Ingevity Corp 10-Q

ITEM 1. FINANCIAL STATEMENTS INGEVITY CORPORATION Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, In millions, except per share data 2020 2019 2020 2019 Net sales $ 331.7 $ 359.9 $ 890.5 $ 989.5 Cost of sales 192.1 220.4 552.4 618.5 Gross profit 139.6 139.5 338.1 371.0 Selling, general and administrative expenses 34.9 40.7 107.9 122.3 Research and technical expenses 5.2 4.9 16.8 15.0 Restructuring and other (income) charges, net 5.5 1.7 13.3 2.0 Acquisition-related costs — 1.3 1.7 24.9 Other (income) expense, net ( 3.0 ) 1.4 ( 0.1 ) ( 2.3 ) Interest expense, net 8.9 12.1 29.8 36.3 Income (loss) before income taxes 88.1 77.4 168.7 172.8 Provision (benefit) for income taxes 18.2 17.5 33.3 33.4 Net income (loss) $ 69.9 $ 59.9 $ 135.4 $ 139.4 Per share data Basic earnings (loss) per share $ 1.69 $ 1.42 $ 3.27 $ 3.33 Diluted earnings (loss) per share 1.69 1.41 3.26 3.30 The accompanying notes are an integral part of these financial statements. 3 INGEVITY CORPORATION Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, In millions 2020 2019 2020 2019 Net income (loss) $ 69.9 $ 59.9 $ 135.4 $ 139.4 Other comprehensive income (loss), net of tax: Foreign currency adjustments: Foreign currency translation adjustment 27.6 ( 22.9 ) ( 14.2 ) ( 29.0 ) Unrealized gain (loss) on net investment hedges, net of tax provision (benefit) of $( 1.9 ), $ 1.6 , $( 0.8 ), and $ 1.5 ( 6.2 ) 5.3 ( 2.7 ) 5.1 Total foreign currency adjustments, net of tax provision (benefit) of $( 1.9 ), $ 1.6 , $( 0.8 ), and $ 1.5 21.4 ( 17.6 ) ( 16.9 ) ( 23.9 ) Derivative instruments: Unrealized gain (loss), net of tax provision (benefit) of $ 0.2 , $( 0.2 ), $( 1.4 ), and $( 1.3 ) 0.7 ( 0.9 ) ( 4.5 ) ( 4.4 ) Reclassifications of deferred derivative instruments (gain) loss, included in net income (loss), net of tax (provision) benefit of $ 0.1 , zero , $ 0.2 , and $( 0.1 ) 0.4 — 0.7 ( 0.5 ) Total derivative instruments, net of tax provision (benefit) of $ 0.3 , $( 0.2 ), $( 1.2 ), and $( 1.4 ) 1.1 ( 0.9 ) ( 3.8 ) ( 4.9 ) Pension & other postretirement benefits: Unrealized actuarial gains (losses) and prior service (costs) credits, net of tax of zero for all periods — — — — Reclassifications of net actuarial and other (gain) loss and amortization of prior service cost, included in net income, net of tax of zero for all periods 0.1 — 0.1 — Total pension and other postretirement benefits, net of tax of zero for all periods 0.1 — 0.1 — Other comprehensive income (loss), net of tax provision (benefit) of $( 1.6 ), $ 1.4 , $( 2.0 ), and $ 0.1 22.6 ( 18.5 ) ( 20.6 ) ( 28.8 ) Comprehensive income (loss) $ 92.5 $ 41.4 $ 114.8 $ 110.6 The accompanying notes are an integral part of these financial statements. 4 INGEVITY CORPORATION Condensed Consolidated Balance Sheets In millions, except share and par value data September 30, 2020 December 31, 2019 Assets (Unaudited) Cash and cash equivalents $ 198.2 $ 56.5 Accounts receivable , net of allowance for credit losses of $ 1.8 million - 2020 and $ 0.5 million - 2019 154.3 150.0 Inventories, net 204.0 212.5 Prepaid and other current assets 44.5 44.2 Current assets 601.0 463.2 Property, plant and equipment, net 685.3 664.7 Operating lease assets, net 52.1 53.4 Goodwill 427.8 436.4 Other intangibles, net 366.5 396.2 Deferred income taxes 6.2 5.0 Restricted investment , net of allowance for credit losses of $ 1.1 million - 2020 73.0 72.6 Other assets 46.3 50.2 Total Assets $ 2,258.2 $ 2,141.7 Liabilities Accounts payable $ 84.8 $ 99.1 Accrued expenses 36.0 33.3 Accrued payroll and employee benefits 16.0 28.2 Current operating lease liabilities 16.6 17.1 Notes payable and current maturities of long-term debt 22.4 22.5 Income taxes payable 3.1 15.3 Current liabilities 178.9 215.5 Long-term debt including finance lease obligations 1,277.0 1,228.4 Noncurrent operating lease liabilities 37.5 36.7 Deferred income taxes 109.5 100.3 Other liabilities 38.3 30.0 Total Liabilities 1,641.2 1,610.9 Commitments and contingencies (Note 16) Equity Preferred stock (par value $ 0.01 per share; 50,000,000 shares authorized; zero issued and outstanding - 2020 and 2019) — — Common stock (par value $ 0.01 per share; 300,000,000 shares authorized; issued: 42,895,386 - 2020 and 42,675,171 - 2019; outstanding: 41,277,888 - 2020 and 41,826,136 - 2019) 0.4 0.4 Additional paid-in capital 116.8 112.8 Retained earnings 632.0 497.2 Accumulated other comprehensive income (loss) ( 25.6 ) ( 5.0 ) Treasury stock, common stock, at cost ( 1,617,498 shares - 2020; 849,035 shares - 2019) ( 106.6 ) ( 74.6 ) Total Equity 617.0 530.8 Total Liabilities and Equity $ 2,258.2 $ 2,141.7 The accompanying notes are an integral part of these financial statements. 5 INGEVITY CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, In millions 2020 2019 Cash provided by (used in) operating activities: Net income (loss) $ 135.4 $ 139.4 Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Depreciation and amortization 73.5 61.4 Non cash operating lease costs 13.6 15.1 Deferred income taxes 11.3 26.7 Restructuring and other (income) charges, net 1.7 — Share-based compensation 4.3 11.0 Other non-cash items 13.2 9.7 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable, net ( 5.6 ) ( 34.5 ) Inventories, net 9.0 0.4 Prepaid and other current assets 1.5 ( 2.8 ) Current liabilities ( 17.3 ) ( 22.4 ) Income taxes ( 19.2 ) ( 5.1 ) Operating leases ( 13.8 ) ( 14.9 ) Changes in other operating assets and liabilities, net ( 8.5 ) 6.2 Net cash provided by (used in) operating activities $ 199.1 $ 190.2 Cash provided by (used in) investing activities: Capital expenditures $ ( 51.0 ) $ ( 79.8 ) Payments for acquired businesses, net of cash acquired — ( 537.9 ) Finance lease expenditures ( 23.8 ) — Other investing activities, net ( 3.6 ) ( 4.7 ) Net cash provided by (used in) investing activities $ ( 78.4 ) $ ( 622.4 ) Cash provided by (used in) financing activities: Proceeds from revolving credit facility $ 346.1 $ 789.0 Proceeds from long-term borrowings — 375.0 Payments on revolving credit facility ( 307.3 ) ( 596.0 ) Payments on long-term borrowings ( 14.1 ) ( 117.8 ) Debt issuance costs — ( 1.8 ) Finance lease obligations, net 23.3 — Borrowings (repayments) of notes payable and other short-term borrowings, net ( 0.9 ) 2.2 Tax payments related to withholdings on vested equity awards ( 3.0 ) ( 14.3 ) Proceeds and withholdings from share-based compensation plans, net 3.1 3.7 Repurchases of common stock under publicly announced plan ( 32.4 ) ( 6.4 ) Net cash provided by (used in) financing activities $ 14.8 $ 433.6 Increase (decrease) in cash, cash equivalents, and restricted cash 135.5 1.4 Effect of exchange rate changes on cash 0.3 ( 2.3 ) Change in cash, cash equivalents, and restricted cash (1) 135.8 ( 0.9 ) Cash, cash equivalents, and restricted cash at beginning of period 64.6 77.5 Cash, cash equivalents, and restricted cash at end of period (1) $ 200.4 $ 76.6 (1) Includes restricted cash of $ 2.2 million and $ 1.0 million and cash and cash equivalents of $ 198.2 million and $ 75.6 million at September 30, 2020 and 2019, respectively. Restricted cash is included within "Prepaid and other current assets" within the condensed consolidated balance sheets. Supplemental cash flow information: Cash paid for interest, net of capitalized interest $ 37.7 $ 40.1 Cash paid for income taxes, net of refunds 41.4 12.6 Purchases of property, plant and equipment in accounts payable 1.9 8.3 Leased assets obtained in exchange for new finance lease liabilities 23.8 — Leased assets obtained in exchange for new operating lease liabilities 24.5 3.2 The accompanying notes are an integral part of these financial statements. 6 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Note 1: Description of Business and Basis of Presentation Description of Business Ingevity Corporation ("Ingevity," "the Company," "we," "us," or "our") is a leading global manufacturer of specialty chemicals and high performance activated carbon materials. We provide innovative solutions to meet our customers’ unique and demanding requirements through proprietary formulated products. We report in two business segments, Performance Materials and Performance Chemicals. Our Performance Materials segment consists of our automotive technologies and process purification product lines. Performance Materials manufactures products in the form of powder, granular, extruded pellets, extruded honeycombs, and activated carbon sheets. Automotive technologies products are sold into gasoline vapor emission control applications within the automotive industry, while process purification products are sold into the food, water, beverage, and chemical purification industries. Our Performance Chemicals segment consists of our pavement technologies, oilfield technologies, industrial specialties, and engineered polymers product lines. Performance Chemicals manufactures products derived from crude tall oil ("CTO") and lignin extracted from the kraft paper making process as well as caprolactone monomers and derivatives derived from cyclohexanone and hydrogen peroxide. Performance Chemicals products serve as critical inputs used in a variety of high performance applications, including pavement preservation, pavement adhesion promotion, and warm mix paving (pavement technologies product line), oil well service additives, oil production, and downstream application chemicals (oilfield technologies product line), printing inks, adhesives, agrochemicals, lubricants, and industrial intermediates (industrial specialties product line), coatings, resins, elastomers, adhesives, and bio-plastics (engineered polymers product line). Basis of Presentation These unaudited condensed consolidated financial statements reflect the consolidated operations of the Company and have been prepared in accordance with United States Securities and Exchange Commission ("SEC") interim reporting requirements. Accordingly, the accompanying condensed consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP") for full financial statements and should be read in conjunction with the Annual Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017, collectively referred to as the “Annual Consolidated Financial Statements” included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Annual Report"). In the opinion of management, the condensed consolidated financial statements contain all adjustments, which include only normal recurring adjustments, necessary to fairly state the condensed consolidated results for the interim periods presented. The consolidated results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. During the three and nine months ended September 30, 2020 and subsequent to this date, there have been significant changes to the global economic situation and to public securities markets as a consequence of the novel strain of coronavirus ("COVID-19") pandemic. It is reasonably possible that this could cause changes to estimates as a result of the financial circumstances of the markets in which we operate, the price of our publicly traded equity in comparison to the carrying value, and the health of the global economy. Such changes to estimates could potentially result in impacts that would be material to the condensed consolidated financial statements. While there was not a material impact to our condensed consolidated financial statements as of and for the three and nine ended September 30, 2020, our future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods. Certain prior year amounts have been reclassified to conform with the current year's presentation. 7 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Note 2: Coronavirus Pandemic On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. COVID-19 has led to adverse impacts on the U.S. and global economies, and created uncertainty regarding potential impacts to our supply chain, operations, and customer demand. We have been classified as an essential business in the jurisdictions that have made this determination to date, allowing us to continue operations. However, our facilities - as well as the operations of our suppliers, customers, third-party sales representatives, and distributors - have been, and will continue to be, disrupted by governmental and private sector responses to COVID-19. This includes business shutdowns, work-from-home orders and social distancing protocols, travel or health-related restrictions, as well as quarantines, self-isolations, and disruptions to transportation channels. On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. We estimate the payment of approximately $ 5.3 million of employer payroll taxes otherwise due in 2020 will be delayed with 50 percent due by December 31, 2021 and the remaining 50 percent by December 31, 2022. The CARES Act is not expected to have a material impact on our condensed consolidated financial statements. In order to strengthen our short-term liquidity and to ensure financial flexibility, in March 2020, we drew down $ 250 million from our revolving credit facility as a precautionary measure and also suspended our share repurchase program. During the three and nine months ended September 30, 2020, we paid back $ 50 million and $ 205 million, respectively, of this drawn down amount. We also implemented work-from-home policies and protocols for the majority of our global salaried workforce, as well as social distancing practices to ensure the safety of our employees at our manufacturing facilities. During the second quarter, we decreased production at some of our U.S. and China based manufacturing plants due to COVID-19 customer demand impacts and implemented a cost reduction initiative further described in Note 14. During the third quarter, we resumed normal production at all manufacturing plants as customer demand improved. While the disruptions caused by the pandemic are currently expected to be temporary, there is uncertainty regarding the virus's duration and severity. COVID-19 has impacted, and will continue to impact, our results of operations, financial position, and liquidity. Note 3: New Accounting Guidance The Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" or "Codification") is the sole source of authoritative GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standards Update ("ASU") to communicate changes to the Codification. We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements. Recently Adopted Accounting Pronouncements In August 2018, the FASB issued ASU 2018-15 "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract." This ASU requires companies to defer specific implementation costs incurred in a Cloud Computing Arrangement ("CCA") that are often expensed as incurred under current GAAP, and recognize the expense over the noncancellable term of the CCA. We adopted this standard on a prospective basis on January 1, 2020. As a result of the adoption, we anticipate capitalizing certain implementation costs that were previously expensed as incurred, which will be recorded to either prepaid and other current assets or other assets on the condensed consolidated balance sheets, depending on the duration of the agreement. The impact of the adoption did not have a material impact on our condensed consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit losses: Measurement of Credit Losses on Financial Instruments." In 2019 and 2020, the FASB issued several ASUs to amend and clarify the credit loss guidance in the original ASU 2016-13 (ASU 2016-13 and its amendments are herein referred to as “ASC 326” or "CECL"). ASC 326 amends FASB's guidance on the impairment of financial instruments, specifically adding an impairment model to GAAP that is based on expected losses, rather than incurred losses, which is intended to result in more timely recognition of such losses. We adopted this standard on January 1, 2020. We have updated our internal controls and operational processes and procedures, to include certain forward-looking considerations in our current process of developing and recognizing credit losses for our 8 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) accounts receivable and restricted investment accounted for at amortized cost. Generally, the adoption of ASC 326 did not have a material impact on our condensed consolidated balance sheet, results of operations or cash flows. ASC 326 had an immaterial impact to our allowance for credit losses reported in accounts receivable on our condensed consolidated balance sheet upon adoption. Additionally, upon adoption of ASC 326, we estimated an allowance for credit losses for our restricted investment on our condensed consolidated balance sheet. Our restricted investment, which is accounted for as a held-to-maturity investment, consists of highly rated corporate long-term bonds that mature in 2025 and 2026. To calculate our expected credit loss allowance, we utilized a probability-of-default method (“PDM”) for each bond based on each securities term. This process uses historical credit loss experience on similar product types, adjusted for reasonable and supportable forecasts of future default rates. Using a PDM, we calculated an expected credit loss allowance at January 1, 2020 of $ 0.6 million, which was recorded as an adjustment to the opening balance of retained earnings. The following table displays changes in our allowance for credit losses as of September 30, 2020, including the transition impact of adopting the CECL standard. (in millions) Balance at December 31, 2019 (1) Impact from Adoption of ASC 326 Balance at January 1, 2020 Current Period Provision Balance at September 30, 2020 (2) Allowance for credit losses $ 0.5 0.6 1.1 1.8 $ 2.9 ______________ (1) The allowance for credit losses at December 31, 2019 of $ 0.5 million was included in "Accounts receivable, net" on the condensed consolidated balance sheets. (2) The allowance for credit losses at September 30, 2020 of $ 1.8 million and $ 1.1 million was included "Accounts receivable, net" and "Restricted investment" on the condensed consolidated balance sheets, respectively. Our expected credit losses can vary from period to period based on several factors, such as changes in bond ratings, actual observed bond defaults, and overall economic environment. The primary factor that contributed to our provision for expected credit losses in the nine months ended September 30, 2020 was a pessimistic outlook of the macroeconomic environment due to the COVID-19 pandemic, and related effects on the financial performance of U.S.-based corporations. The increase in the allowance for credit losses of $ 1.8 million in the nine months ended September 30, 2020 is attributed to $ 0.5 million for Level 1 securities and $ 1.3 million for accounts receivable expected credit losses. Recently Issued Accounting Pronouncements In August 2018, the FASB issued ASU 2018-14 "Compensation — Retirement Benefits — Defined Benefit Plans — General (Topic 715-20): Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans." This ASU amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The new standard is effective for fiscal years beginning after December 15, 2020. Although we are still evaluating the impact of this new standard, we do not believe that the adoption will materially impact our condensed consolidated financial statements and related disclosures. In December 2019, the FASB issued ASU 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This ASU amends ASC 740 to add, remove, and clarify disclosure requirements related to income taxes. The new standard is effective for fiscal years beginning after December 15, 2020. Although we are still evaluating the impact of this new standard, we do not believe that the adoption of this new standard will materially impact our condensed consolidated financial statements and related disclosures. In March 2020, the FASB issued ASU 2020-04 "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The ASU is intended to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance became effective beginning on March 12, 2020, and we may elect to apply the amendments prospectively until December 31, 2022. As of September 30, 2020, we have not yet elected any optional expedients provided in the standard. We will apply the accounting relief, if necessary, as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period. We do not expect this new standard to have a material impact on our consolidated financial statements. 9 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Note 4: Acquisitions Perstorp Holding AB's Caprolactone Business On February 13, 2019, we completed the acquisition of 100 % of the equity of Perstorp UK Ltd with Perstorp Holding AB ("Seller"), including the Seller's entire caprolactone business ("Caprolactone Business"), herein referred to as the "Caprolactone Acquisition." The Caprolactone Acquisition was completed for an aggregate purchase price of € 578.9 million ($ 652.5 million), less assumed debt of € 100.4 million ($ 113.1 million). At closing, the assumed debt was settled with an affiliate of the Seller. The Caprolactone Acquisition has been integrated into our Performance Chemicals segment and represented as our engineered polymers product line. As a result, we are not able to separate operating performance of the Caprolactone Acquisition from our existing Performance Chemicals' operating results. The Caprolactone Acquisition contributed Net sales of $ 93.2 million and $ 90.9 million for the nine months ended September 30, 2020 and 2019, respectively, to our consolidated operating results. Purchase Price Allocation The following table summarizes the consideration paid for the Caprolactone Business, the assets acquired, and liabilities assumed, which was finalized in Q4 2019: 10 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Purchase Price Allocation In millions Weighted Average Amortization Period Fair Value Cash and cash equivalents $ 0.7 Accounts receivable 15.7 Inventories (1) 21.7 Prepaid and other current assets 1.9 Property, plant and equipment 86.3 Operating lease assets, net 1.8 Intangible assets (2) Customer relationships 17 years 159.0 Developed technology 12 years 64.8 Brands 17 years 67.0 Non-compete agreement 3 years 0.5 Goodwill 295.1 Other assets 1.3 Total fair value of assets acquired $ 715.8 Accounts payable 13.6 Accrued expenses 2.3 Long-term debt 113.1 Operating lease liabilities 1.7 Deferred income taxes 45.7 Total fair value of liabilities assumed $ 176.4 Less: Cash and restricted cash acquired (3) ( 1.5 ) Payments for acquired businesses, net of cash acquired $ 537.9 ______________ (1) Fair value of finished goods inventories acquired included a step-up in the value of approximately $ 8.4 million, all of which was expensed in the three months ended March 31, 2019. The expense is included in "Cost of sales" on the condensed consolidated statement of operations. Inventories are accounted for on a first-in, first-out basis of accounting. (2) The aggregate amortization expense was $ 4.8 million and $ 3.7 million for the three months ended September 30, 2020 and 2019, respectively, and the aggregate amortization expense was $ 14.3 million and $ 9.5 million for the nine months ended September 30, 2020 and 2019, respectively. Estimated amortization expense is as follows: 2020 - $ 19.1 million, 2021 - $ 19.1 million, 2022 - $ 19.0 million, 2023 - $ 18.9 million, and 2024 - $ 18.9 million. The estimated pre-tax amortization expense may fluctuate due to changes in foreign currency. (3) Cash and cash equivalents and restricted cash were $ 0.7 million and $ 0.8 million, respectively, at closing. Restricted cash is included in "Prepaid and other current assets" in the above purchase price allocation. Unaudited Pro Forma Financial Information The following unaudited pro forma results of operations assume that the Caprolactone Acquisition occurred at the beginning of the periods presented. These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been if the acquisition occurred at the beginning of the periods presented, nor are they indicative of future results of operations. The pro forma results include additional interest expense on the debt issued to finance the acquisition, amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and tangible assets, and related tax effects. The pro forma results presented below are adjusted for the removal of Acquisition and other-related costs for the nine months ended September 30, 2019 of $ 33.3 million. 11 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) In millions, except per share data Nine Months Ended September 30, 2019 Net sales $ 1,007.2 Income (loss) before income taxes 205.7 Diluted earnings (loss) per share $ 3.92 Acquisition and other-related costs Costs incurred to complete and integrate the Caprolactone Acquisition into our Performance Chemicals segment are expensed as incurred on our condensed consolidated statement of operations. The following table summarizes such costs. Three Months Ended September 30, Nine Months Ended September 30, In millions 2020 2019 2020 2019 Legal and professional service fees $ — $ 1.3 $ 1.7 $ 12.2 Loss on hedging purchase price — — — 12.7 Acquisition-related costs $ — $ 1.3 $ 1.7 $ 24.9 Inventory fair value step-up amortization (1) — — — 8.4 Acquisition and other-related costs $ — $ 1.3 $ 1.7 $ 33.3 ______________ (1) Included within "Cost of sales" on the condensed consolidated statement of operations. Note 5: Revenues Ingevity's operating segments are (i) Performance Materials and (ii) Performance Chemicals. A description of both operating segments is included in Note 1. Disaggregation of Revenue The following table presents our Net sales disaggregated by product line. Three Months Ended September 30, Nine Months Ended September 30, In millions 2020 2019 2020 2019 Automotive Technologies product line $ 136.9 $ 120.5 $ 324.5 $ 334.1 Process Purification product line 6.9 9.7 24.8 28.3 Performance Materials segment $ 143.8 $ 130.2 $ 349.3 $ 362.4 Oilfield Technologies product line 14.0 27.6 58.4 86.5 Pavement Technologies product line 72.5 69.8 157.1 152.9 Industrial Specialties product line 76.1 99.9 232.5 296.8 Engineered Polymers product line (1) 25.3 32.4 93.2 90.9 Performance Chemicals segment $ 187.9 $ 229.7 $ 541.2 $ 627.1 Net sales $ 331.7 $ 359.9 $ 890.5 $ 989.5 ______________ (1) Engineered Polymers product line was acquired on February 13, 2019; see Note 4 for more information. The following table presents our Net sales disaggregated by geography, based on the delivery address of our customer. 12 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, In millions 2020 2019 2020 2019 North America $ 191.9 $ 224.9 $ 510.3 $ 623.8 Asia Pacific 89.9 76.8 240.4 193.7 Europe, Middle East and Africa 45.5 51.6 126.0 155.4 South America 4.4 6.6 13.8 16.6 Net sales $ 331.7 $ 359.9 $ 890.5 $ 989.5 Contract Balances The following table provides information about contract assets and contract liabilities from contracts with customers. The contract assets primarily relate to our rights to consideration for products produced but not billed at the reporting date. The contract assets are recognized as accounts receivables when the rights become unconditional and the customer has been billed. Contract liabilities represent obligations to transfer goods to a customer for which we have received consideration from our customer. For all periods presented we had no contract liabilities. Contract Asset (1) September 30, In millions 2020 2019 Beginning balance $ 6.2 $ 5.1 Contract asset additions 13.5 11.8 Reclassification to accounts receivable, billed to customers ( 12.9 ) ( 10.0 ) Ending balance $ 6.8 $ 6.9 ______________ (1) Included within "Prepaid and other current assets" on the condensed consolidated balance sheets. Note 6: Fair Value Measurements Fair Value Measurements We have categorized our assets and liabilities that are recorded at fair value, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets and liabilities fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The carrying value of our financial instruments: cash and cash equivalents, other receivables, other payables and accrued liabilities, approximate their fair values due to the short-term nature of these financial instruments. See Note 10 for more information regarding our fair value measurements of our financial instruments and risk management activities. Recurring Fair Value Measurements The following information is presented for assets and liabilities that are recorded in the condensed consolidated balance sheets at fair value measured at each reporting date (i.e. on a recurring basis). There were no transfers of assets and liabilities that were recorded at fair value between Level 1 and Level 2 during the periods reported. 13 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) In millions Level 1 (1) Level 2 (2) Level 3 (3) Total September 30, 2020 Assets: Equity securities (4) $ 0.1 $ — $ — $ 0.1 Deferred compensation plan investments (5) 2.3 — — 2.3 Total assets $ 2.4 $ — $ — $ 2.4 Liabilities: Deferred compensation arrangement (5) $ 10.4 $ — $ — $ 10.4 Contingent consideration (7) — — 1.1 1.1 Total liabilities $ 10.4 $ — $ 1.1 $ 11.5 December 31, 2019 Assets: Equity securities (4) $ 0.4 $ — $ — $ 0.4 Deferred compensation plan investments (5) 1.4 — — 1.4 Total assets $ 1.8 $ — $ — $ 1.8 Liabilities: Deferred compensation arrangement (5) $ 10.0 $ — $ — $ 10.0 Separation-related reimbursement awards (6) 0.1 — — 0.1 Total liabilities $ 10.1 $ — $ — $ 10.1 ______________ (1) Quoted prices in active markets for identical assets. (2) Quoted prices for similar assets and liabilities in active markets. (3) Significant unobservable inputs. (4) Included within "Prepaid and other current assets" on the condensed consolidated balance sheets. (5) Consists of a deferred compensation arrangement, through which we hold various investment securities. Both the asset and liability are recorded at fair value, and are included within "Other assets" and "Other liabilities" on the condensed consolidated balance sheets, respectively. In addition to the investment securities, we also have company-owned life insurance ("COLI") deferred compensation arrangement. COLI is recorded at cash surrender value and included in "Other assets" on the condensed consolidated balance sheets in the amount of $ 9.0 million and $ 8.4 million at September 30, 2020 and December 31, 2019, respectively. (6) Included within "Accrued expenses" on the condensed consolidated balance sheets. (7) Included within "Other liabilities" on the condensed consolidated balance sheets. Nonrecurring Fair Value Measurements The following table presents our fair value hierarchy for those assets measured at fair value on a non-recurring basis in the condensed consolidated balance sheets during the nine months ended September 30, 2020. There were no nonrecurring fair value measurements in the condensed consolidated balance sheets during the year ended December 31, 2019. 14 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) In millions September 30, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Gains (Losses) (Period Ended September 30, 2020) Assets: Impairment of operating lease assets, net (1) $ — $ — $ — $ — $ ( 1.7 ) Total assets $ — $ — $ — $ — $ ( 1.7 ) ______________ (1) During the period ended September 30, 2020 we exited certain leased assets previously used in our daily operations. These leased assets have remaining lease obligations through 2023. This impairment charge was recorded adjust their fair value on our condensed consolidated balance sheet to zero. Equity Securities The aggregate carrying value of investments in equity securities where fair value is not readily determinable totaled zero and $ 1.5 million as of September 30, 2020 and December 31, 2019, respectively, and is included in "Other assets" on the condensed consolidated balance sheets. During the three and nine months ended September 30, 2020, we recorded an impairment charge of zero and $ 1.5 million, respectively, to an equity security where fair value is not readily determinable held within our Performance Materials segment. The impairment charge represented the difference between liquidation value of the investment and our book value at the time our investment was liquidated. Restricted Investment Our restricted investment is a trust managed in order to secure repayment of the finance lease obligation, associated with Performance Materials' Wickliffe, Kentucky manufacturing site, at maturity. The trust, presented as restricted investment on our condensed consolidated balance sheets, purchased long-term bonds that mature in 2025 and 2026. The principal received at maturity of the bonds along with interest income that is reinvested in the trust are expected to be equal to or more than the $ 80.0 million finance lease obligation that is due in 2027. Because the provisions of the trust provide us the ability, and it is our intent, to hold the investments to maturity, the investments held by the trust are accounted for as held to maturity ("HTM"); therefore, they are held at their amortized cost. The investments held by the trust earn interest at the stated coupon rate of the invested bonds. Interest earned on the investments held by the trust is recognized as interest income and presented within interest income on our condensed consolidated statement of operations. At September 30, 2020, the book value of our restricted investment, which is accounted for as HTM and therefore held at amortized costs, was $ 73.0 million, net of an allowance for credit losses of $ 1.1 million and included cash of $ 1.9 million. The fair value at September 30, 2020 was $ 79.9 million, based on Level 1 inputs. The following table shows the total amortized cost of our HTM debt securities by credit rating, excluding the allowance for credit losses and cash. The primary factor in our expected credit loss calculation is the composite bond rating. As the rating decreases, the risk present in holding the bond is inherently increased, leading to an increase in expected credit losses. September 30, 2020 In millions AA+ AA A A- BBB+ Total HTM debt securities $ 13.5 10.7 24.2 13.4 10.4 $ 72.2 Debt Obligations At September 30, 2020, the book value of finance lease obligations was $ 103.3 million and the fair value was $ 128.4 million. The fair value of our finance lease obligations is based quoted market prices for the obligations, using Level 2 inputs. 15 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) The carrying amount, excluding debt issuance fees, of our variable interest rate long-term debt was $ 901.8 million as of September 30, 2020. The carrying value is a reasonable estimate of the fair value of the outstanding debt based on the variable interest rate of the debt. At September 30, 2020, the book value of our fixed rate debt was $ 300.0 million, and the fair value was $ 304.1 million, based on Level 2 inputs. Contingent Consideration In connection with the acquisition of certain assets in May 2020, we are contingently obligated to make an additional payment for such assets of up to an aggregate amount of $ 7.0 million. The contingent consideration is payable if certain sales volume targets are achieved prior to the expiration on December 31, 2024, therein referred to as "Revenue Earn-out." The fair value of the five-year Revenue Earn-out consideration was $ 1.1 million at September 30, 2020. Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a selling, general and administrative expense. The following table summarizes the activity for financial liabilities utilizing Level 3 fair value measurements: Contingent Consideration In millions September 30, 2020 Beginning balance $ — Newly issued 1.1 Change in revaluation of contingent consideration included in earnings — Exercises/settlements — Ending balance (1) $ 1.1 ______________ (1) Included within "Other liabilities" on the condensed consolidated balance sheets. Note 7: Inventories, net In millions September 30, 2020 December 31, 2019 Raw materials $ 46.5 $ 42.6 Production materials, stores and supplies 24.5 22.3 Finished and in-process goods 146.5 158.0 Subtotal 217.5 222.9 Less: adjustment of inventories to LIFO basis ( 13.5 ) ( 10.4 ) Inventories, net $ 204.0 $ 212.5 16 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Note 8: Property, Plant and Equipment, net In millions September 30, 2020 December 31, 2019 Machinery and equipment $ 1,008.8 $ 964.3 Buildings and leasehold improvements 159.8 116.9 Land and land improvements 19.5 19.0 Construction in progress 83.8 119.1 Total cost 1,271.9 1,219.3 Less: accumulated depreciation ( 586.6 ) ( 554.6 ) Property, plant and equipment, net (1) $ 685.3 $ 664.7 Note 9: Goodwill and Other Intangible Assets, net Goodwill Reporting Units In millions Performance Chemicals Performance Materials Total December 31, 2019 $ 432.1 $ 4.3 $ 436.4 Foreign currency translation ( 8.6 ) — ( 8.6 ) September 30, 2020 $ 423.5 $ 4.3 $ 427.8 There were no events or circumstances indicating that goodwill might be impaired as of September 30, 2020. Other Intangible Assets September 30, 2020 December 31, 2019 In millions Gross Accumulated amortization Net Gross Accumulated amortization Net Intangible assets subject to amortization Customer contracts and relationships $ 310.2 $ 67.3 $ 242.9 $ 314.5 $ 51.6 $ 262.9 Brands (1) 78.5 14.4 64.1 80.3 11.1 69.2 Developed technology 69.2 10.2 59.0 68.6 5.7 62.9 Other 2.7 2.2 0.5 2.7 1.5 1.2 Total Other intangibles, net $ 460.6 $ 94.1 $ 366.5 $ 466.1 $ 69.9 $ 396.2 _______________ (1) Represents trademarks, trade names and know-how. 17 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) At September 30, 2020 and December 31, 2019 , the intangible assets subject to amortization were allocated among our business segments as follows: In millions September 30, 2020 December 31, 2019 Performance Chemicals $ 364.3 $ 396.2 Performance Materials 2.2 — Total Other intangibles, net $ 366.5 $ 396.2 The amortization expense related to our intangible assets in the table above is shown in the table below. Three Months Ended September 30, Nine Months Ended September 30, In millions 2020 2019 2020 2019 Cost of sales $ — $ 0.2 $ 0.1 $ 0.5 Selling, general and administrative expenses 8.2 7.1 24.3 19.7 Total amortization expense (1) $ 8.2 $ 7.3 $ 24.4 $ 20.2 _______________ (1) See Note 4 for more information about the Caprolactone Acquisition, and the related increase in amortization expense. Based on the current carrying values of intangible assets, estimated pre-tax amortization expense for the next five years is as follows: 2020 - $ 32.5 million, 2021 - $ 31.6 million, 2022 - $ 31.4 million, 2023 - $ 31.3 million, and 2024 - $ 31.0 million. The estimated pre-tax amortization expense may fluctuate due to changes in foreign currency. Note 10: Financial Instruments and Risk Management Net Investment Hedges We have fixed-to-fixed cross-currency interest rate swaps with an aggregate notional amount of $ 166.2 million and a maturity date of July 2023. We designated the swaps to hedge a portion of our net investment in a euro functional currency denominated subsidiary against foreign currency fluctuations. These contracts involve the exchange of fixed U.S. dollars with fixed euro interest payments periodically over the life of the contract and an exchange of the notional amount at maturity. This effectively converts a portion of our U.S. dollar denominated fixed-rate debt from a weighted average rate of 3.79 percent to a euro denominated weighted average fixed-rate debt at a rate of 1.35 percent. Any difference between the fixed interest rate between the U.S. dollar denominated debt to euro denominated debt is recorded as interest income on the condensed consolidated statements of operations. The fair value of the fixed-to-fixed cross currency interest rate swap was a net asset (liability) of $( 0.4 ) million and $ 3.0 million at September 30, 2020 and December 31, 2019, respectively. During the three and nine months ended September 30, 2020, we recognized net interest income associated with this financial instrument of $ 0.2 million and $ 1.5 million, respectively, and during both the three and nine months ended September 30, 2019, we recognized net interest income associated with this financial instrument of $ 0.9 million and $ 1.5 million, respectively. 18 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Cash Flow Hedges Foreign Currency Exchange Risk Management We manufacture and sell our products in several countries throughout the world and, thus, we are exposed to changes in foreign currency exchange rates. To manage the volatility relating to these exposures, we net the exposures on a consolidated basis to take advantage of natural offsets. To manage the remaining exposure, from time to time, we utilize forward currency exchange contracts and zero cost collar option contracts to minimize the volatility to earnings and cash flows resulting from the effect of fluctuating foreign currency exchange rates on export sales denominated in foreign currencies (principally the euro). These contracts are generally designated as cash flow hedges. Designated cash flow hedges entered to minimize foreign currency exchange risk of forecasted revenue transactions are recorded to "Net sales" on the consolidated statement of operations when the forecasted transaction occurs. As of September 30, 2020, there were $ 4.0 million open foreign currency derivative contracts. The fair value of the designated foreign currency hedge contracts was an asset (liability) of $( 0.1 ) million and zero at September 30, 2020 and December 31, 2019, respectively. Commodity Price Risk Management Certain energy sources used in our manufacturing operations are subject to price volatility caused by weather, supply and demand conditions, economic variables, and other unpredictable factors. This volatility is primarily related to the market pricing of natural gas. To mitigate expected fluctuations in market prices and the volatility to earnings and cash flow resulting from changes to pricing of natural gas purchases, from time to time, we will enter into swap contracts and zero cost collar option contracts and designate these contracts as cash flow hedges. As of September 30, 2020, we had 1.2 million and 1.1 million mmBTUS (millions of British Thermal Units) in aggregate notional volume of outstanding natural gas commodity swap contracts and zero cost collar option contracts, respectively. Designated commodity cash flow hedge gains or losses recorded in Accumulated other comprehensive income ("AOCI") are recognized in "Cost of sales" on the condensed consolidated statements of operations when the inventory is sold. As of September 30, 2020, open commodity contracts hedge forecasted transactions until November 2021. The fair value of the outstanding designated natural gas commodity hedge contracts as of September 30, 2020 and December 31, 2019 was an asset (liability) of $ 0.3 million and $( 0.5 ) million, respectively. Interest Rate Risk Management Our policy is to manage interest expense using a mix of fixed and variable rate debt. To manage interest rate risk effectively, from time to time, we may enter into cash flow interest rate derivative instruments, which can consist of forward starting swaps and treasury locks. In all cases, the notional amount of the interest rate swap agreements is equal to or less than the designated debt being hedged. Designated interest rate cash flow hedge gains or losses recorded in AOCI are recognized in "Interest expense, net" on the condensed consolidated statements of operations on a straight-line basis over the remaining maturity of the underlying debt. These instruments are designated as cash flow hedges. As of September 30, 2020, we have entered into interest rate swaps with a notional amount of $ 166.2 million to manage the variability of cash flows in the interest rate payments associated with our existing LIBOR-based interest payments, effectively converting $ 166.2 million of our floating rate debt to a fixed rate. In accordance with the terms of this instrument, we receive floating rate interest payments based upon three-month U.S. dollar LIBOR and in return are obligated to pay interest at a weighted average fixed rate of 3.79 percent until July 2023. The fair value of the interest rate swap was an asset (liability) of $( 9.6 ) million and $( 3.9 ) million at September 30, 2020 and December 31, 2019, respectively. 19 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Effect of Cash Flow and Net Investment Hedge Accounting on AOCI In millions Amount of Gain (Loss) Recognized in AOCI Amount of Gain (Loss) Reclassified from AOCI into Net income Location of Gain (Loss) Reclassified from AOCI in Net income Three Months Ended September 30, 2020 2019 2020 2019 Cash flow hedging derivatives Currency exchange contracts $ ( 0.3 ) $ — $ ( 0.2 ) $ — Net sales Natural gas contracts 0.4 ( 0.2 ) ( 0.3 ) — Cost of sales Interest rate swap contracts 0.8 ( 0.9 ) — — Interest expense, net Total $ 0.9 $ ( 1.1 ) $ ( 0.5 ) $ — Amount of Gain (Loss) Recognized in AOCI Amount of Gain (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Location of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Three Months Ended September 30, 2020 2019 2020 2019 Net investment hedging derivative Currency exchange contracts (1) $ ( 8.1 ) $ 6.9 $ 0.2 $ 0.9 Interest expense, net Total $ ( 8.1 ) $ 6.9 $ 0.2 $ 0.9 In millions Amount of Gain (Loss) Recognized in AOCI Amount of Gain (Loss) Reclassified from AOCI into Net income Location of Gain (Loss) Reclassified from AOCI in Net income Nine Months Ended September 30, 2020 2019 2020 2019 Cash flow hedging derivatives Currency exchange contracts $ ( 0.1 ) $ — $ — $ — Net sales Natural gas contracts ( 0.1 ) ( 0.7 ) ( 0.9 ) 0.6 Cost of sales Interest rate swap contracts ( 5.7 ) ( 5.0 ) — — Interest expense, net Total $ ( 5.9 ) $ ( 5.7 ) $ ( 0.9 ) $ 0.6 Amount of Gain (Loss) Recognized in AOCI Amount of Gain (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Location of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Nine Months Ended September 30, 2020 2019 2020 2019 Net investment hedging derivative Currency exchange contracts (1) $ ( 3.5 ) $ 6.6 $ 1.5 $ 1.5 Interest expense, net Total $ ( 3.5 ) $ 6.6 $ 1.5 $ 1.5 __________ (1) Reclassifications from AOCI to Net Income were zero for all periods presented. Gains and losses would be reclassified from AOCI to Other (income) expense, net. Within the next twelve months, we expect to reclassify $ 0.1 million of net losses from AOCI to income, before taxes. 20 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Fair Value Measurements The following information is presented for derivative assets and liabilities that are recorded in the condensed consolidated balance sheets at fair value measured on a recurring basis. See Note 6 financial instruments for more information on our fair value measurements. There were no transfers of assets and liabilities that are recorded at fair value between Level 1 and Level 2 during the periods reported. There were no nonrecurring fair value measurements in the condensed consolidated balance sheets as of September 30, 2020 or December 31, 2019 relating to our derivatives. In millions Level 1 (1) Level 2 (2) Level 3 (3) Total September 30, 2020 Assets: Natural gas contracts (4) — 0.3 — 0.3 Net investment hedge (5) — 1.0 — 1.0 Total assets $ — $ 1.3 $ — $ 1.3 Liabilities: Currency exchange contracts (6) — 0.1 — 0.1 Net investment hedge (7) — 1.4 — 1.4 Interest rate swap contracts (7) — 9.6 — 9.6 Total liabilities $ — $ 11.1 $ — $ 11.1 In millions Level 1 (1) Level 2 (2) Level 3 (3) Total December 31, 2019 Assets: Net investment hedge (5) $ — $ 3.0 $ — $ 3.0 Total assets $ — $ 3.0 $ — $ 3.0 Liabilities: Natural gas contracts (6) $ — $ 0.5 $ — $ 0.5 Interest rate swap contracts (7) — 3.9 — 3.9 Total liabilities $ — $ 4.4 $ — $ 4.4 __________ (1) Quoted prices in active markets for identical assets. (2) Quoted prices for similar assets and liabilities in active markets. (3) Significant unobservable inputs. (4) Included within "Prepaid and other current assets" on the condensed consolidated balance sheet. (5) Included within "Other assets" on the condensed consolidated balance sheet. (6) Included within "Accrued expenses" on the condensed consolidated balance sheet. (7) Included within "Other liabilities" on the condensed consolidated balance sheet. 21 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Note 11: Debt including Finance Lease Obligations Current and long-term debt including finance lease obligations consisted of the following: September 30, 2020 In millions, except percentages Interest rate Maturity date September 30, 2020 December 31, 2019 Revolving Credit Facility (1) 1.65 % 2023 $ 170.0 $ 131.3 Term Loans 1.44 % 2022-2023 726.6 740.6 Senior Notes 4.50 % 2026 300.0 300.0 Finance lease obligations (2) 7.16 % 2027-2035 103.3 80.0 Other 4.77 % 2020-2021 5.2 5.9 Total debt including finance lease obligations 1,305.1 1,257.8 Less: debt issuance costs 5.7 6.9 Total debt, including finance lease obligations, net of debt issuance costs 1,299.4 1,250.9 Less: debt maturing within one year (3) 22.4 22.5 Long-term debt including finance lease obligations $ 1,277.0 $ 1,228.4 ______________ (1) Letters of credit outstanding under the revolving credit facility were $ 2.4 million and undrawn capacity under the facility was $ 577.6 million at September 30, 2020. (2) Includes finance lease obligations of $ 80.0 million related assets at our Wickliffe, Kentucky facility and $ 23.3 million related to our corporate headquarters. (2) Debt maturing within one year is included in "Notes payable and current maturities of long-term debt" on the condensed consolidated balance sheets. 2020 Senior Notes Issuance and Revolving Credit Facility Amendment On October 28, 2020 we issued $ 550.0 million aggregate principal amount of 3.875 percent senior unsecured notes due 2028. Also on October 28, 2020, we entered into an Incremental Facility Agreement and Amendment no. 5 to modify our existing credit agreement. See Note 19 for more information on both of these actions. Debt Covenants Our 4.50 percent senior unsecured notes due in 2026 (the "Senior Notes") contain certain customary covenants (including covenants limiting Ingevity's and its restricted subsidiaries’ ability to grant or permit liens on certain property securing debt, declare or pay dividends, make distributions on or repurchase or redeem capital stock, make investments in unrestricted subsidiaries, engage in sale and lease-back transactions, and engage in a consolidation or merger, or sell, transfer or otherwise dispose of all or substantially all of the assets of our and our restricted subsidiaries, taken as a whole, subject, in each of the above cases, to certain qualifications and exceptions) and events of default (subject in certain cases to customary exceptions, as well as grace and cure periods). The occurrence of an event of default under the Senior Notes could result in the acceleration of the Senior Notes and could cause a cross-default that could result in the acceleration of other indebtedness of Ingevity and its subsidiaries. The revolving credit facility and term loans contain customary default provisions, including defaults for non-payment, breach of representations and warranties, insolvency, non-compliance with covenants and cross-defaults to other material indebtedness. The occurrence of an uncured event of default under the revolving credit facility and term loans could result in all loans and other obligations becoming immediately due and payable and the facilities being terminated. The revolving credit facility and term loans' financial covenants require Ingevity to maintain on a consolidated basis a maximum total leverage ratio of 4.0 to 1.0 (which may be increased to 4.5 to 1.0 under certain circumstances) and a minimum interest coverage ratio of 3.0 to 1.0. Our actual leverage for the four consecutive quarters ended September 30, 2020 was 3.3 , and our actual interest coverage for the four consecutive quarters ended September 30, 2020 was 8.3 . We were in compliance with all covenants at September 30, 2020. 22 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Note 12: Equity The tables below provide a roll forward of equity. Common Stock In millions, except per share data in thousands Shares Amount Additional paid in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock Total Equity Balance at December 31, 2019 42,675 $ 0.4 $ 112.8 $ 497.2 $ ( 5.0 ) $ ( 74.6 ) $ 530.8 Net income (loss) — — — 45.3 — — 45.3 Other comprehensive income (loss) — — — — ( 39.1 ) — ( 39.1 ) Common stock issued 161 — — — — — — Tax payments related to vested restricted stock units — — — — — ( 3.1 ) ( 3.1 ) Share repurchase program — — — — — ( 32.4 ) ( 32.4 ) Share-based compensation plans — — 0.8 — — 0.4 1.2 Adoption of accounting standard — — — ( 0.6 ) — — ( 0.6 ) Balance at March 31, 2020 42,836 $ 0.4 $ 113.6 $ 541.9 $ ( 44.1 ) $ ( 109.7 ) $ 502.1 Net income (loss) — — — 20.2 — — 20.2 Other comprehensive income (loss) — — — — ( 4.1 ) — ( 4.1 ) Common stock issued 5 — — — — — — Exercise of stock options, net 50 — 1.4 — — — 1.4 Tax payments related to vested restricted stock units — — — — — 0.1 0.1 Share-based compensation plans — — 1.3 — — 1.9 3.2 Balance at June 30, 2020 42,891 $ 0.4 $ 116.3 $ 562.1 $ ( 48.2 ) $ ( 107.7 ) $ 522.9 Net income (loss) — — — 69.9 — — 69.9 Other comprehensive income (loss) — — — — 22.6 — 22.6 Common stock issued 3 — — — — — — Exercise of stock options, net 1 — — — — — — Tax payments related to vested restricted stock units — — — — — ( 0.1 ) ( 0.1 ) Share-based compensation plans — — 0.5 — — 1.2 1.7 Balance at September 30, 2020 42,895 $ 0.4 $ 116.8 $ 632.0 $ ( 25.6 ) $ ( 106.6 ) $ 617.0 23 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Common Stock In millions, except per share data in thousands Shares Amount Additional paid in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock Total Equity Balance at December 31, 2018 42,332 $ 0.4 $ 98.3 $ 313.5 $ ( 17.7 ) $ ( 55.8 ) $ 338.7 Net income (loss) — — — 22.7 — — 22.7 Other comprehensive income (loss) — — — — 9.1 — 9.1 Common stock issued 276 — — — — — — Exercise of stock options, net 51 — 1.4 — — — 1.4 Tax payments related to vested restricted stock units — — — — — ( 14.3 ) ( 14.3 ) Share repurchase program — — — — — ( 3.3 ) ( 3.3 ) Share-based compensation plans — — 4.1 — — 0.3 4.4 Balance at March 31, 2019 42,659 $ 0.4 $ 103.8 $ 336.2 $ ( 8.6 ) $ ( 73.1 ) $ 358.7 Net income (loss) — — — 56.8 — — 56.8 Other comprehensive income (loss) — — — — ( 19.4 ) — ( 19.4 ) Common stock issued 5 — — — — — — Exercise of stock options, net 6 — 0.2 — — — 0.2 Share-based compensation plans — — 3.5 — — 0.9 4.4 Balance at June 30, 2019 42,670 $ 0.4 $ 107.5 $ 393.0 $ ( 28.0 ) $ ( 72.2 ) $ 400.7 Net income (loss) — — — 59.9 — — 59.9 Other comprehensive income (loss) — — — — ( 18.5 ) — ( 18.5 ) Exercise of stock options, net 2 — 0.1 — — — 0.1 Share repurchase program — — — — — ( 3.1 ) ( 3.1 ) Share-based compensation plans — — 3.8 — — 0.4 4.2 Balance at September 30, 2019 42,672 $ 0.4 $ 111.4 $ 452.9 $ ( 46.5 ) $ ( 74.9 ) $ 443.3 24 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Accumulated other comprehensive income (loss) Three Months Ended September 30, Nine Months Ended September 30, In millions 2020 2019 2020 2019 Foreign currency translation Beginning balance $ ( 36.8 ) $ ( 22.7 ) $ 1.5 $ ( 16.4 ) Gains (losses) on foreign currency translation 27.6 ( 22.9 ) ( 14.2 ) ( 29.0 ) Less: tax provision (benefit) — — — — Net gains (losses) on foreign currency translation 27.6 ( 22.9 ) ( 14.2 ) ( 29.0 ) Gains (losses) on net investment hedges ( 8.1 ) 6.9 ( 3.5 ) 6.6 Less: tax provision (benefit) ( 1.9 ) 1.6 ( 0.8 ) 1.5 Net gains (losses) on net investment hedges ( 6.2 ) 5.3 ( 2.7 ) 5.1 Other comprehensive income (loss), net of tax 21.4 ( 17.6 ) ( 16.9 ) ( 23.9 ) Ending balance $ ( 15.4 ) $ ( 40.3 ) $ ( 15.4 ) $ ( 40.3 ) Derivative Instruments Beginning balance $ ( 8.4 ) $ ( 3.6 ) $ ( 3.5 ) $ 0.4 Gains (losses) on derivative instruments 0.9 ( 1.1 ) ( 5.9 ) ( 5.7 ) Less: tax provision (benefit) 0.2 ( 0.2 ) ( 1.4 ) ( 1.3 ) Net gains (losses) on derivative instruments 0.7 ( 0.9 ) ( 4.5 ) ( 4.4 ) (Gains) losses reclassified to net income 0.5 — 0.9 ( 0.6 ) Less: tax (provision) benefit 0.1 — 0.2 ( 0.1 ) Net (gains) losses reclassified to net income 0.4 — 0.7 ( 0.5 ) Other comprehensive income (loss), net of tax 1.1 ( 0.9 ) ( 3.8 ) ( 4.9 ) Ending balance $ ( 7.3 ) $ ( 4.5 ) $ ( 7.3 ) $ ( 4.5 ) Pension and other postretirement benefits Beginning balance $ ( 3.0 ) $ ( 1.7 ) $ ( 3.0 ) $ ( 1.7 ) Unrealized actuarial gains (losses) and prior service (costs) credits — — — — Less: tax provision (benefit) — — — — Net actuarial gains (losses) and prior service (costs) credits — — — — Actuarial and other (gains) losses, amortization of prior service cost (credits), and settlement and curtailment (income) charge reclassified to net income 0.1 — 0.1 — Less: tax (provision) benefit — — — — Net actuarial and other (gains) losses, amortization of prior service cost (credits), and settlement and curtailment (income) charge reclassified to net income 0.1 — 0.1 — Other comprehensive income (loss), net of tax 0.1 — 0.1 — Ending balance $ ( 2.9 ) $ ( 1.7 ) $ ( 2.9 ) $ ( 1.7 ) Total AOCI ending balance at September 30 $ ( 25.6 ) $ ( 46.5 ) $ ( 25.6 ) $ ( 46.5 ) 25 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Reclassifications of accumulated other comprehensive income (loss) Three Months Ended September 30, Nine Months Ended September 30, In millions 2020 2019 2020 2019 Derivative instruments Currency exchange contracts (1) $ ( 0.2 ) $ — $ — $ — Natural gas contracts (2) ( 0.3 ) — ( 0.9 ) 0.6 Total before tax ( 0.5 ) — ( 0.9 ) 0.6 (Provision) benefit for income taxes 0.1 — 0.2 ( 0.1 ) Amount included in net income (loss) $ ( 0.4 ) $ — $ ( 0.7 ) $ 0.5 Pension and other post retirement benefits Amortization of prior service costs (2) $ ( 0.1 ) $ — $ ( 0.1 ) $ — Amortization of unrecognized net actuarial and other gains (losses) (3) — — — — Total before tax ( 0.1 ) — ( 0.1 ) — (Provision) benefit for income taxes — — — — Amount included in net income (loss) $ ( 0.1 ) $ — $ ( 0.1 ) $ — ______________ (1) Included within "Net sales" on the condensed consolidated statement of operations. (2) Included within "Cost of sales" on the condensed consolidated statement of operations. (3) Included within "Other (income) expense, net" on the condensed consolidated statement of operations. Share Repurchases On February 28, 2020, our Board of Directors authorized the repurchase of up to $ 500.0 million of our common stock, and rescinded the prior two authorizations from 2017 and 2018 of $ 100.0 million and $ 350.0 million, respectively. The repurchase program does not include a specific timetable or price targets and may be suspended or terminated at any time. Shares may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of market prevailing conditions and other factors. During the three months ended September 30, 2020, no shares of our common stock were repurchased as we previously suspended share repurchases in light of the uncertainty caused by the COVID-19 pandemic. At September 30, 2020, $ 467.6 million remained unused under our Board-authorized repurchase program. We record shares of common stock repurchased at cost as treasury stock, resulting in a reduction of stockholders’ equity in the condensed consolidated balance sheets. When the treasury shares are contributed under our employee benefit plans or issued for option exercises, we use a first-in, first-out method for determining cost. The difference between the cost of the shares and the market price at the time of contribution to an employee benefit plan is added to or deducted from the related capital in excess of par value of common stock. 26 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Note 13: Retirement Plans The following table summarizes the components of net periodic benefit cost (income) for our defined benefit pension plans: Three Months Ended September 30, Pensions Other Benefits In millions 2020 2019 2020 2019 Components of net periodic benefit cost (income): Service cost (1) $ 0.4 $ 0.2 $ — $ — Interest cost (2) 0.3 0.3 — — Expected return on plan assets (2) ( 0.3 ) ( 0.2 ) — — Amortization of prior service cost (credit) (1) 0.1 — — — Amortization of net actuarial and other (gain) loss (2) — — — — Net periodic benefit cost (income) $ 0.5 $ 0.3 $ — $ — Nine Months Ended September 30, Pensions Other Benefits In millions 2020 2019 2020 2019 Components of net periodic benefit cost (income): Service cost (1) $ 1.2 $ 0.9 $ — $ — Interest cost (2) 0.9 0.8 — — Expected return on plan assets (2) ( 0.9 ) ( 0.7 ) — — Amortization of prior service cost (credit) (1) 0.1 — — — Amortization of net actuarial and other (gain) loss (2) — — — — Net periodic benefit cost (income) $ 1.3 $ 1.0 $ — $ — _______________ (1) Amounts are recorded to "Cost of sales" on our condensed consolidated statements of operations consistent with the employee compensation costs that participate in the plan. (2) Amounts are recorded to "Other (income) expense, net" on our condensed consolidated statements of operations. Contributions We did no t make any voluntary cash contributions to our Union Hourly defined benefit pension plan in the nine months ended September 30, 2020. There are no required cash contributions to our Union Hourly defined benefit pension plan in 2020, and we currently have no plans to make any voluntary cash contributions in 2020. Note 14: Restructuring and Other (Income) Charges, net We continually perform strategic reviews and assess the return on our operations which sometimes results in a plan to restructure the business. The cost and benefit of these strategic restructuring initiatives are recorded as restructuring and other (income) charges, net in our condensed consolidated statements of operations. These costs are excluded from our operating segment results. 27 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Detail on the restructuring charges and other (income) charges, net, is provided below. Three Months Ended September 30, Nine Months Ended September 30, In millions 2020 2019 2020 2019 Gain on sale of assets and businesses $ — $ — $ — $ ( 0.4 ) Severance and other employee-related costs 0.3 1.7 6.3 1.7 Other 1.7 — 1.7 0.7 Restructuring charges 2.0 1.7 8.0 2.0 Business transformation costs 3.5 — 5.3 — Other — — — — Other (income) charges, net 3.5 — 5.3 — Total restructuring and other (income) charges, net $ 5.5 $ 1.7 $ 13.3 $ 2.0 Restructuring charges 2020 activities During the second quarter of 2020, we implemented a cost reduction initiative to realign our cost structure in response to reduced demand for some of our products in response to the COVID-19 pandemic. As a result of this cost reduction initiative, we recorded $ 0.3 million and $ 6.3 million in severance and other employee-related costs in the three and nine months ended September 30, 2020, respe ctively. Additionally, during the three and nine months ended September 30, 2020, we recorded $ 1.7 million related to an impairment of an operating lease asset that is no longer in use. 2019 activities During the third quarter of 2019, we initiated a reorganization as part of an effort to improve our Performance Chemicals' workflow and efficiency to best serve our customers' needs and reduce costs. As a result of this reorganization, we recorded $ 1.7 million in severance and other employee-related costs in the three and nine months ended September 30, 2019. In April 2019, we sold assets from the Performance Chemicals derivatives operations in Palmeira, Brazil. These assets were part of a facility that was closed as a result of a restructuring event in 2016. As a result of this sale, we recorded $ 0.4 million as a gain on sale of assets, as well as $ 0.7 million related to other miscellaneous exit costs, in the nine months ended September 30, 2019. Rollforward of Restructuring Reserves The following table shows a roll forward of restructuring reserves that will result in cash spending. Balance at Change in Cash Balance at In millions 12/31/2019 (1) Reserve (2) Payments Other 9/30/2020 (1) Restructuring Reserves $ 0.4 6.3 ( 6.0 ) — $ 0.7 _______________ (1) Included in "Accrued Expenses" on the condensed consolidated balance sheets. (2) Includes severance and other employee-related costs. 28 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Other (income) charges, net Business transformation initiative costs In the first quarter of 2020, we embarked upon a business transformation initiative that includes the implementation of an upgraded enterprise resource planning ("ERP") system. This new ERP system will equip our employees with standardized processes and secure integrated technology that enable us to better understand and meet our customers' needs and compete in the marketplace. We expect this business transformation initiative and related ERP implementation to be a complex, multi-year project. It requires the integration of the new ERP system with multiple new and existing information systems and business processes, in order to maintain the accuracy of our books and records and to provide our management team with real-time information important to the operation of our business. Such an implementation initiative is a major financial undertaking and will require substantial time and attention of management and key employees. Costs incurred, during the three and nine months ended September 30, 2020, of $ 3.5 million and $ 5.3 million, respectively, represent costs directly associated with the business transformation initiative that, in accordance with GAAP, cannot be capitalized. Over the course of this initiative, we anticipate incurring approximately $ 60 - 70 million of total costs, which includes $ 13 - 16 million of non-capitalizable costs, $ 7 - 8 million of which we expect to be incurred in 2020. Note 15: Income Taxes The effective tax rates, including discrete items, were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Effective tax rate 20.7 % 22.6 % 19.7 % 19.3 % We determine our interim tax provision using an Estimated Annual Effective Tax Rate methodology (“EAETR”). The EAETR is applied to the year-to-date ordinary income, exclusive of discrete items. The tax effects of discrete items are then included to arrive at the total reported interim tax provision. The determination of the EAETR is based upon a number of estimates, including the estimated annual pre-tax ordinary income in each tax jurisdiction in which we operate. As our projections of ordinary income change throughout the year, the EAETR will change period-to-period. The tax effects of discrete items are recognized in the tax provision in the period they occur. Depending on various factors, such as the item’s significance in relation to total income and the rate of tax applicable in the jurisdiction to which it relates, discrete items in any quarter may materially impact the reported effective tax rate. As a global enterprise, our tax expense may be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors. As such, there may be significant volatility in interim tax provisions. 29 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) The below table provides a reconciliation between our reported effective tax rates and the EAETR. Three Months Ended September 30, 2020 2019 In millions, except percentages Before tax Tax Effective tax rate % impact Before tax Tax Effective tax rate % impact Consolidated operations $ 88.1 $ 18.2 20.7 % $ 77.4 $ 17.5 22.6 % Discrete items: Restructuring and other (income) charges, net (1) 2.0 0.3 1.7 0.4 Acquisition and other-related costs (2) — — 1.3 0.4 Other tax only discrete items — ( 0.2 ) — ( 0.1 ) Total discrete items 2.0 0.1 3.0 0.7 Consolidated operations, before discrete items $ 90.1 $ 18.3 $ 80.4 $ 18.2 Quarterly effect of changes in the EAETR 20.3 % 22.6 % Nine Months Ended September 30, 2020 2019 In millions, except percentages Before tax Tax Effective tax rate % impact Before tax Tax Effective tax rate % impact Consolidated operations $ 168.7 $ 33.3 19.7 % $ 172.8 $ 33.4 19.3 % Discrete items: Restructuring and other (income) charges, net (1) 8.0 1.7 2.0 0.4 Acquisition and other-related costs (2) 1.7 0.4 33.3 6.0 Other tax only discrete items — 1.0 — 6.7 Total discrete items 9.7 3.1 35.3 13.1 Consolidated operations, before discrete items $ 178.4 $ 36.4 $ 208.1 $ 46.5 EAETR (3) 20.4 % 22.3 % _______________ (1) See Note 14 for more information on our restructuring and other (income) charges, net. (2) See Note 4 for more information on our acquisition and other-related costs. (3) Decrease in EAETR for the nine months ended September 30, 2020, as compared to September 30, 2019, is due to a change in the mix of forecasted earnings in various tax jurisdictions with varying rates, reduction of the officer’s compensation limitation due to forfeited equity awards already disallowed for tax purposes, as well as an increased benefit due to the generation of additional state tax credits as a result of the new corporate headquarters. At September 30, 2020 and December 31, 2019, we had deferred tax assets of $ 9.8 million and $ 13.0 million, respectively, resulting from certain historical net operating losses from our Brazilian operations and U.S. state tax credits for which a valuation allowance has been established. The ultimate realization of these deferred tax assets depends on the generation of future taxable income during the periods in which these net operating losses and tax credits are available to be used. In evaluating the realizability of these deferred tax assets, we consider projected future taxable income and tax planning strategies in making our assessment. As of September 30, 2020, we cannot objectively assert that these deferred tax assets are more likely than not to be realized and therefore we have maintained a valuation allowance. We intend to continue maintaining a valuation allowance on these deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. A release of all or a portion of the valuation allowance could be possible, if we determine that sufficient positive evidence becomes available to allow us to reach a conclusion that the valuation allowance will no longer be needed. A release of the valuation allowance would result in the recognition of certain deferred tax assets and a reduction to income tax 30 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on the level of profitability that we are able to actually achieve. Note 16: Commitments and Contingencies Legal Proceedings We are from time to time, involved in routine litigation and other legal matters incidental to our operations. None of the litigation or other legal matters in which we are currently involved, individually or in the aggregate, is material to our consolidated financial condition, liquidity, or results of operations nor are we aware of any material pending or contemplated proceedings. Note 17: Segment Information Three Months Ended September 30, Nine Months Ended September 30, In millions 2020 2019 2020 2019 Net sales Performance Materials $ 143.8 $ 130.2 $ 349.3 $ 362.4 Performance Chemicals 187.9 229.7 541.2 627.1 Total net sales (1) $ 331.7 $ 359.9 $ 890.5 $ 989.5 Segment EBITDA (2) Performance Materials $ 80.4 $ 54.2 $ 164.9 $ 154.7 Performance Chemicals 47.2 59.8 122.1 151.1 Total segment EBITDA (2) $ 127.6 $ 114.0 $ 287.0 $ 305.8 Interest expense, net ( 8.9 ) ( 12.1 ) ( 29.8 ) ( 36.3 ) (Provision) benefit for income taxes ( 18.2 ) ( 17.5 ) ( 33.3 ) ( 33.4 ) Depreciation and amortization - Performance Materials ( 8.0 ) ( 6.0 ) ( 22.5 ) ( 17.6 ) Depreciation and amortization - Performance Chemicals ( 17.1 ) ( 15.5 ) ( 51.0 ) ( 43.8 ) Restructuring and other income (charges), net (3) ( 5.5 ) ( 1.7 ) ( 13.3 ) ( 2.0 ) Acquisition and other-related costs (4) — ( 1.3 ) ( 1.7 ) ( 33.3 ) Net income (loss) $ 69.9 $ 59.9 $ 135.4 $ 139.4 _______________ (1) Relates to external customers only, all intersegment sales and related profit have been eliminated in consolidation. (2) Segment EBITDA is the primary measure used by our chief operating decision maker to evaluate the performance of and allocate resources among our operating segments. Segment EBITDA is defined as segment revenue less segment operating expenses (segment operating expenses consist of costs of sales, selling, general and administrative expenses, other (income) expense, net, excluding depreciation and amortization). We have excluded the following items from segment EBITDA: interest expense, net, associated with corporate debt facilities, income taxes, depreciation, amortization, restructuring and other (income) charges, net, acquisition and other-related costs, pension and postretirement settlement and curtailment (income) charges. (3) Income (charges) for all periods presented relate to restructuring activity and costs associated with the business transformation initiative. For the three and nine months ended September 30, 2020, charges of $ 2.6 million and $ 5.4 million relate to the Performance Materials segment, respectively, and charges of $ 2.9 million and $ 7.9 million relate to the Performance Chemicals segment. For the three and nine months ended September 30, 2019, all charges relate to the Performance Chemicals segment. For more detail on the charges incurred see Note 14 within these condensed consolidated financial statements. (4) Charges associated with the acquisition and integration of the Caprolactone Business. For more detail on the charges incurred see Note 4 within these condensed consolidated financial statements. 31 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Note 18: Earnings (Loss) per Share Basic earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares and potentially dilutive common shares outstanding for the period. The calculation of diluted net income per share excludes all antidilutive common shares. Three Months Ended September 30, Nine Months Ended September 30, In millions, except share and per share data 2020 2019 2020 2019 Net income (loss) $ 69.9 $ 59.9 $ 135.4 $ 139.4 Basic and Diluted earnings (loss) per share Basic earnings (loss) per share $ 1.69 $ 1.42 $ 3.27 $ 3.33 Diluted earnings (loss) per share 1.69 1.41 3.26 3.30 Shares (in thousands) Weighted average number of common shares outstanding - Basic 41,276 42,299 41,400 41,793 Weighted average additional shares assuming conversion of potential common shares 175 344 179 408 Shares - diluted basis 41,451 42,643 41,579 42,201 The following average number of potential common shares were antidilutive, and therefore, were not included in the diluted earnings per share calculation: Three Months Ended September 30, Nine Months Ended September 30, In thousands 2020 2019 2020 2019 Average number of potential common shares - antidilutive 173 118 205 103 Note 19: Subsequent Event 2020 Senior Notes On October 28, 2020, we issued $ 550.0 million aggregate principal amount of 3.875 percent senior unsecured notes due 2028 (the “Notes”). The Notes were issued pursuant to an indenture dated as of October 28, 2020 (the “Indenture”), by and among Ingevity, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee. The Notes were offered and sold only to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to certain non-U.S. persons outside the U.S. pursuant to Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The Notes have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the U.S. absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws. The net proceeds from the sale of the Notes, after deducting anticipated financing fees of $ 8 million were approximately $ 542 million. We intend to use the net proceeds from the sale of the Notes to repay our existing $ 375.0 million term loan facility due in August 2022, with the remainder being utilized to repay outstanding balances under our revolving credit facility. Interest payments on the Notes are due semiannually in arrears on November 1st and May 1st of each year, beginning on May 1, 2021, at a rate of 3.875 percent per year. The Notes will mature on November 1, 2028. 32 Ingevity Corporation Notes to the Condensed Consolidated Financial Statements September 30, 2020 (Unaudited) Revolving Credit Facility On October 28, 2020, we entered into Amendment no. 5 (the “Amendment no. 5") to our existing credit agreement, dated as of March 7, 2016 (“Credit Agreement”) (as amended, supplemented or otherwise modified prior to the date hereof, including pursuant to Amendment no. 4, dated as of March 7, 2019, Amendment no. 3, dated as of March 7, 2019, the Incremental Facility Agreement and Amendment no. 2, dated as of August 7, 2018, the Incremental Facility Agreement and Amendment No. 1, dated as of August 21, 2017, and the Credit Agreement). Among other things, Amendment no. 5 extends the maturity date with respect to our revolving credit facility from August 7, 2023 to October 28, 2025 and reduced the aggregate principal amount of revolving commitments thereunder from $ 750.0 million to $ 500.0 million. 33