short-term cash flow, including measures to reduce costs and generate cash; and (v) providing regular updates to our shareholders, employees, customers, and suppliers in a transparent and timely manner.

At this time, Luxfer continues to operate all of its facilities, following temporary closures at a small number of locations earlier in 2020. However, due to weaker demand resulting from uncertain economic conditions, potential supply constraints, and the continued impact of COVID-19, Luxfer has implemented additional cost saving programs, including headcount reductions.

Luxfer’s results continue to reflect the global macro environment resulting from the COVID-19 pandemic, including broad-based market weakness, which has been especially evident in our general industrial and transportation end-markets in 2020 with full year decline of 18.0% and 14.7% respectively. However, while general industrial has continued to decline in the fourth quarter by 12.5% relative to prior year, transportation has experienced a recovery with growth of 20.1%, largely on the back of the return to growth of sales of alternative fuel products. Despite the adverse macro trends, the Company has a strong balance sheet and access to an existing $150 million credit facility, of which only $4.1 million was drawn down at the end of the year following continued strong cash generation which allowed the early repayment in the fourth quarter of $25 million of Loan Notes due 2021. Furthermore, as our net debt to EBITDA ratio has fallen to 1.0x at the end of 2020 (from 1.2x at the end of 2019), we have identified no issues in relation to financial covenants nor availability of funding for continued operations.

Operating objectives and trends

In 2021, we expect the following operating objectives and trends to impact our business:

•Continuing proactive response to COVID-19 pandemic, including the health and well-being actions highlighted above, in addition to initiatives to stimulate demand for products, ensure continuity of supply and action, focused cost saving programs;

•Divestiture of non-strategic aluminum businesses (identified as discontinued operations) in the Gas Cylinders segment.

•Refocus on productivity acceleration and growth recovery post COVID-19 as we capitalize on lean manufacturing initiatives and pursue faster product innovation;

•Continued focus on developing global talent and implementing a high-performance culture; and

•Continued focus on improved operating cash generation with lower restructuring activity and maintaining strong working capital performance.

CONSOLIDATED RESULTS OF OPERATIONS

The consolidated results of operations from, continuing operations of Luxfer were as follows:

Years ended December 31, % / point change

Research and development (3.3) (5.7) (6.3) (42.1) % (9.5) %

Impairment charges / (credits) — 0.2 (5.9) (100.0) % (30.6) %

% of net sales — % (0.1) % 1.5 % 0.1 (1.6)

Acquisition related costs — (1.4) (4.3) (100.0) % (67.4) %

% of net sales — % 0.4 % (1.1) % (0.4) (0.6)

Other charges (0.4) (2.5) — (84.0) % n/a

% of net sales 0.1 % 0.7 % — % (0.6) n/a

Provision for income taxes (6.9) (7.6) (6.5) (9.2) % 16.9 %

Income before equity in net income of affiliates 20.9 8.0 27.3 161.3 % (70.7) %

Net sales

The 13.0% decrease in consolidated net sales in 2020 from 2019 was heavily influenced by the global economic downturn resulting from the COVID-19 pandemic across all end markets with the adverse impact most pronounced across the industrial and transportation end markets, including:

•Lower sales of photoengraving plates;

•Lower sales of zirconium-based chemical products used in industrial catalysis;

•Lower sales of SCBA cylinders used by first responders; and

•$7.6 million revenue decline as a result of the divestiture of Elektron's magnesium Czech recycling business in 2019.

•These decreases were partially offset by:

◦Continued growth of alternative fuel (AF) systems despite COVID-19 headwinds affecting transportation end markets; and

◦Increased revenues from Luxfer Magtech chemical kit products.

The 7.1% decrease in consolidated net sales in 2019 from 2018 was primarily the result of:

•$8.3 million revenue decline as a result of the divestiture of Elektron's magnesium Czech recycling business at the end of the second quarter. Excluding this divestiture, underlying business declined 5.1%;

•Significantly lower sales of our proprietary SoluMag® alloy as a result of continuing destocking amid budgetary pressures affecting North American shale producers;

•Adverse foreign currency effects of $8.4 million.

•These decreases were partially offset by:

◦Continued recovery in sales of alternative fuel (AF) systems;

◦Increased revenues from zirconium-based automotive and industrial catalysis materials.

Gross profit

The 2.9 percentage point decrease in gross profit as a percentage of sales in 2020 from 2019 was primarily the result of adverse sales mix and inefficiency from the impact of COVID-19.

These adverse factors were partially offset by the impact of productivity improvements in Luxfer Gas Cylinders Europe, following closure of the French operation in 2019 and transfer of production to the U.K. and U.S.A.

The 1.5 percentage point decrease in gross profit as a percentage of sales in 2019 from 2018 was primarily the result of:

•Adverse sales mix;

•Unfavorable foreign exchange variances; and

•Impact of short-term process inefficiency following plant consolidation exercises.

These decreases were partially offset by cost savings resulting from our continued effort to reduce production-based costs, partially derived from our transformation plan.

Selling, general and administrative expenses ("SG&A")

SG&A costs as a percentage of sales have decreased by 1.0 percentage points in 2020 from 2019. The $9.9 million or 19.9% decline in costs was primarily the result of continued cost savings derived from our transformation plan, as well as specific cost reduction actions taken in response to the COVID-19 pandemic.

SG&A costs as a percentage of sales was flat in 2019 and 2018. The $4.9 million or 9.0% decline in costs was primarily the result of continued cost savings derived from our transformation plan, as well as lower management incentive awards in 2019. This was partially offset by $1.5 million of non-recurring litigation expense incurred in 2019.

Research and development costs

Research and development costs as a percentage of sales reduced by 0.5% in 2020 from 2019, largely as a result of COVID-19 led project delays.

Research and development costs as a percentage of sales was virtually flat at 1.5% in 2019 versus 1.6% in 2018.

Restructuring charges

The $8.9 million restructuring charges in 2020 includes:

•A further $7.5 million in relation to the closure of Luxfer Gas Cylinders France;

•$1.4 million in one-time severance costs as a result of actions taken in response to the COVID-19 pandemic.

The $25.9 million restructuring charges in 2019 was the result of:

•$20.1 million in relation to the closure of Luxfer Gas Cylinders France;

•$4.6 million related to asset write-downs and one-time employee benefits following the decision to scale down production at one of our Luxfer Magtech sites; and

•$1.2 million of other simplification costs.

Impairment charges / (credits)

Impairment credits of $0.2 million in 2019 relates to a $0.2 million true-up of the 2018 impairment of the assets of the Czech magnesium recycling business prior to its eventual divestiture in Q2, 2019.

Acquisition-related costs

Acquisition-related costs which were net $nil in 2020 related to $0.4 million costs incurred in relation to merger and acquisition ("M&A") exploration activities offset by deferred consideration adjustments and profit on previously written-down inventory. In July 2020 we sold our 51% investment in Luxfer Uttam India Private Limited to the joint venture ("JV") partner. Allowing for legal costs, we generated a profit on disposal of less than $0.1 million.

Acquisition-related costs of $1.4 million in 2019 related to :

•$3.5 million reimbursement payment and $0.9 million of professional and legal fees incurred in connection with the terminated acquisition of Neo Performance Materials; offset by

•$2.9 million gain on disposal of Elektron's magnesium recycling business in the Czech Republic; and

•$0.1 million credit in relation to the revaluation of deferred contingent consideration, arising from the acquisition of the legacy businesses of Luxfer Magtech Inc. which was acquired in 2014.

Other charges

The $0.4 million other charges incurred in 2020, is the result of further costs incurred in relation to the remediation of the legacy environmental issue outlined below.

The $2.5 million other charges incurred in 2019, is the result of the Company's decision to commence a project to remove low-level naturally occurring radioactive material (NORM) from a redundant building at Elektron's Manchester, UK site. The work represents remediation of a legacy environmental issue and is expected to complete in the first quarter of 2021.

Net interest expense

Net interest expense of $5.0 million in 2020 increased from $4.4 million in 2019 largely as a result of an additional finance charge following the $25 million voluntary early repayment of 3.67% Loan notes due 2021, at the end of the fourth quarter.

Net interest expense of $4.6 million in 2019 was flat compared to 2018.

Defined benefit pension credit

The defined benefit pension credit of $4.3 million has increased by $3.0 million in 2020 from 2019. This was primarily due to the combined effect on the U.K. plan of a reduction in the discount rate and lower inflation, partially offset by lower projected asset returns.

The $3.4 million decrease in defined benefit pension credit in 2019 from 2018 was primarily due to:

•Lower projected asset returns; and

•Loss of $0.8 million resulting from a settlement affecting the U.S. plan in the final quarter of 2019.

Provision for income taxes

The 23.9 percentage point decrease in the effective tax rate in 2020 from 2019 was primarily due to significantly lower non-deductible expenses of a non-recurring nature in the current year.

The 29.5 percentage point increase in the effective tax rate in 2019 from 2018 was primarily due to significant non-deductible expenses incurred in relation to the closure of Luxfer Gas Cylinders France and the terminated acquisition of Neo Performance Materials.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES

The following table of non-GAAP summary financial data presents a reconciliation of net income from continuing operations to adjusted net income for the periods presented, being the most comparable GAAP measure. Management believes that adjusted net income, adjusted earnings per share, adjusted EBITA and adjusted EBITDA are key performance indicators (KPIs) used by the investment community and that such presentation will enhance an investor’s understanding of the Company's operational results. In addition, Luxfer's CEO and other senior management use these KPIs, among others, to evaluate business performance. However, investors should not consider adjusted net income and adjusted earnings per share in isolation as an alternative to net income and earnings per share when evaluating Luxfer's operating performance or measuring Luxfer's profitability.

Years ended December 31,

Net income from continuing operations 20.8 8.7 27.7

Unwind of discount on deferred consideration — 0.2 0.2

Amortization on acquired intangibles 0.7 1.2 1.2

Acquisitions and disposals cost — 1.4 4.3

Defined benefit pension credit (4.3) (1.3) (4.7)

Impairment charges — (0.2) 5.9

Other charges 0.4 2.5 —

Share-based compensation charges 2.8 4.5 4.8

Other non-recurring tax items — — (2.9)

Income tax on adjusted items (0.4) (2.0) (1.7)

Adjusted net income from continuing operations 28.9 40.9 48.0

Adjusted earnings per ordinary share from continuing operations

Diluted earnings per ordinary share 0.74 0.31 1.00

Adjusted diluted earnings per ordinary share(1) 1.03 1.47 1.73

(1) For the purpose of calculating diluted earnings per share, the weighted average number of ordinary shares outstanding during the financial year has been adjusted for the dilutive effects of all potential ordinary shares and share options granted to employees.

Years ended December 31,

Adjusted net income from continuing operations 28.9 40.9 48.0

Add back / (deduct):

Other non-recurring tax items — — 2.9

Income tax on adjusted items 0.4 2.0 1.7

Adjusted EBITA from continuing operations 41.2 54.9 63.6

Loss on disposal of PPE 0.1 0.2 0.3

Adjusted EBITDA from continuing operations 53.9 67.1 79.6

The following table presents a reconciliation for the adjusted effective tax rate, which management believes is a KPI used by the investment community and that such presentation will enhance an investor's understanding of the Company's operational results.

Years ended December 31,

Adjusted net income from continuing activities $ 28.9 $ 40.9 $ 48.0

Add back:

Income tax on adjusted items 0.4 2.0 1.7

Provision for income taxes 6.9 7.6 6.5

Adjusted provision for income taxes 7.3 9.6 8.2

Adjusted effective tax rate from continuing activities 20.2 % 19.0 % 14.6 %

SEGMENT RESULTS OF OPERATIONS

The summary that follows provides a discussion of the results of operations of each of our two reportable segments (Gas Cylinders and Elektron). Both segments comprise various product offerings that serve multiple end markets.

Adjusted EBITDA represents operating income adjusted for restructuring charges; impairment charges; other charges; acquisition and disposals cost; loss on disposal of property, plant and equipment; depreciation and amortization; share based compensation charges; and unwind of discount on deferred consideration. A reconciliation to net income and taxes can be found in ITEM 8, Note 17.

GAS CYLINDERS

The results of operations from the Gas Cylinders segment are for continuing activities only, therefore numbers and commentary has been adjusted for the previous years.

The net sales and adjusted EBITDA for Gas Cylinders were as follows:

Years ended December 31, % / point change

Net sales

The 7.6% decrease in Gas Cylinders sales in 2020 from 2019 was primarily the result of COVID-19 related disruption marked by temporary customer shutdowns, especially reduced sales of SCBA composite cylinders used by first responders. This was partially offset by continued growth in alternative fuel cylinder sales.

The 0.9% increase in Gas Cylinders sales in 2019 from 2018 was primarily the result of the continued strength in alternative fuel cylinder sales, partially offset by adverse foreign currency effects of $3.9 million.

Adjusted EBITDA

The 0.5 percentage point increase in adjusted EBITDA for Gas Cylinders as a percentage of net sales in 2020 from 2019 was primarily the result of productivity improvements and cost savings following the integration of the Luxfer Gas Cylinders France operation into other sites. This was partially offset by adverse sales mix.

The 0.9 percentage point decrease in adjusted EBITDA for Gas Cylinders as a percentage of net sales in 2019 from 2018 was primarily the result of adverse foreign currency effects partially offset by the impact of favorable cost reduction initiatives.

ELEKTRON

The net sales and adjusted EBITDA for Elektron were as follows:

Years ended December 31, % / point change

Net sales

The 16.8% decrease in Elektron sales in 2020 from 2019 was primarily the result of COVID-19 related disruption especially to the industrial and transportation end markets, including:

•Decreased sales of zirconium-based industrial catalysts;

•Lower sales of photo-engraving plates and magnesium countermeasure flares;

•Lower sales of magnesium aerospace alloys;

•$7.6 million revenue decline as a result of the divestiture of Elektron's magnesium Czech recycling business in 2019.

This was partially offset by increased revenues from Luxfer Magtech chemical detection kits.

The 12.0% decrease in Elektron sales in 2019 from 2018 was primarily the result of:

•$8.3 million revenue decline as a result of the divestiture of Elektron's magnesium Czech recycling business at the end of Q2, with underlying business excluding the divestiture declining 8.9%;

•Significantly lower sales of our proprietary SoluMag® alloy ;

•Lower sales of other industrial products; and

•Adverse foreign currency effects of $4.5 million.

This was partially offset by increased revenues from zirconium-based automotive and industrial catalysis materials.

Adjusted EBITDA

The 2.6 percentage point decrease in adjusted EBITDA for Elektron as a percentage of net sales in 2020 from 2019 was primarily the result of the impact of COVID-19 related reduction in volumes more than offsetting associated cost saving measures. This was further impacted by adverse product sales mix.

The 2.1 percentage point decrease in adjusted EBITDA for Elektron as a percentage of net sales in 2019 from 2018 was primarily the result of:

•Adverse mix, predominantly the impact of lower SoluMag® sales;

•Impact of short term inefficiency following plant consolidation and a flood affecting Graphic Arts;

These decreases were partially offset by the favorable impact of cost saving initiatives.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity requirements arise primarily from obligations under our indebtedness, capital expenditures, acquisitions, the funding of working capital and the funding of hedging facilities to manage foreign exchange and commodity purchase price risks. We meet these requirements primarily through cash flows from operating activities, cash deposits and borrowings under the Revolving Credit Facility and accompanying ancillary hedging facilities and the Loan Notes due 2023 and 2026. Our principal liquidity needs are:

•funding acquisitions,

•capital expenditure requirements;

•payment of shareholder dividends;

•servicing interest on the Loan Notes, which is payable at each quarter end, in addition to interest and / or commitment fees on the Senior Facilities Agreement;

•working capital requirements, particularly in the short term as we aim to achieve organic sales growth; and

•hedging facilities used to manage our foreign exchange and aluminum purchase price risks.

We believe that, in the long term, cash generated from our operations will be adequate to meet our anticipated requirements for working capital, capital expenditures and interest payments on our indebtedness. In the short term, we believe we have sufficient credit facilities to cover any variation in our cash flow generation. However, any major repayments of indebtedness will be dependent on our ability to raise alternative financing or to realize substantial returns from operational sales. Also, our ability to expand operations through sales development and capital expenditures could be constrained by the availability of liquidity, which, in turn, could impact the profitability of our operations.

We have been in compliance with the covenants under the Loan Notes and the Senior Facilities Agreement throughout all of the quarterly measurement dates from and including September 30, 2011, to December 31, 2020.

Luxfer conducts all of its operations through its subsidiaries, joint ventures and affiliates. Accordingly, Luxfer's main cash source is dividends from its subsidiaries. The ability of each subsidiary to make distributions depends on the funds that a subsidiary receives from its operations in excess of the funds necessary for its operations, obligations or other business plans. We have not historically experienced any material impediment to these distributions, and we do not expect any local legal or regulatory regimes to have any impact on our ability to meet our liquidity requirements in the future. In addition, since our subsidiaries are wholly-owned, our claims will generally rank junior to all other obligations of the subsidiaries. If our operating subsidiaries are unable to make distributions, our growth may slow, unless we are able to obtain additional debt or equity financing. In the event of a subsidiary's liquidation, there may not be assets sufficient for us to recoup our investment in the subsidiary.

Our ability to maintain or increase the generation of cash from our operations in the future will depend significantly on the competitiveness of and demand for our products, including our success in launching new products. Achieving such success is a key objective of our business strategy. Due to commercial, competitive and external economic factors, however, we cannot guarantee that we will generate sufficient cash flows from operations or that future working capital will be available in an amount sufficient to enable us to service our indebtedness or make necessary capital expenditures.

Cash Flows from Continuing Operations

Operating activities

Cash provided by operating activities was $49.3 million in 2020 which includes approximately $7 million of cash spent on restructuring activities. It was primarily related to net income from operating activities, net of the following non-cash items: depreciation and amortization; asset impairment charges, pension adjustments and net changes to assets and liabilities.

Cash provided by operating activities was $5.0 million in 2019 which includes approximately $20 million of cash spent on restructuring activities. It was primarily related to net income from operating activities, net of the following non-cash items: depreciation and amortization; asset impairment charges, pension adjustments and net changes to assets and liabilities.

Investing activities

Net cash used for investing activities was $6.5 million in 2020, compared to net cash used for investing activities of $7.5 million in 2019. The following investing activities impacted our cash flow:

Capital expenditures

Capital expenditures in 2020 was $8.0 million compared to $13.1 million in 2019 as we delayed some projects in response to COVID-19. We anticipate capital expenditures for 2021 to be around $15 million.

Proceeds from sale of business

In July 2020, the Company sold its 51% investment in Luxfer Uttam India Private Limited for net cash proceeds of $1.5 million.

In June 2019, the Company sold its Czech recycling business, for net cash proceeds of $4.4 million.

Financing activities

In 2020, net cash used for financing activities was $52.5 million (2019: $1.0 million). We made net repayments on our borrowing facilities of $38.2 million (2019: net drawdowns of $14.0 million) and dividend payments of $13.6 million 2019: $13.6 million), equating to $0.50 per ordinary share.

Loan Notes 2023 and 2026

The Note Purchase Agreement contains customary covenants and events of default, in each case with customary and appropriate grace periods and thresholds. In addition, the Note Purchase Agreement requires us to maintain compliance with a minimum interest coverage ratio and a leverage ratio. The interest coverage ratio measures our EBITDA (as defined in the Note Purchase Agreement) to Net Finance Charges (as defined in the Note Purchase Agreement). We are required to maintain an interest coverage ratio of 4.0:1. The leverage ratio measures our Total Net Debt (as defined in the Note Purchase Agreement) to Adjusted Acquisition EBITDA (as defined in the Note Purchase Agreement). We are required to maintain a leverage ratio of no more than 3.0:1. We have been in compliance with the covenants under the Note Purchase Agreement throughout all of the quarterly measurement dates from and including September 30, 2011, to December 31, 2020.

The Loan Notes due 2023 and 2026 and the Note Purchase Agreement are governed by the law of the State of New York.

The Loan Notes due 2023 and 2026 are denominated in U.S. dollars, which creates a natural partial offset between the dollar-denominated net assets and earnings of our U.S. operations and the dollar-denominated debt and related interest expense of the notes. We have included the Note Purchase Agreement and a form of the Loan Notes due 2023 and 2026 as exhibits to this Annual Report and refer you to the exhibits for more information on the Note Purchase Agreement and the Loan Notes due 2023 and 2026.

Loan Notes due 2021 and Shelf Facility

The Loan Notes due 2021 were due to mature on September 15, 2021, however we voluntarily chose to repay the notes early, on December 31, 2020 largely using surplus cash generated from operations, plus a small drawing on the Senior Facilities Agreement. In addition to the repayment of the $25 million principal, we incurred an early repayment charge of $0.5 million.

The Note Purchase and Private Shelf Agreement contains the same customary covenants and events of default as for the Note Purchase Agreement. The Note Purchase and Private Shelf Agreement also requires us to maintain compliance with the same, interest and leverage ratios as for the Note Purchase Agreement.

We have been in compliance with the covenants under the Note Purchase and Private Shelf Agreement throughout all of the quarterly measurement dates from and including September 30, 2014, to the eventual repayment on December 31, 2020.

The Loan Notes due 2021 and Shelf Facility and the Note Purchase and Private Shelf Agreement are governed by the law of the State of New York.

Senior Facilities Agreement

Structure. The current Senior Facilities Agreement provides $150 million of committed debt facilities, in the form of a multi-currency (GBP sterling, U.S. dollars or euros) Revolving Credit Facility and an additional $50 million of uncommitted facilities through an accordion clause. The facilities mature on July 31, 2022 and we are about to embark on negotiating a new facility which we expect to conclude in the first half of 2021. As of December 31, 2020, we had drawn down $4.1 million under the Revolving Credit Facility (December 31, 2019: $17.5 million).

Availability. The facility is used for loans and overdrafts. Amounts unutilized under the Revolving Credit Facility (or, if the case, under the revolving portion of the Accordion) are allocated to ancillary facilities available under the Senior Facilities Agreement in connection with overdraft facilities, bilateral loan facilities and letter of credit facilities. As of December 31, 2020, we had drawn down $nil under the ancillary facilities (December 31, 2019: $nil). We may use amounts drawn under the Revolving Credit Facility for our general corporate purposes and certain capital expenditures, as well as for the financing of permitted acquisitions and reorganizations. As of December 31, 2020, $145.9 million (net of $4.1 million drawn down) was available under the Revolving Credit Facility. The last day we may draw funds from the Revolving Credit Facility is June 30, 2022.

The Company also has two separate (uncommitted) bonding facilities for bank guarantees; one denominated in GBP sterling of £4.5 million (2020: $6.1 million, 2019: $5.9 million), and one denominated in USD of $1.5 million (2019: $0.4 million). Of that dominated in GBP, £1.0 million ($1.4 million) was utilized at December 31, 2020 (2019: £1.6 million / $2.3 million). Of that denominated in USD, $0.8 million was utilized in December 31, 2020 (2019: fully utilized).

Interest rates and fees. Borrowings under the facility bear an interest rate equal to an applicable margin plus either EURIBOR, in the case of amounts drawn in euros, or LIBOR, in the case of amounts drawn in GBP sterling or U.S. dollars. Note that GBP sterling drawings will be subject to interest rates based on SONIA (Sterling Overnight Index Average) once LIBOR is phased out, before the end of 2021. We do not expect this change to have a significant effect on our interest expense.

The tables below sets out the range of ratios and the related margin percentage currently in effect.

Leverage Margin

(% per annum)

Less than or equal to 3.0:1, but greater than 2.5:1 2.50

Less than or equal to 2.5:1, but greater than 2.0:1 2.25

Less than or equal to 2.0:1, but greater than 1.5:1 2.00

Less than or equal to 1.5:1, but greater than 1.0:1 1.75

Less than or equal to 1.0:1 1.50

As of December 31, 2020, we had drawn down $4.1 million under the Revolving Credit Facility (December 31, 2019: $17.5 million). A commitment fee is levied each quarter against any unutilized element of the Revolving Credit Facility, excluding overdraft or ancillary facilities

In the event of a sale of all or substantially all of our business and / or assets or if any person or group of persons acting in concert gains direct or indirect control (as defined in the Senior Facilities Agreement) of Luxfer Holdings PLC, we will be required to immediately repay all outstanding amounts under the Revolving Credit Facility (and, if the case, the Accordion) and the ancillary facilities under the Senior Facilities Agreement.

In addition, the Senior Facilities Agreement requires us to maintain compliance with an interest coverage ratio and a leverage ratio. The interest coverage ratio measures our EBITDA (as defined in the Senior Facilities Agreement) to Net Finance Charges (as defined in the Senior Facilities Agreement). We are required to maintain a minimum interest coverage ratio of 4.0:1. The leverage ratio measures our Total Net Debt (as defined in the Senior Facilities Agreement) to the Relevant Period Adjusted Acquisition EBITDA (as defined in the Senior Facilities Agreement). We are required to maintain a leverage ratio of no more than 3.0:1.

We have been in compliance with the covenants under the Senior Facilities Agreement throughout all of the quarterly measurement dates from and including September 30, 2011, to December 31, 2020.

The Senior Facilities Agreement is governed by English law.

For more information see ITEM 8, Note 11.

Dividends

We paid dividends in 2020 of $13.6 million (2019: $13.6 million), or $0.50 per ordinary share.

Any payment of dividends is also subject to the provisions of the U.K. Companies Act, according to which dividends may only be paid out of profits available for distribution determined by reference to financial statements prepared in accordance with the Companies Act and the International Accounting Standards Board, which differ in some respects from U.S. GAAP. In the event that dividends are paid in the future, holders of the ordinary shares will be entitled to receive payments in U.S. dollars in respect of dividends on the underlying ordinary shares in accordance with the deposit agreement. Furthermore, because we are a holding company, any dividend payments would depend on cash flows from our subsidiaries.

Authorized shares

Our authorized share capital consists of 40.0 million ordinary shares with a par value of £0.50 per share.

Contractual obligations

The following summarizes our significant contractual obligations that impact our liquidity:

Payments Due by Period

In millions Total Less than1 year 1 – 3years 3 – 5years After5 years

Contractual cash obligations

Revolving Credit Facility 4.1 — 4.1 — —

Capital commitments 1.1 1.1 — — —

Total contractual cash obligations $ 87.3 $ 6.4 $ 37.1 $ 4.7 $ 39.1

Off-balance sheet measures

At December 31, 2020, we had no off-balance sheet arrangements.

COMMTIMENTS AND CONTINGENCIES

Capital commitments

At December 31, 2020, the Company had capital expenditure commitments of $1.1 million (2019: $1.0 million and 2018: $2.5 million) for the purchase of new plant and equipment.

Committed banking facilities

At December 31, 2020, the Company had committed banking facilities of $150.0 million. The facilities were for providing loans, with a separate facility for letters of credit which at December 31, 2020, was £1.0 million ($1.3 million). Of the committed facilities, $4.1 million was drawn, no loans were drawn and no letters of credit were utilized. The Company also had two separate bonding facilities for bank guarantees, one denominated in GBP sterling of £4.5 million ($6.1 million), of which £1.2 million ($1.6 million) was utilized at December 31, 2020 and one denominated in USD of $1.5 million of which $0.8 million was utilized at December 31, 2020.

At December 31, 2019, the Company had committed banking facilities of $150.0 million. The facilities were for providing loans, with a separate facility for letters of credit which at December 31, 2019, was £1.0 million ($1.3 million). Of the committed facilities, $17.5 million was drawn, no loans were drawn and no letters of credit were utilized. The Company also had two separate bonding facilities for bank guarantees, one denominated in GBP sterling of £4.5 million ($5.9 million), of which £1.5 million ($2.3 million) was utilized at December 31, 2019 and one denominated in USD of $0.4 million which was fully utilized at December 31,2019.

Contingencies

In February 2014, a cylinder was sold to a long-term customer and ruptured at one of their gas facilities. As a result of this rupture, three people were noted to have minor injuries such as loss of hearing. There was no major damage to assets of the customer. A claim has been launched by the three people who were injured in the incident. We reviewed our quality control checks from around the time which the cylinder was produced and no instances of failures have been noted. It has also been noted by the investigator that the customer has poor quality and safety checks. As a result we do not believe that we are liable for the incident, and therefore, do not currently expect this case to have a material impact on the Company's financial position or results of operations.

In November 2018, an alleged explosion occurred at a third-party waste disposal and treatment site in Boise, Idaho, reportedly causing property damage, personal injury, and one fatality. We had contracted with a service company for removal and disposal of certain waste resulting from the magnesium powder manufacturing operations at the Reade facility in Manchester, New Jersey. We believe this service company, in turn, apparently contracted with the third-party disposal company, at whose facility the explosion occurred, for treatment and disposal of the waste. In November 2020, we were named as a defendant in three lawsuits in relation to the incident – one by the third-party disposal company, one by the estate of the decedent, and one by an injured employee of the third-party disposal company. At present, we have received insufficient information on the cause of the explosion. We do not believe that we are liable for the incident, have asserted such, and, therefore, do not currently expect this matter to have a material impact on the Company’s financial position or results of operations.

NEW ACCOUNTING STANDARDS

See ITEM 8, Note 1 of the notes to the Consolidated Financial Statements, included in this Form 10-K, for information pertaining to recently adopted accounting standards or accounting standards to be adopted in the future.

CRITICAL ACCOUNTING ESTIMATES

We have adopted various accounting policies to prepare the consolidated financial statements in accordance with GAAP. Our significant accounting policies are more fully described in ITEM 8, Note 1 of the Notes to Consolidated Financial Statements. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry and information available from other outside sources, as appropriate. We consider an accounting estimate to be critical if:

•it requires us to make assumptions about matters that were uncertain at the time we were making the estimate; and

•changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.

Our critical accounting estimates include the following:

Impairment of goodwill

Goodwill

Goodwill represents the excess of the cost of acquired businesses over the net of the fair value of identifiable tangible net assets and identifiable intangible assets purchased and liabilities assumed.

Goodwill is tested at least annually for impairment and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. In 2020, the Company has adopted ASU 2017-04. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test.In 2020, management have chosen to bypass the qualitative evaluation.

For the quantitative impairment test, the fair value of each reporting unit is determined using a discounted cash flow analysis. Projecting discounted future cash flows requires us to make significant estimates regarding future revenue growth rates including the perpetual growth rate; anticipated operating margins; and the discount rates applied to the estimated future cash flows. Actual results may differ from those used in our valuations. This non-recurring fair value measurement is a "Level 3" measurement under the fair value hierarchy described in ITEM 8 - Note 12.

economic conditions, changes in raw material prices and growth expectations for the industries and end markets we participate in. These assumptions are determined over a three year long-term planning period. The three year growth rates for revenues and operating profits vary for each reporting unit being evaluated. Revenues and operating profit beyond 2022 are projected to grow at a perpetual growth rate of 1.8%.

Discount rate assumptions for each reporting unit take into consideration our assessment of risks inherent in the future cash flows of the respective reporting unit and our weighted-average cost of capital. We utilized discount rates ranging from 8.0% to 9.0% in determining the discounted cash flows in our fair value analysis.

We completed our quantitative goodwill impairment evaluation as of the last day of the third quarter of 2020, 2019 and 2018 with each of our reporting units' fair value being substantially in excess of its carrying value apart from our Superform business unit within the Gas Cylinders segment. This resulted in an impairment in full of $1.3 million, previously disclosed within impairment costs on the income statement in 2018, now reclassified to discontinued operations.

Identifiable intangible assets

Our primary identifiable intangible assets include: customer relationships and technology and traded related assets. Identifiable intangibles with finite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events warrant. We complete our annual impairment test during the fourth quarter each year for those identifiable assets not subject to amortization.

Pension and other post-retirement plans

We sponsor U.S. and non-U.S. defined-benefit pension and other post-retirement plans. The amounts recognized in our consolidated financial statements related to our defined-benefit pension and other post-retirement plans are determined from actuarial valuations. Inherent in these valuations are assumptions, including: expected return on plan assets, discount rates, rate of increase in future compensation levels and health care cost trend rates. These assumptions are updated annually and are disclosed in ITEM 8, Note 14 to the Notes to Consolidated Financial Statements. Differences in actual experience or changes in assumptions may affect our pension and other post-retirement obligations and future expense.

We recognize changes in the fair value of plan assets and net actuarial gains or losses for pension and other post-retirement benefits annually in the fourth quarter each year ("mark-to-market adjustment") and, if applicable, in any quarter in which an interim remeasurement is triggered. Net actuarial gains and losses occur when the actual experience differs from any of the various assumptions used to value our pension and other post-retirement plans or when assumptions change as they may each year. The primary factors contributing to actuarial gains and losses each year are (1) changes in the discount rate used to value pension and other post-retirement benefit obligations as of the measurement date and (2) differences between the expected and the actual return on plan assets. This accounting method also results in the potential for volatile and difficult to forecast mark-to-market adjustments. The remaining components of pension expense, including service and interest costs and the expected return on plan assets, are recorded on a quarterly basis as ongoing pension expense.

Discount rate

The discount rate used represents the annualized yield based on a cash flow matched methodology with reference to an AA corporate bond spot curve and having regard to the duration of the Plan’s liabilities. This yield produced a weighted-average discount rate for our U.K. plans of 1.40% for 2020, 2.10% in 2019 and 2.90% in 2018. The discount rate on our U.S. plans was 2.30% in 2020, 3.10% in 2019 and 4.20% in 2018. There are no known or anticipated changes in our discount rate assumption that will impact our pension expense in 2020.

Expected rate of return

Our expected rate of return on plan assets for our U.K. plans was 3.00% for 2020, 4.10% in 2019 and 4.90% in 2018. The expected rate of return on our U.S. plans was 5.00% in 2020, 6.20% in 2019 and 6.20% in 2018. The expected rate of return is designed to be a long-term assumption that may be subject to considerable year-to-year variance from actual returns. In developing the expected long-term rate of return, we considered our historical returns, with consideration given to forecast economic conditions, our asset allocations, input from external consultants and broader longer-term market indices.

See ITEM 8, Note 14 of the Notes to Consolidated Financial Statements for further information regarding pension and other post-retirement plans.

Loss contingencies

Accruals are recorded for various contingencies including legal proceedings, self-insurance and other claims that arise in the normal course of business. The accruals are based on judgment, the probability of losses and, where applicable, the consideration of opinions of internal and/or external legal counsel and actuarially determined estimates. Additionally, we record receivables from third party insurers when recovery has been determined to be probable.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. 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. When the Company does not believe that, on the basis of available information, it is more likely than not that deferred tax assets will be fully recovered, it recognizes a valuation allowance against its deferred tax assets to reduce the deferred tax assets to the amount more likely than not to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactments date.

Furthermore, a tax benefit from a tax position may be recognized in the financial statements only if it is more-likely-than-not that the position is sustainable, based solely on its technical merits and consideration of the relevant tax authority’s widely understood administrative practices and precedents. The tax benefit recognized, when the likelihood of realization is more likely-than-not (i.e. greater than 50 percent), is measured at the largest amount that is greater than 50 percent likely of being realized upon settlement.

Item 7A. Quantitative and qualitative disclosures about market risk

Market risk is the potential economic loss arising from adverse changes in market rates and market prices such as interest rates, foreign currency exchange rates, commodity prices and changes in the market value of equity instruments. We are exposed to market risk, primarily related to foreign exchange, commodity prices and interest rates. Counterparties to all derivative contracts are major financial institutions. All instruments are entered into for other than trading purposes. The major accounting policies and utilization of these instruments is described more fully in ITEM 8, Note 1 of the Notes to Consolidated Financial Statements.

Foreign currency risk

We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. dollar. Periodically, we use derivative financial instruments to manage these risks. The functional currencies of our foreign operating locations are generally the local currency in the country of domicile. We manage these operating activities at the local level and revenues, costs, assets and liabilities are generally denominated in local currencies, thereby mitigating the risk associated with changes in foreign exchange. However, our results of operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.

To hedge foreign currency risks, we enter into short duration currency contracts. The below table details the foreign currency contracts which we have in place over sales and purchases. Changes in the fair value of all derivatives are recognized immediately in income unless the derivative qualifies as a hedge of future cash flows. Gains and losses related to a hedge are deferred and recorded in the Consolidated Balance Sheets as a component of Accumulated Other Comprehensive Income ("AOCI") and subsequently recognized in the Consolidated Statements of Income and Comprehensive Statements of Income when the hedged item affects earnings.

Sales hedges U.S. dollars Euros Japanese Yen Canadian dollars

Sales hedges U.S. dollars Euros Japanese Yen

Purchase hedges U.S. dollars Euros Canadian dollars

Commodity price risk

We are exposed to commodity price risks in relation to the purchases of our raw materials. Primary aluminum is a global commodity, with its principal trading market on the LME. In the normal course of business, we are exposed to aluminum price volatility to the extent that the costs of aluminum purchases are more closely related to the LME price than the sales prices of certain of our products. Our Gas Cylinders Segment will buy various aluminum alloys, in log, sheet, or tube form, and the contractual price will usually include an LME-linked base price plus a premium for a particular type of alloy and the cost of casting, rolling or extruding. The price of high-grade aluminum, which is actively traded on the LME, has fluctuated significantly in recent years.

There is no similar financial market to hedge magnesium, zirconium raw materials or carbon fiber, and prices for these raw materials have been volatile in recent years with some increasing substantially. To help mitigate these risks, we have a number of fixed-price supply contracts for these raw materials, which limit our exposure to price volatility over a calendar year. However, we remain exposed over time to rising prices in these markets, and therefore rely on the ability to pass on any major price increases to our customers in order to maintain our levels of profitability for zirconium, and magnesium-based products. We have also in the last few years, when we felt it was appropriate, made additional physical purchases of magnesium and some rare earth chemicals to delay the impact of higher prices, but this has had a cash flow impact on occasion thereby leading to greater utilization of our revolving credit bank facilities.

Interest rate risk

As of December 31, 2020, we had both fixed rate and variable rate debt outstanding on our consolidated balance sheet. As a result of this exposure, we have in the past hedged interest payable under our floating rate indebtedness based on a combination of forward rate agreements, interest rate caps and swaps. There were no fixed or variable rate interest hedge agreements in place as of December 31, 2020, and December 31, 2019.

The Group has exposure to variable interest rates when it draws down on the revolving credit facilities. As a result of this exposure, the Group may decide to hedge interest payable based on a combination of forward rate agreements, interest rate caps and swaps. It has also used fixed rate debt within its financing structure to mitigate volatility in interest rate movements as disclosed in Notes 11 and 12 in the Notes to the Consolidated Financial Statements.

Item 8. Financial Statements and Supplementary Data

Luxfer Holdings PLC

Index to Consolidated Financial Statements

Page

Report of Independent Registered Public Accounting Firm 47

Consolidated Statements of Income 49

Consolidated Statements of Comprehensive Income 50

Consolidated Balance Sheets 51

Consolidated Statements of Cash Flows 52

Consolidated Statements of Changes in Equity 53

Notes to Consolidated Financial Statements 54

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Luxfer Holdings PLC

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Luxfer Holdings PLC and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020and 2019, and the results of itsoperations and itscash flows for each of the three years in the period ended December 31, 2020in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment

As described in Notes 1 and 8 to the consolidated financial statements, the Company’s goodwill balance was $70.2 million as of December 31, 2020. Goodwill is tested at least annually for impairment, or more frequently if events or circumstances indicate that the asset might be impaired. The Company performs its annual goodwill impairment test by comparing the fair value of a reporting unit to its carrying value. A goodwill impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value. The fair value of each reporting unit is determined by the Company using a discounted cash flow analysis. Projecting discounted future cash flows requires the Company to make significant estimates regarding future revenue growth rates including: (i) future revenue growth rates including the perpetual growth rate; (ii) anticipated operating margins; and (iii) the discount rates applied to the estimated future cash flows.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a critical audit matter are the significant judgments and assumptions made by management when developing the fair value of the reporting units. This in turn resulted in a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate management's discounted future cash flow analysis and significant assumptions for future revenue growth rates including the perpetual growth rate; anticipated operating margins; and the discount rates applied to the estimated future cash flows. The audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the fair value of the reporting units. These procedures also included, among others, (i) testing management’s process for estimating fair value; (ii) evaluating the appropriateness of the discounted cash flow models; (iii) testing the completeness, accuracy and relevance of underlying data used in the models; (iv) evaluating the significant assumptions used by management related to estimates of future revenue growth rates including the perpetual growth rate, anticipated operating margins and the discount rates applied to the estimated future cash flows. Evaluating management’s assumptions related to the future revenue growth rates including the perpetual growth rate, and anticipated operating margins involved evaluating (i) current and past performance of the reporting units; (ii) consistency of expectations with external market and industry data; (iii) management’s historical forecasting accuracy; and (iv) whether these assumptions were consistent with evidence obtained in other areas of the audit.Professionals with specialized skill and knowledge were used to assist in performing procedures relating to the perpetual growth rate and the discount rates applied to future cash flows.

PricewaterhouseCoopers LLP (signed)

Manchester, United Kingdom

March 2, 2021

We have served as the Company’s auditor since 2015.

LUXFER HOLDINGS PLC

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31,

Selling, general and administrative expenses (39.8) (49.7) (54.6)

Research and development (3.3) (5.7) (6.3)

Restructuring charges (8.9) (25.9) (13.2)

Impairment credit / (charges) — 0.2 (5.9)

Acquisition related costs — (1.4) (4.3)

Other charges (0.4) (2.5) —

Interest expense (5.0) (4.5) (4.9)

Interest income — 0.1 0.4

Defined benefit pension credit 4.3 1.3 4.7

Provision for income taxes (6.9) (7.6) (6.5)

Income before equity in net (loss) / income of affiliates 20.9 8.0 27.3

Equity in (loss) / income of affiliates (net of tax) (0.1) 0.7 0.4

Net income from continuing operations 20.8 8.7 27.7

Net loss from discontinued operations (0.8) (5.6) (2.7)

Earnings / (loss) per share(1)

Basic from continuing operations 0.75 0.32 1.04

Basic from discontinued operations (0.03) (0.21) (0.10)

Diluted from continuing operations 0.74 0.31 1.00

Diluted from discontinued operations (0.03) (0.21) (0.10)

Weighted average ordinary shares outstanding

(1) The calculation of earnings per share is performed separately for continuing and discontinued operations. As a result, the sum of the two in any particular year may not equal the earnings-per-share amount in total.

See accompanying notes to consolidated financial statements

LUXFER HOLDINGS PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31,

Other comprehensive loss

Net change in foreign currency translation adjustment 3.8 0.6 (6.4)

Cash flow hedges, net of $0.0, $0.1 and $0.0 of tax, respectively — 0.3 (0.6)

Other comprehensive loss net of tax (16.2) (3.0) (5.9)

Total comprehensive income $ 3.8 $ 0.1 $ 19.1

See accompanying notes to consolidated financial statements

LUXFER HOLDINGS PLC

CONSOLIDATED BALANCE SHEETS

December 31,

In millions, except share and per-share data 2020 2019

Current assets

Cash and cash equivalents $ 1.5 $ 10.2

Restricted cash — 0.1

Current assets held-for-sale 36.0 46.8

Other current assets 1.5 1.1

Non-current assets

Property, plant and equipment, net 86.0 90.2

Right-of-use assets from operating leases 9.5 11.0

Investments and loans to joint ventures and other affiliates 0.5 2.3

Current liabilities

Taxes on income 0.4 —

Current liabilities held-for-sale 11.4 12.9

Other current liabilities 13.5 10.7

Total current liabilities 65.4 77.5

Non-current liabilities

Pensions and other retirement benefits 50.8 35.2

Deferred tax liabilities 2.0 1.9

Other non-current liabilities 7.7 9.9

Shareholders' equity

Additional paid-in capital 70.6 68.4

Treasury shares (4.0) (4.0)

Own shares held by ESOP (1.4) (1.7)

Accumulated other comprehensive loss (165.8) (149.6)

Total shareholders' equity $ 167.1 $ 174.4

Total liabilities and shareholders' equity $ 346.4 $ 390.3

See accompanying notes to consolidated financial statements

LUXFER HOLDINGS PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

Operating activities

Net loss from discontinued operations 0.8 5.6 2.7

Net income from continuing operations 20.8 8.7 27.7

Equity in loss / (income) of affiliates 0.1 (0.7) (0.4)

Amortization of purchased intangible assets 0.7 1.2 1.2

Amortization of debt issuance costs 0.4 0.3 0.3

Share-based compensation charge 2.8 4.5 4.8

Deferred income taxes 4.8 4.0 (0.3)

Loss on disposal of property, plant and equipment 0.1 0.2 0.3

Gain on disposal of business — (2.9) —

Asset impairment charges — 4.8 12.6

Defined benefit pension credit (3.9) (2.8) (4.0)

Defined benefit pension contributions (5.8) (7.9) (7.9)

Changes in assets and liabilities, net of effects of business acquisitions

Accounts and notes receivable 10.7 (7.6) 5.7

Other current assets 9.6 (2.3) 0.1

Accrued liabilities (1.9) (9.5) 3.7

Other current liabilities 2.5 3.1 10.8

Other non-current assets and liabilities (0.8) (2.9) (0.7)

Net cash provided by operating activities - continuing 49.3 5.0 62.5

Net cash provided by operating activities - discontinued 0.3 0.8 0.7

Net cash provided by operating activities $ 49.6 $ 5.8 $ 63.2

Investing activities

Capital expenditures $ (8.0) $ (13.1) $ (13.2)

Proceeds from sale of property, plant and equipment — 1.2 0.1

Proceeds from sale of businesses 1.5 4.4 —

Investments in unconsolidated affiliates — — 1.1

Acquisitions, net of cash acquired — — 2.7

Net cash used for investing activities - continuing (6.5) (7.5) (9.3)

Net cash used for investing activities - discontinued (0.3) (0.8) (0.7)

Net cash used for investing activities $ (6.8) $ (8.3) $ (10.0)

Financing activities

Net repayments of short term borrowings $ — $ (3.5) $ (15.7)

Net (repayments) / drawdowns of long-term borrowings (38.2) 17.5 (21.3)

Deferred consideration paid (0.4) (0.5) (0.8)

Proceeds from sale of shares 1.1 3.5 6.6

Share based compensation cash paid (1.4) (4.4) (7.3)

Net cash used for financing activities $ (52.5) $ (1.0) $ (51.9)

Effect of exchange rate changes on cash and cash equivalents 0.9 (0.3) (0.5)

Net (decrease) / increase $ (8.8) $ (3.8) $ 0.8

Cash, cash equivalents and restricted cash; beginning of year 10.3 14.1 13.3

Cash, cash equivalents and restricted cash; end of year 1.5 10.3 14.1

Supplemental cash flow information:

Interest payments $ 5.1 $ 4.6 $ 4.6

Income tax payments 2.1 6.1 2.9

See accompanying notes to consolidated financial statements

LUXFER HOLDINGS PLC

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Net income — — — — — — — 25.0 — 25.0

Issue of new shares 1.3 — — — — (1.9) (1.3) — — —

Cancellation of deferred shares — (1.0) 1.0 — — — — — — —

Shares sold from ESOP — — 6.2 — — 0.5 0.4 — — 6.6

Other comprehensive loss, net of tax — — — — — — — — (5.9) (5.9)

Dividends declared and paid — — — — — — — (13.4) — (13.4)

Share based compensation — — (2.5) — — — — — — (2.5)

Purchase of shares into ESOP — — — 0.1 1.4 (0.1) (1.4) — — —

Net income — — — — — — — 3.1 — 3.1

Shares sold from ESOP — — 3.3 — — 0.2 0.2 — — 3.5

Other comprehensive loss, net of tax — — — — — — — — (3.0) (3.0)

Dividends declared and paid — — — — — — — (13.6) — (13.6)

Share based compensation — — 4.1 — — — — — — 4.1

Net income — — — — — — — 20.0 — 20.0

Shares sold from ESOP — — 0.8 — — 0.1 0.3 — — 1.1

Other comprehensive loss, net of tax — — — — — — — — (16.2) (16.2)

Dividends declared and paid — — — — — — — (13.6) — (13.6)

Share based compensation — — 2.8 — — — — — — 2.8

See accompanying notes to consolidated financial statements

LUXFER HOLDINGS PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Business description

Luxfer Holdings PLC is a global manufacturer of highly-engineered materials, which focuses on using its broad array of technical know-how and propriety technologies. Luxfer's high-performance materials, components and high-pressure gas containment devices are used in defense and emergency response, healthcare, transportation and general industrial applications. It comprises two reportable segments being Gas Cylinders and Elektron.

Principles of consolidation

The consolidated financial statements comprise the financial statements of Luxfer Holdings PLC and its subsidiaries (collectively "we," "our," "Luxfer" or "the Company" ) that we control. Investments in unconsolidated affiliates, where we have the ability to exercise significant influence over the operating and financial policies, are accounted for using the equity method. All inter-company balances and transactions, including unrealized profits arising from intra-company transactions, have been eliminated in full.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and are presented in U.S. dollars ("USD"). The books of the Company's non-U.S. entities are converted to USD at each reporting period date in accordance with the accounting policy below. The functional currency of the holding company Luxfer Holdings PLC and its U.K. subsidiaries is pounds sterling (GBP), being the most appropriate currency for those particular operations.

Discontinued operations

Certain amounts in prior-year financial statements were reclassified to conform to the current-year presentation primarily due to the classification of certain businesses as discontinued operations.

Fiscal year

Our fiscal year ends on December 31. We report our interim quarterly periods on a 13-week basis ending on a Sunday.

Impact of COVID-19 on the Financial Statements

In March 2020, the World Health Organization characterized the coronavirus ("COVID-19") a pandemic. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. At this time, Luxfer is operating all of its facilities, following earlier temporary closures and / or output restrictions at a small number of locations. However, due to weaker demand resulting from uncertain economic conditions, potential supply constraints, and the continued impact of COVID-19, Luxfer has implemented additional cost saving programs, including headcount reductions. As the situation evolves and if warranted, the Company may again suspend or reduce operations at certain facilities. In view of the rapidly changing business environment, unprecedented market volatility and heightened degree of uncertainty resulting from COVID-19, we are currently unable to fully determine its future impact on our business. However, we are monitoring the progression of the pandemic and its potential effect on our financial position, results of operations and cash flows.

The Company recognized that the COVID-19 pandemic constituted a triggering event in accordance with ASC 350 Intangibles - Goodwill and Other, during the first quarter of 2020 and therefore performed an impairment assessment of its goodwill and other intangible assets. Based on the forecast at that time, we did not identify any impairments, nor marginal outcomes. During the year, quarterly re-forecasts were performed to assess the impact COVID-19 was having on our results and liquidity, and in the fourth quarter we carried out our annual goodwill and other intangibles impairment test using cash flows from the annual and strategic plan budgeting exercise. Neither the in-year re-forecasts nor outcomes of the 2021 budget, changed our assessment of fair value, with no impairments nor marginal outcomes identified. Assumptions and judgments are required in calculating the fair value of the reporting units. In developing our discounted cash flow analysis, assumptions about future revenues and expenses, capital expenditures and changes in working capital are based on our annual operating plan and long-term business plan for each of our reporting units. These plans take into consideration numerous factors including historical experience, anticipated future economic conditions, changes in raw material prices and growth expectations for the industries and end markets we participate in. These assumptions and judgments may change as we learn more about the impact of the COVID-19 pandemic.

In relation to liquidity, the Company has access to a revolving credit facility (see Note 11) and has performed stress testing on financial covenants using current forecast information and has not identified any liquidity concerns.

Use of estimates

The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include our accounting for valuation of goodwill, estimated losses on accounts receivable, estimated realizable value on excess and obsolete inventory, assets acquired and liabilities assumed in acquisitions, estimated selling proceeds from assets held for sale, contingent liabilities, measurement of contingent consideration, income taxes and pension benefits. Actual results could differ from our estimates.

Goodwill and other identifiable intangible assets

Business combinations are accounted for using the purchase method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. The measurement of non-controlling interest is at fair value and is determined on a transaction by transaction basis. Acquisition costs are expensed as incurred.

Goodwill is tested at least annually for impairment or more frequently if events or changes in circumstances indicate that the asset might be impaired. In 2020, the Company has adopted Accounting Standard Update ("ASU") 2017-04) - intangibles - goodwill and other (Topic 350): Simplifying the test for goodwill impairment.. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test. In 2020, management have chosen to bypass the qualitative evaluation.

1. Summary of Significant Accounting Policies (continued)

Goodwill and other identifiable intangible assets (continued)

In developing our discounted cash flow analysis, assumptions about future revenue growth rates and anticipated operating margins are based on our annual operating plan and long-term business plan for each of our reporting units. These plans take into consideration numerous factors including historical experience, anticipated future economic conditions, changes in raw material prices and growth expectations for the industries and end markets we participate in. These assumptions are determined over a three year long-term planning period. The three year growth rates for revenues and operating profits vary for each reporting unit being evaluated. Revenues and operating profit beyond 2022 are projected to grow at a perpetual growth rate of 1.8%.

Other intangible assets are measured initially at cost, or where acquired in a business combination at fair value, and are amortized on a straight-line basis over their estimated useful lives as shown in the table below.

Customer relationships 10 - 15 years

Technology and trading related 5 - 25 years

The carrying values are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Reviews are made annually of the estimated remaining lives and residual values of the patents and trademarks.

Variable interest entities

We have had interests in certain joint venture entities that were variable interest entities ("VIEs"). Determining whether to consolidate a VIE may require judgment in assessing (i) whether an entity is a VIE and (ii) if we are the entity's primary beneficiary and thus required to consolidate the entity. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have (i) the power to direct the activities that most significantly impact the VIE's economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding and financing and other applicable agreements and circumstances. Our assessment of whether we are a primary beneficiary of a VIE requires the application of significant assumptions and judgment.

1. Summary of Significant Accounting Policies (continued)

Investments in affiliates

The company owns interest in the following affiliate:

Nikkei-MEL Co. Limited Japan Ordinary shares 50% Joint venture Equity method

Sub161 Pty Limited, our Australian associate (VIE) in which we held a 26% interest, was liquidated and deregistered as a legal entity in November 2020. We were not the primary beneficiary of the VIE and so did not consolidate it and used the equity method to account for its results. We had previously fully impaired our investment and there was no gain or loss resulting from the liquidation.

Property, plant and equipment, net

Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value. Depreciation is calculated on a straight-line basis over the estimated useful life of the particular asset. The depreciation expense during 2020, 2019 and 2018 was $12.6 million, $12.0 million and $15.8 million, respectively. The estimated useful lives is summarized as follows:

Freehold buildings 10 - 33 years

Leasehold land and buildings The lesser of life of lease or freehold rate

Machinery and equipment 3 - 25 years

Including:

Chemical production plant and robotics 7 - 10 years

Other production machinery 5 - 10 years

Furniture, fittings, storage and equipment 3 - 10 years

Computer software 4 - 7 years

Freehold land is not depreciated.

Reviews are made annually of the estimated remaining lives and residual values of individual productive assets, taking account of commercial and technological obsolescence as well as normal wear and tear.

We review the carrying value for any individual asset for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying value exceeds the estimated recoverable amount, the asset is written-down to its estimated recoverable amount. The assessment of possible impairment is based on our ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset or asset group, an impairment loss is recognized for the difference between estimated fair value and carrying value. Impairment losses on long-lived assets held for sale are determined in a similar manner, except that fair values are reduced for the cost to dispose of the assets. The measurement of impairment requires us to estimate future cash flows and the fair value of long-lived assets. During 2020 we did not record any impairment (2019: $4.6 million) in relation to restructuring activities. There was also a $5.2 million impairmentcharge in 2019, recorded within impairment charges, relating to plant and equipment held in our Superform business, following the downturn in the European luxury automotive market. This amount has been reclassified into discontinued operations. In2018, the $3.4 million charge arose from the fair value adjustment in relation to the sale of the Czech business, recorded in impairment charges.

1. Summary of Significant Accounting Policies (continued)

Impairments

The Company will recognize impairments in relation to property, plant and equipment, investments and goodwill, other identifiable intangible assets and other long-lived assets in accordance with the above policies. Impairments relating to restructuring activities, incurred to exit an activity or location, will be recorded within the restructuring line on the Statement of Income. Other impairments will be recorded within impairment charges line on the Statement of Income.

Impairment in 2019 relates to: a $5.2 million charge relating to plant and equipment held in our Superform business (now included in discontinued operations); partially offset by a true-up upon the final sale of the Czech business, $0.2 million credit, (2018: $3.4 million charge). In 2018 there was also a $2.4 million write-off in relation to the acquisition of Luxfer Holdings NA LLC and $1.3 million of goodwill impairment within the Superform business unit (now included in discontinued operations).

Revenue Recognition

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The majority of the Company’s contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. There is no variable consideration or obligations for returns, refunds, and no other related obligations in the Company’s contracts.

Payment terms and conditions vary by contract type and may include a requirement of payment in advance. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts do not include a significant financing component.

The Company’s revenue is primarily derived from the following sources and are recognized when or as the Company satisfies a performance obligation by transferring a good or service to a customer.

Product revenues

We recognize revenue when it is realized or realizable and has been earned. Revenue is recognized when persuasive evidence of an arrangement exists, shipment or delivery has occurred (depending on the terms of the sale), which is when the transfer of product or control occurs, our price to the buyer is fixed or determinable, and the ability to collect is reasonably assured.

Royalties

Royalty revenue is recognized on an accrual basis in accordance with the substance of the relevant agreements, provided that it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably.

Tooling revenue

Revenue from certain long-term tooling contracts is recognized over the contractual period under the cost-to-cost measure of progress as this is when the benefit is received by the customer. Incremental direct costs associated with the contract include, direct labor hours, direct raw material costs and other associated costs. Under this method, sales and gross profit are recognized as work is performed either based on the relationship between the actual costs incurred and the total estimated costs at completion (“the cost-to-cost method”) or based on efforts for measuring progress towards completion in situations in which this approach is more representative of the progress on the contract than the cost-to-cost method. We record costs and earnings in excess of billings on uncompleted contracts within Other current assets and billings in excess of costs and earnings on uncompleted contracts within Other current liabilities in the Consolidated Balance Sheets. Where customer acceptance is on final completion and handover of the tool, revenue is recognized at the point the customer accepts ownership of the tool. All tooling revenue relates to discontinued operations resulting in all related activity included in discontinued operations and associated balances included in assets and liabilities held-for-sale.

Practical Expedients

The Company applies the practical expedient and does not disclose information about remaining performance obligations for contracts that have original expected durations of one year or less.

1. Summary of Significant Accounting Policies (continued)

Cash, Cash Equivalents and Restricted Cash

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Restricted cash is recognized separately in the Consolidated Balance Sheets. Restricted cash balances were less than $0.1 million at December 31, 2020 and $0.1 million at December 31, 2019. The amounts were held in escrow to disburse environmental liabilities recognized as a result of the acquisition of the Specialty Metals division of ESM Inc in 2017.

Inventories

Inventories are stated at the lower of cost or net realizable value. Raw materials are valued on a first-in, first-out basis. Strategic purchases of inventories in order to secure supply and reduce the impact of price volatility on the cost of inventories are valued on a weighted-average cost basis. Work in progress and finished goods costs comprise direct materials and, where applicable, direct labor costs, an apportionment of production overheads and any other costs that have been incurred in bringing the inventories to their present location and condition. Inventories are reviewed on a regular basis, and we will make allowance for excess or obsolete inventories and write-down to net realizable value based primarily on committed sales prices and our estimates of expected and future product demand and related pricing.

Research and Development

Included within research and development costs are directly attributable salaries, materials and consumables, as well as third-party contractor fees and research costs. These costs are expensed as incurred.

Foreign currencies

Transactions in currencies other than an operation's functional currency are initially recorded in the functional currency at the rate of exchange prevailing on the dates of transactions. At each balance sheet date, the foreign currency monetary assets and liabilities of each operation are translated into the functional currency of that operation at the rates prevailing on the balance sheet date.

All differences are taken to the consolidated statement of income / (loss), with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These differences on foreign currency borrowings are taken directly to equity until the disposal of the net investment, at which time they are recognized in the consolidated statement of income / (loss). Tax charges and credits attributable to exchange differences on those borrowings are also included in equity.

On consolidation, the assets and liabilities of the Company's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences that arise, if any, are included in Accumulated other comprehensive income / (loss) (“AOCI”), a separate component of equity. Such translation differences are recognized in the consolidated statements of income / (loss) in the period in which the Company loses control of the operation or liquidation.

During 2020, the average USD/GBP sterling exchange rate was £0.7805 compared to the 2019 average of £0.7820. This change resulted in a positive impact of $0.3 million on revenue and a negative impact of $0.2 million on operating income. Based on the 2020 level of revenue and income, a weakening in GBP sterling leading to a £0.05 increase in the USD/GBP sterling exchange rate would result in a decrease of $8.5 million in revenue and $0.7 million in operating net income.

During 2020, the average USD/Euro exchange rate was €0.8888, compared to the 2019 average of €0.8943. This change resulted in a negative impact of $0.1 million on revenue and $0.3 million on operating profit. Based on the 2020 level of revenue and income, a weakening in the Euro leading to a €0.05 increase in the Euro to U.S. dollar exchange rate would result in a decrease of less than $0.1 million in revenue and $0.3 million decrease to operating profit.

1. Summary of Significant Accounting Policies (continued)

Income taxes

Employee benefit plans

The Company operates funded defined benefit pension plans in the U.K., the U.S. and France. The levels of funding are determined by periodic actuarial valuations that take into account changes in actuarial assumptions, including discount rates and expected returns on plan assets. The assets of the plans are generally held in separate trustee-administered funds. The Company also operates defined contribution plans in the U.K., the U.S., Australia and Canada.

Actuarial assumptions are updated annually and are disclosed in Note 14. We recognize changes in the fair value of plan assets and net actuarial gains or losses for pension and other post-retirement benefits annually in the fourth quarter each year (“mark-to-market adjustment”) and, if applicable, in any quarter in which an interim remeasurement is triggered. Net actuarial gains and losses occur when the actual experience differs from any of the various assumptions used to value our pension and other post-retirement plans or when assumptions change, as they may each year. The remaining components of pension expense, including service and interest costs and estimated return on plan assets, are recorded on a quarterly basis.

Payments to defined contribution plans are charged as an expense as they fall due.

Commitments and contingencies

Loss contingencies are recognized when the Company has a present obligation as a result of a past event, it is probable that a transfer of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

Share-based compensation

We account for share-based compensation awards on a fair value basis. The estimated grant date fair value of each option award is recognized in income on an accelerated basis over the requisite service period (generally the vesting period). The estimated fair value of each option award is calculated using either the Black-Scholes option-pricing model, or using a Monte-Carlo simulation, both of which are subjective and involves the application of significant estimates and assumptions, including the expected term of the award, implied volatility, expected dividend yield and the risk-free interest rate. Restricted share awards and units are recorded as compensation cost on an accelerated basis over the requisite service periods based on the market value on the date of the grant.

Performance share units ("PSU") are stock awards where the ultimate number of shares issued will be contingent on the Company's performance against certain financial performance targets. The fair value of each PSU is based on the market value on the date of grant. We recognize expense based upon the fair value of the awards on the grant date and the estimated vesting of the PSUs granted. The estimated vesting of the performance share units is based on the probability of achieving certain financial performance thresholds over the specified performance period.

1. Summary of Significant Accounting Policies (continued)

Trade receivables and concentration of credit risk

The Company is exposed to credit losses primarily through sales of products. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of accounts receivable amounts that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted.

Estimates are used to determine the allowance. It is based on assessment of anticipated receipts and all other historical, current and future information that is reasonably available.

We are exposed to credit risk in the event of nonpayment by customers. However we mitigate our exposure to credit risk by performing ongoing credit evaluations and, when deemed necessary, utilizing credit insurance, prepayments or guarantees. No individual customer represented more than 10% of our revenue or accounts receivable. The concentration of credit risks from financial instruments related to the markets we serve is not expected to have a material adverse effect on our consolidated financial position, cash flows or future results of operations.

Derivative financial instruments

LXFR US Equity

LXFR · 10-K · period ended 2020-12-31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and qualitative disclosures about market risk

Item 8. Financial Statements and Supplementary Data

LXFR US Equity☆

LXFR · 10-K · period ended 2020-12-31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and qualitative disclosures about market risk

Item 8. Financial Statements and Supplementary Data

LXFR US Equity