# AVIENT CORP (AVNT) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from AVIENT CORP's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1122976/000112297625000008/avnt-20241231.htm
Accession: 0001122976-25-000008
Filing date: 2025-02-18
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/AVNT/
All MD&A years: /company/AVNT/mda/
Previous year: /company/AVNT/mda/fy2023/ (FY 2023)
Next year: /company/AVNT/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide information that is supplemental to, and should be read together with, our consolidated financial statements and the accompanying notes contained in this Annual Report on Form 10-K. Information in this Item 7 is intended to assist the reader in obtaining an understanding of our consolidated financial statements, the changes in certain key items in those financial statements from year to year, the primary factors that accounted for those changes, and any known trends or uncertainties that we are aware of that may have a material effect on our future performance, as well as how certain accounting principles affect our consolidated financial statements. Unless otherwise noted, the discussion that follows includes a comparison of our results of operations, liquidity and capital resources, and cash flows for fiscal years 2024 and 2023. For a discussion of changes from fiscal year 2023 to fiscal year 2022, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 20, 2024.

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Cautionary Note on Forward-Looking Statements” and Item 1A, “Risk Factors.”

Our Business

We are an innovator of materials solutions to help our customers succeed, while enabling a sustainable world. Our products include specialty engineered materials, performance fibers, advanced composites, and color and additive solutions. We are also a highly specialized developer and manufacturer of performance enhancing additives, liquid colorants and silicone colorants. Headquartered in Avon Lake, Ohio, with 2024 sales of $3.2 billion from continuing operations, we have manufacturing and warehouses around the globe, with 60% of our sales to customers outside the United States. We provide value to our customers through our ability to link our knowledge of polymers and materials science with our manufacturing and supply chain capabilities to provide value-added solutions to designers, assemblers and processors of materials.

Strategy and Key Trends

In 2024, we developed a refined strategy for the Avient of the future. It begins with our purpose: to be an innovator of materials solutions to help our customers succeed, while enabling a sustainable world. We have a two-pronged strategic approach, where we seek to intersect high-growth markets and secular trends with our technologies to 1) build new platforms of scale by playing bigger and bolder in high growth markets, and 2) catalyze the core of our business, maximizing the impact of what we have. Our strategy utilizes four supporting strategic drivers: Portfolio Prioritization; Amplify Innovation; Digital for Operational Excellence and Growth; and Leadership, Talent and Culture for the Avient of the Future. All of this is underpinned by the established foundational strengths of Avient, which have been built and refined over the 25-year history of the company.

We maintain a strong commitment to sustainability. Like all that we do, we start by putting the safety of our employees and needs of our customers first, then look inward to make a difference. We offer a broad portfolio of technologies that are designed to help our customers succeed, while enabling a sustainable world. Through our design expertise and materials science, we seek to positively contribute to our customers’ products in many end markets. We have three overarching ways we help our customers meet their sustainability goals: Renew, Reduce, and Preserve. Examples include developing unique technologies that improve the recyclability of products and allow recycled content to be incorporated in products, thus advancing a more circular economy; light-weighting solutions that replace heavier traditional materials like metal, glass and wood, which can improve fuel efficiency in all modes of transportation and reduce the carbon footprint; and infrastructure solutions that are designed to increase energy efficiency, renewable energy, and natural resource conservation.

Long-term trends that currently provide opportunities to leverage our strategy include improving health and wellness, protecting the environment, and increasing need for power and electricity.

Operationally, we will continue our enterprise-wide Lean Six Sigma program directed at improving margin, profitability and cash flow by applying proven management techniques and strategies to key areas of the business, such as pricing, supply chain and operations management, productivity and quality.

17 AVIENT CORPORATION

Subsequent Events

In the first quarter of 2025, the Company completed a review of the cloud-based enterprise resource planning system, S/4HANA, including updated project timelines, cost incurred to date, required internal resources and expected costs to complete the initial site implementations, and the evolution of options that could provide better returns for shareholders. As a result of this review, the Company determined it would cease the ongoing development of S/4HANA and re-allocate capital to other projects which will support the Company’s new strategy.

As a result of this decision, the Company will recognize a non-cash, pre-tax impairment charge of approximately $71 million, associated with capitalized implementation costs. The Company will also recognize pre-tax charges of approximately $15 million associated with unpaid contractual obligations for hosting fees within its Consolidated Statements of Income in the first quarter of 2025.

18 AVIENT CORPORATION

[[GREPCENT_TABLE]]
[["Results of Operations","","","","","","","","Variances \u2014 Favorable (Unfavorable)"],["","","","","","","","","2024 versus 2023"],["(Dollars in millions, except per share data)","","2024","","2023","","2022","","Change","","% Change"],["Sales","","$","3,240.4","","","$","3,142.8","","","$","3,396.9","","","$","97.6","","","3.1","%"],["Cost of sales","","2,183.7","","","2,250.3","","","2,514.2","","","66.6","","","3.0","%"],["Gross margin","","1,056.7","","","892.5","","","882.7","","","164.2","","","18.4","%"],["Selling and administrative expense","","727.4","","","695.7","","","639.4","","","(31.7)","","","(4.6)","%"],["Operating income","","329.3","","","196.8","","","243.3","","","132.5","","","67.3","%"],["Interest expense, net","","(105.6)","","","(115.3)","","","(119.8)","","","9.7","","","8.4","%"],["Other income (expense), net","","1.1","","","5.8","","","(59.7)","","","(4.7)","","","nm"],["Income from continuing operations before income taxes","","224.8","","","87.3","","","63.8","","","137.5","","","157.5","%"],["Income tax (expense) benefit","","(54.1)","","","(11.0)","","","19.3","","","(43.1)","","","nm"],["Net income from continuing operations","","$","170.7","","","$","76.3","","","$","83.1","","","$","94.4","","","123.7","%"],["(Loss) income from discontinued operations, net of income taxes","","\u2014","","","(0.1)","","","620.3","","","0.1","","","nm"],["Net income","","170.7","","","76.2","","","703.4","","","94.5","","","124.0","%"],["Net income attributable to noncontrolling interests","","(1.2)","","","(0.5)","","","(0.3)","","","(0.7)","","","nm"],["Net income attributable to Avient common shareholders","","$","169.5","","","$","75.7","","","$","703.1","","","$","93.8","","","123.9","%"],["Earnings per share attributable to Avient common shareholders - basic:"],["Continuing operations","","$","1.86","","","$","0.83","","","$","0.91"],["Discontinued operations","","\u2014","","","\u2014","","","6.80"],["Total","","$","1.86","","","$","0.83","","","$","7.71"],["Earnings per share attributable to Avient common shareholders - diluted:"],["Continuing operations","","$","1.84","","","$","0.83","","","$","0.90"],["Discontinued operations","","\u2014","","","\u2014","","","6.73"],["Total","","$","1.84","","","$","0.83","","","$","7.63"],["Gross margin as a percentage of sales","","32.6","%","","28.4","%","","26.0","%"]]
[[/GREPCENT_TABLE]]

nm - not meaningful

Sales

Sales increased $97.6 million, or 3.1%, in 2024 compared to 2023, primarily driven by increased demand of 4.0%, partially offset by unfavorable foreign currency impacts of 0.9%. Increased demand was driven by strength in the consumer, defense, building and construction, packaging and healthcare end markets, partially offset by weakness in the telecommunications and transportation end markets.

Gross Margin

Gross margin increased to 32.6% from 28.4% in 2024 compared to 2023, primarily driven by the benefits of raw material deflation, mix improvement, lower environmental remediation costs of $34.6 million, and lower restructuring charges of $12.9 million. Further, in 2024, Avient recognized a gain from insurance recoveries associated with previously incurred environmental remediation costs of $34.7 million as compared to a gain of $1.7 million in 2023.

Selling and administrative expense

These costs include selling, technology, administrative functions, amortization of intangible assets, corporate and general expenses. Selling and administrative expense in 2024 increased $31.7 million compared to 2023, primarily due to higher employee related costs, partially offset by lower restructuring costs of $9.0 million.

19 AVIENT CORPORATION

Interest expense, net

Interest expense, net decreased $9.7 million in 2024 as compared to 2023, primarily due to the refinancing of our senior secured term loans in April 2024 and August 2023, which included a partial principal repayment of $102.3 million during the third quarter of 2023.

Other income (expense), net

Other income (expense), net decreased $4.7 million in 2024 as compared to 2023, primarily associated with $6.3 million in amortization of prior service credits associated with the phase out of certain post-employment benefits in 2023.

Income taxes

A reconciliation of the applicable U.S. federal statutory tax rate to the consolidated effective income tax rate from continuing operations along with a description of significant or other reconciling items is included below.

[[GREPCENT_TABLE]]
[["","","Twelve Months Ended December 31,"],["(In millions)","","2024","","2023"],["U.S. federal income tax rate","","21.0","%","","21.0","%"],["Net tax on GILTI and Subpart F Income","","(0.5)","","","2.2"],["International tax on certain current and prior year earnings","","1.6","","","3.9"],["Non-deductible interest","","0.4","","","5.3"],["Research and development credit","","(1.7)","","","(3.7)"],["Capital losses","","\u2014","","","(5.4)"],["State and local tax, net","","(0.7)","","","(2.3)"],["International tax rate differential","","1.7","","","0.2"],["International permanent items","","0.7","","","(7.5)"],["U.S. permanent items","","2.1","","","2.5"],["Net impact of uncertain tax positions","","(1.1)","","","(5.3)"],["Changes in valuation allowances","","\u2014","","","3.6"],["Other","","0.6","","","(1.9)"],["Effective income tax rate","","24.1","%","","12.6","%"]]
[[/GREPCENT_TABLE]]

The consolidated effective income tax rate from continuing operations was 24.1%, which was higher than the U.S. federal rate of 21%. This higher rate was primarily driven by U.S. permanent items of 2.1%, international rate differential of 1.7% and tax associated with foreign income repatriation of 1.6%. These items were partially offset by credits associated with research and development of 1.7% and changes in uncertain tax position which resulted in a net benefit of 1.1%.

The 2023 consolidated effective income tax rate from continuing operations was 12.6%, which was lower than the U.S. federal rate of 21%. This lower rate was primarily driven by the recognition of tax benefits of 7.5% associated with tax impairments of investments in affiliates, driven in part from European restructuring actions. Further, we recognized a 5.4% tax benefit from federal and state capital losses associated with an international affiliate's tax status change in 2022. Finally, we recognized tax benefits from the reduction of uncertain tax positions as well as the U.S. R&D tax credit, which reduced the tax rate, 5.3% and 3.7%, respectively. Partially offsetting these benefits were non-deductible foreign interest, 5.3%, tax associated with foreign income repatriation, 3.9%, and an increase of our valuation allowance which impacted the rate 3.6%.

Segment Information

Operating income is the primary measure that is reported to our chief operating decision maker (CODM) for purposes of allocating resources to the segments and assessing their performance. Operating income at the segment level does not include corporate general and administrative costs that are not allocated to segments, restructuring charges, environmental remediation obligations and associated recoveries, acquisition-related charges, mark-to-market adjustments on pension and other post-retirement obligations, and certain other items that are not included in the measure of segment profit or loss that is reported to and reviewed by our CODM. These costs are included in Corporate.

20 AVIENT CORPORATION

Avient has two reportable segments: (1) Color, Additives and Inks and (2) Specialty Engineered Materials. Our segments are further discussed in Note 14, Segment Information, to the accompanying consolidated financial statements.

Sales and Operating Income

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Color, Additives and Inks

Sales increased $39.1 million, or 1.9%, in 2024 compared to 2023, primarily driven by increased demand of 2.9%, partially offset by unfavorable foreign currency impacts of 0.9%. Increased demand was driven by strength in the packaging, consumer, healthcare and building and construction end markets, partially offset by weakness in the transportation end market.

Operating income increased $36.3 million, or 14.0%, in 2024 compared to 2023, primarily driven by increased sales and benefits from raw material deflation, which occurred in the first half of 2024, partially offset by higher employee related costs and unfavorable foreign currency impacts.

Specialty Engineered Materials

Sales increased by $58.6 million, or 5.1%, in 2024 compared to 2023, primarily driven by increased demand of 6.1%, partially offset by an unfavorable foreign currency impact of 0.7%. Increased demand was driven by strength in the defense, building and construction, consumer and healthcare end markets, partially offset by weakness in the telecommunications end market.

Operating income increased by $24.7 million, or 17.3%, in 2024 compared to 2023, primarily driven by increased sales, benefits from raw material deflation, which occurred in the first half of 2024, and favorable product mix, partially offset by higher employee related costs and unfavorable foreign currency impacts.

Corporate

Costs decreased $71.5 million, or 34.8%, in 2024 compared to 2023, primarily driven by $34.6 million of lower environmental remediation costs in 2024 compared to 2023, while gains from insurance recoveries associated with previously incurred environmental remediation costs were $33.0 million higher in 2024 compared to 2023. Further, lower restructuring costs of $21.9 million in 2024 more than offset higher employee related costs in 2024.

Liquidity and Capital Resources

Our objective is to finance our business through operating cash flow and an appropriate mix of debt and equity. By laddering the maturity structure, we avoid concentrations of debt maturities, reducing liquidity risk. We may from time to time seek to retire or purchase our outstanding debt with cash on hand and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. We may also seek to repurchase our outstanding common shares. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved have been and may continue to be material.

21 AVIENT CORPORATION

The following table summarizes our liquidity as of December 31, 2024:

[[GREPCENT_TABLE]]
[["(In millions)"],["Cash and cash equivalents","$","544.5"],["Revolving credit availability","211.4"],["Liquidity","$","755.9"]]
[[/GREPCENT_TABLE]]

As of December 31, 2024, 64% of the Company’s cash and cash equivalents resided outside the United States.

Based on current projections, we believe that we will be able to continue to manage and control working capital, discretionary spending and capital expenditures and that cash provided by operating activities, along with available borrowing capacity under our revolving credit facilities, will allow us to maintain adequate levels of available capital to fund our operations, meet debt service obligations, continue paying dividends, and opportunistically repurchase outstanding common shares for at least twelve months and the foreseeable future thereafter.

Expected sources of cash needed to satisfy cash requirements in 2025 include our cash on hand, cash from operations, the receipt of $34.0 million of insurance recoveries, as described in Note 11, Commitments and Contingencies, and available liquidity under our revolving credit facility, if necessary. Expected uses of cash in 2025 include interest payments, cash taxes, dividend payments, share repurchases, environmental remediation payments and capital expenditures. Capital expenditures are currently estimated to be approximately $120 million in 2025, primarily to support organic sales growth and other strategic investments.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities:

[[GREPCENT_TABLE]]
[["(In millions)","","2024","","2023","","2022"],["Cash provided by (used by):"],["Operating Activities","","$","256.8","","","$","201.6","","","$","398.4"],["Investing Activities","","(120.6)","","","(94.2)","","","(504.0)"],["Financing Activities","","(120.9)","","","(201.7)","","","166.4"],["Effect of exchange rate on cash","","(16.6)","","","(1.0)","","","(20.9)"],["Net (decrease) increase in cash and cash equivalents","","$","(1.3)","","","$","(95.3)","","","$","39.9"]]
[[/GREPCENT_TABLE]]

Operating Activities

Net cash provided by operating activities increased to $256.8 million in 2024, as compared to $201.6 million in 2023, driven primarily by higher earnings and lower tax payments as 2023 included tax payments of $104.1 million associated with the gain on sale of our Distribution business. This was partially offset by an increase in working capital of $28.6 million as compared to a decrease of $40.7 million in 2023, a $15.4 million increase in environmental remediation payments, and $21.1 million of higher benefit payments associated with executive retirements.

Investing Activities

Net cash used by investing activities during 2024 of $120.6 million primarily reflects the impact of capital expenditures.

Financing Activities

Net cash used by financing activities of $120.9 million in 2024 primarily reflects repayment on long-term borrowings of $660.9 million, $94.0 million of dividends paid and $9.6 million of debt financing costs, partially offset by $650.0 million of proceeds received from long-term borrowings.

22 AVIENT CORPORATION

Total Debt

The following table summarizes debt as of December 31, 2024 and 2023.

[[GREPCENT_TABLE]]
[["(In millions)","2024","","2023"],["Senior secured revolving credit facility due 2026","$","\u2014","","","$","\u2014"],["Senior secured term loan due 2029","705.2","","","709.0"],["7.125% senior notes due 2030","717.5","","","716.2"],["6.250% senior notes due 2031","640.8","","","\u2014"],["5.75% senior notes due 2025","\u2014","","","647.2"],["Other Debt","3.5","","","7.6"],["Total Debt","$","2,067.0","","","$","2,080.0"],["Less short-term debt","7.7","","","9.5"],["Total long-term debt, net of current portion","$","2,059.3","","","$","2,070.5"]]
[[/GREPCENT_TABLE]]

On April 9, 2024, the Company refinanced its senior secured term loan by amending the credit agreement governing such term loan (the Term Loan Amendment). The Term Loan Amendment reduced the interest rates per annum by 50 basis points, which are now either (i) Adjusted Term SOFR (as defined in the Term Loan Amendment) plus 2.00%, or (ii) a Base Rate (as defined in the Term Loan Amendment) plus 1.00%. The maturity date and other terms and conditions are substantially the same as the terms and conditions under the credit agreement immediately prior to the Term Loan Amendment.

On September 19, 2024, the Company completed the issuance of $650.0 million aggregate principal amount of 6.250% Senior Notes which will mature on November 1, 2031 (the 2031 Notes). The Company received proceeds of $641.9 million, net of financing costs, related to the issuance. Interest on the 2031 Notes is payable semi-annually in arrears on May 1 and November 1 of each year, commencing on May 1, 2025. The 2031 Notes were sold in a private offering and are senior unsecured obligations of the Company.

Proceeds from the 2031 Notes and cash on hand were used to fully redeem the $650.0 million aggregate principal amount outstanding of the Company's 5.750% Senior Notes due May 15, 2025. The notes were redeemed at a redemption price equal to 100.0% of the principal amount.

The Company maintains a senior secured revolving credit facility (the Revolving Credit Facility), which matures on October 26, 2026 and provides a maximum borrowing facility size of $500.0 million, subject to a borrowing base with advances against certain U.S. and international accounts receivable, inventory and other assets as specified in the agreement. As of December 31, 2024, we had no borrowings outstanding under our Revolving Credit Facility, which had remaining availability of $211.4 million.

The agreements governing our Revolving Credit Facility and our senior secured term loan, and the indentures and credit agreements governing other debt contain a number of customary financial and restrictive covenants. As of December 31, 2024, we were in compliance with all customary financial and restrictive covenants pertaining to our debt.

For additional information regarding our debt, please see Note 5, Financing Arrangements to the accompanying consolidated financial statements.

Letters of Credit

Our Revolving Credit Facility provides up to $50.0 million for the issuance of letters of credit, $12.9 million of which was used at December 31, 2024. These letters of credit are issued by the bank in favor of third parties and are mainly related to required insurance programs.

Material Cash Requirements

We have future obligations under various contracts relating to debt and interest payments, operating leases, pension and post-retirement benefit plans, purchase obligations and environmental remediation obligations. The following table summarizes our obligations as of December 31, 2024 that are expected to impact liquidity and cash flow in future periods. See Liquidity and Capital Resources for additional discussion of our ability to generate and access cash to meet requirements as well as plans for use of cash in both the short-term and long-term.

23 AVIENT CORPORATION

[[GREPCENT_TABLE]]
[["","","Payment Due by Period"],["(In millions)","","Total","","Less than 1 Year","","1-3 Years","","3-5 Years","","More Than 5 Years"],["Total debt","","$","2,099.2","","","$","7.7","","","$","15.3","","","$","699.7","","","$","1,376.5"],["Operating leases","","101.1","","","22.6","","","34.3","","","15.8","","","28.4"],["Interest on debt obligations (1)","","761.3","","","145.1","","","264.3","","","249.7","","","102.2"],["Pension and post-retirement obligations (2)","","68.4","","","7.9","","","14.3","","","14.3","","","31.9"],["Purchase obligations (3)","","134.6","","","63.7","","","61.8","","","6.9","","","2.2"],["Environmental remediation obligations","","146.0","","","16.2","","","60.6","","","48.3","","","20.9"],["Total","","$","3,164.6","","","$","247.0","","","$","390.0","","","$","986.4","","","$","1,541.2"]]
[[/GREPCENT_TABLE]]

(1)Represents estimated contractual interest payments for all outstanding debt. Excludes cash receipts from cross-currency swaps as described in Note 15, Derivatives and Hedging.

(2)This represents estimates related to the funding obligations of our pension and other post retirement plans. These contributions are based on actuarial estimates of future assumed payments based upon retirement and payment patterns for a 10-year period. The estimates in the table may differ materially from actual future payments due to uncertainties regarding the assumptions involved in estimating future required contributions to our pension and non-pension post retirement benefit plans, including (i) interest rate levels (ii) the amount and timing of asset returns and (iii) what, if any, changes may occur in pension funding legislation.

(3)Purchase obligations are primarily comprised of service agreements related to telecommunication, information technology, utilities and other manufacturing plant services and certain capital commitments.

Critical Accounting Policies and Estimates

Significant accounting policies are described more fully in Note 1, Description of Business and Summary of Significant Accounting Policies, to the accompanying consolidated financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires us to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and assumptions that we believe are reasonable considering the related facts and circumstances. The application of these critical accounting policies involves the exercise of judgment and use of assumptions for future uncertainties. Accordingly, actual results could differ significantly from these estimates. We believe that the following discussion addresses our most critical accounting policies, which are those that are the most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Revenue Recognition

Sales are recognized when control of promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods or services, which is typically when products are shipped from our facilities. The majority of the Company’s sales agreements contain performance obligations satisfied at a point in time when control is transferred to the customer. Avient records reductions to sales for customer incentives, primarily comprised of rebates, at the time of the initial sale. Rebates are estimated based on sales terms, historical experience along with annual sales projections. Rebate programs offered are typically credited to customers for achieving defined volume levels.

Environmental Liabilities

We are a party to a Consent Decree related to remedial actions at the former Goodrich Corporation Calvert City site and will incur environmental remediation costs related to this matter. We recognize an estimate of environmental liabilities on an undiscounted basis for probable future environmental expenditures. Any such provision is recognized using the Company's best estimate of the amount of loss incurred, or at the lower end of an estimated range, when a single best estimate is not determinable. In some cases, the Company recovers a portion of the costs relating to these obligations from insurers or other third parties, and the recovery is recognized when realization of the proceeds is deemed as probable.

Environmental liabilities represents our best estimate of the remaining probable costs based upon information and technology currently available. Depending upon the results of future testing, the ultimate remediation alternatives undertaken, changes in regulations, new information, newly discovered conditions and other factors, it is reasonably possible that we could incur additional costs in excess of the amount accrued. However, such additional costs, if any, cannot currently be estimated. Our estimate of this liability may be revised as new regulations or technologies are developed or additional information is obtained. As we progress through remedial design and remedial action related to the Goodrich Corporation Calvert City site, additional information will become available that may require an adjustment to our existing accrual. Adjustments have been material to our financial statements in the past and it is reasonably possible that they could be in the future.

24 AVIENT CORPORATION

Additional information related to the accounting for environmental liabilities is found in Note 11, Commitments and Contingencies.

Acquisitions of Businesses

The acquisition of a business is accounted for using the acquisition method of accounting which requires assets and liabilities to be recognized at their fair values on the acquisition date. The initial fair value of assets acquired and liabilities assumed may be revised based on the final determination of fair value during the measurement period of 12 months from the acquisition date. The Company generally determines the fair value of intangible assets acquired using third-party valuations that are prepared using discounted cash flow models that rely on the Company's estimates. These estimates can require judgement of future revenue growth rates, future margins, applicable royalty rates, customer retention and the applicable weighted-average cost of capital used to discount those estimated cash flows. Sensitivity analyses are performed around certain of these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values.

Pension and Other Post-retirement Benefit Plans

The measurement of liabilities related to pension plans and other post-retirement benefits plans is based on assumptions related to future events including interest rates, return on plan assets, and mortality assumptions. We immediately recognize actuarial gains and losses in our operating results in the year in which the gains or losses occur.

Asset returns and interest rates significantly affect the value of assets and liabilities related to our pension and post-retirement plans and therefore the funded status of our plans. It is difficult to predict these factors due to the volatility of market conditions. To develop our discount rate, we consider the yields of high-quality corporate bonds with maturities that correspond to the timing of our benefit obligations, referred to as the bond matching approach. To develop our expected long-term return on plan assets, we consider forward looking long-term asset returns and the expected investment portfolio mix of plan assets. Life expectancy is another significant assumption that impacts our pension and other post-retirement benefits obligation, which is based on mortality data and improvement scales issued by the Society of Actuaries.

Additional information related to the accounting for pension and other post-retirement benefits is found in Note 10, Employee Benefit Plans.

Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, deferred tax assets are also recorded with respect to net operating losses and other tax attribute carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when realization of the benefit of deferred tax assets is not deemed to be more likely than not. The utilization of certain deferred tax assets is dependent on the amount and timing of taxable income that we will ultimately generate in the future and other factors, such as changes in tax laws.

We recognize net tax benefits under the recognition and measurement criteria, which prescribes requirements and other guidance for financial statement recognition and measurement of positions taken or expected to be taken on tax returns. We recognize an income tax benefit from an uncertain tax position only if it is more likely than not that the benefit would be sustained upon examination by taxing authorities, based on the technical merits of the position. The Company evaluates and adjusts the amount of unrecognized income tax benefits based on changes in law, facts and circumstances. We record interest and penalties related to uncertain tax positions as a component of income tax expense. The ultimate resolution of unrecognized income tax benefits is often dependent upon uncontrollable factors such as the timing of finalizing resolutions of audit disputes through reaching settlement agreements, or changes in law.

Additional information related to the accounting for income taxes is found in Note 12, Income Taxes.

25 AVIENT CORPORATION

Goodwill

Goodwill is evaluated annually for impairment as of October 1 using either a quantitative or qualitative analysis. Goodwill is tested for impairment at the reporting unit level, and is based on the net assets for each reporting unit, including goodwill and intangible assets. The Company’s reporting units are at a level below the Company’s reportable operating segments. Goodwill is assigned to each reporting unit, as this represents the lowest level that constitutes a business and is the level at which management regularly reviews the operating results.

Additionally, goodwill is evaluated for impairment whenever an event occurs or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Events or circumstances that may result in an impairment review include changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit or sustained decrease in share price.

Quantitative analyses are performed by estimating the fair value for each reporting unit using a discounted cash flow model. These analyses include estimates of future cash flows, future growth rates, terminal value amounts, and the applicable weighted-average cost of capital used to discount estimated cash flows. The future cash flows are based on the Company's long-term strategic plan, and a terminal value is used to estimate the reporting unit's cash flows beyond the period covered by the strategic plan. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. These analyses require the exercise of judgments, including judgments about appropriate discount rates, revenue growth, operating margins, and long-term growth rates.

A qualitative analysis is performed by assessing certain trends and factors, including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates, industry data, and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions used in the most recent quantitative analysis performed for each reporting unit.

In 2023, the annual goodwill impairment test was performed using a quantitative approach. In 2024, the Company performed a qualitative approach, including assessing certain trends and factors, including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates, industry data and other relevant qualitative factors. These trends and factors were compared to the assumptions used in the 2023 quantitative analysis for each reporting unit. The results of the qualitative assessment did not indicate a need to perform a quantitative analysis.

Based on the results of our impairment analysis, the Company concluded the fair value of its reporting units continued to exceed their respective carrying value.

Indefinite-lived Trade Names

Indefinite-lived trade names are evaluated annually for impairment as of October 1 using either a quantitative or qualitative analysis to determine whether their fair values exceed their respective carrying amounts. Additionally, indefinite-lived trade names are evaluated for impairment whenever an event occurs or circumstances change that would indicate that it is more likely than not that the asset is impaired. Events or circumstances that may result in an impairment review include changes in industry and market considerations, cost factors, financial performance, and other relevant entity-specific events that could affect inputs used to determine the respective fair values of the indefinite-lived intangible assets.

Quantitative analyses are performed by estimating the fair value for each indefinite-lived trade name using a royalty relief methodology. These analyses include estimates of future cash flows that are based on the Company's long-term strategic plan and the applicable weighted-average cost of capital used to discount estimated cash flows. The primary inputs to these estimates require the exercise of judgements, including judgements about appropriate discount rates, revenue growth, royalty rates, and long-term growth rates.

A qualitative analysis is performed by assessing certain trends and factors, including projected market outlook and growth rates, forecasted and actual sales, discount rates, industry data, and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions used in the most recent quantitative analysis performed for each indefinite-lived trade name.

26 AVIENT CORPORATION

In 2023, the indefinite-lived intangible asset impairment tests were performed using a quantitative approach. In 2024, the Company performed both qualitative and quantitative approaches. The qualitative approach includes assessing certain trends and factors, including projected market outlook and growth rates, forecasted and actual sales, discount rates, other relevant qualitative factors. These trends and factors were compared to the assumptions used in the 2023 quantitative analysis. The quantitative analysis was performed by estimating the fair value of the indefinite-lived trade name using a royalty relief methodology. This analysis includes estimates of future cash flows that are based on the Company's long-term strategic plan and the applicable weighted-average cost of capital used to discount estimated cash flows.

Based on the results of our impairment analysis, the Company concluded the fair value of its trade names continued to exceed their respective carrying value.

For additional information about goodwill and intangible assets see Note 3, Goodwill and Intangible Assets.

Recent and Future Adoption of Accounting Standards

Information regarding recent and future adoption of accounting standards can be found in Note 1, Description of Business and Summary of Significant Accounting Policies, to the accompanying consolidated financial statements and is incorporated by reference herein.

27 AVIENT CORPORATION