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Item 7. Management’s Discussion and Analysis

2021-02-19 compared with 2020-02-26 · 212 added, 247 removed, 357 unchanged (56% of the section changed)

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RESULTS OF OPERATIONS

Management’s discussion and analysis of Ingevity’s financial condition and results of operations (“MD&A”) is provided as a supplement to the Consolidated Financial Statements and related notes included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations.

Cautionary Statements About Forward-Looking Statements

This section and other parts of this Annual Report on Form 10-K contain forward-looking statements, within the meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Private Securities Litigation Reform Act of 1995 that reflect our current expectations, beliefs, plans or forecasts with respect to, among other things, future events and financial performance.

Forward-looking statements are often characterized by words or phrases such as “may,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “target,” “prospects,” “potential” and “forecast,” and other words, terms and phrases of similar meaning.

Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties.

We caution readers that a forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement.

Such risks and uncertainties include, among others, those discussed in Item 1A under the heading "Risk Factors" as well as in our consolidated financial statements, related notes, and the other information appearing elsewhere in this report and our other filings with the SEC.

We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances.

Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

In addition to any such risks, uncertainties and other factors discussed elsewhere herein, risks, uncertainties and other factors that could cause or contribute to actual results differing materially from those expressed or implied by the forward-looking statements include, but are not limited to the following:

• we are exposed to risks that the expected benefits from the Caprolactone Acquisition may not be realized or will not be realized within the expected time period, the risk of significant transaction costs and unknown or understated liabilities;

• we may be adversely affected by general economic and financial conditions beyond our control;

• we are exposed to risks related to our international sales and operations;

• our reported results could be adversely affected by currency exchange rates and currency devaluation could impair our competitiveness;

• our operations outside the U.S.

require us to comply with a number of U.S.

and foreign regulations, violations of which could have a material adverse effect on our financial condition and results of operations;

• we may be adversely affected by changes in trade policy, including the imposition of tariffs and the resulting consequences;

• our engineered polymers product line may be adversely affected by the United Kingdom’s withdrawal from the European Union;

• we are dependent upon attracting and retaining key personnel;

• adverse conditions in the global automotive market or adoption of alternative or new technologies may adversely affect demand for our automotive carbon products;

• we face competition from producers of alternative products and new technologies, and new or emerging competitors;

• we face competition from infringing intellectual property activity;

• if increasingly more stringent air quality standards worldwide are not adopted, our growth could be impacted;

• we may be adversely affected by a decrease in government infrastructure spending;

• our printing inks business serves customers in a market that is facing declining volumes and downward pricing;

• our Performance Chemicals segment is highly dependent on crude tall oil ("CTO") which is limited in supply;

• lack of access to sufficient CTO would impact our ability to produce CTO-based products;

• a prolonged period of low energy prices may materially impact our results of operations;

• we are dependent upon third parties for the provision of certain critical operating services at several of our facilities;

• the occurrence of a natural disaster, such as a hurricane, winter or tropical storm, earthquake, tornado, flood, fire or other matters such as labor difficulties (including work stoppages), equipment failure or unscheduled maintenance and repair, which could result in operational disruptions of varied duration;

• the adverse effect of the Coronavirus on our international sales and operations, demand for our automotive carbon products, and our manufacturing facilities and supply chain;

• from time to time we are called upon to protect our intellectual property rights and proprietary information though litigation and other means;

• if we are unable to protect our intellectual property and other proprietary information we may lose significant competitive advantage;

• information technology security breaches and other disruptions;

• government policies and regulations, including, but not limited to, those affecting the environment, climate change, tax policies and the chemicals industry;

• losses due to lawsuits arising out of environmental damage or personal injuries associated with chemical or other manufacturing processes.

Management’s discussion and analysis of Ingevity’s financial condition and results of operations (“MD&A”) should be read in conjunction with Item 8.

Financial Statements and Suppl ementary Data .

Investors are cautioned that the forward-looking statements contained in this section and other parts of this Annual Report on Form 10-K involve both risk and uncertainty.

Several important factors could cause actual results to differ materially from those anticipated by these statements.

Many of these statements are macroeconomic in nature and are, therefore, beyond the control of management.

See "Cautionary Statements about Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K for further discussion.

Ingevity Corporation ("Ingevity," "the company", "we," "us" or "our") is a leading global manufacturer of specialty chemicals and high performance activated carbon materials.

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We report in two business segments, Performance Materials and Performance Chemicals.

Our Performance Materials segment consists of our automotive technologies and process purifications product lines.

Performance Materials manufactures products in the form of powder, granules, 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 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 the 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 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).

Performance Chemicals manufactures products derived from crude tall oil ("CTO") and lignin extracted from the kraft pulping 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 warm mix paving, pavement preservation, and pavement reconstruction and recycling (pavement technologies product line), oil well service additives and oil production and downstream application (oilfield technologies product line), adhesives, agrochemicals, lubricants, printing inks, and industrial intermediates (industrial specialties product line), coatings, resins, elastomers, adhesives, bio-plastics, and medical devices (engineered polymers product line).

Recent Developments

Perstorp AB's Caprolactone Business

On February 13, 2019, we completed the acquisition 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 is being integrated into our Performance Chemicals segment and included within our engineered polymers product line.

Our revolving credit facility was utilized as the primary source of funds, along with available cash on hand, to fund the Caprolactone Acquisition.

Revolving Credit and Term Loan Facility Amendment

On March 7, 2019, we entered into an Amendment No.

3 and Amendment No.

4 (the “Amendments”) to our Credit Agreement.

Among other things, the Amendments established a new class of incremental term loan commitments, collectively referred to as the 2019 Term Loan, in the aggregate principal amount of $375.0 million.

The 2019 Term Loan of $375.0 million is in additional to the existing 2017 Term Loan of $375.0 million.

The 2019 Term Loan is not subject to amortization;

the full principal balance is due and payable at maturity on August 7, 2022.

The 2019 Term Loan bears interest at either (a) an adjusted base rate or (b) an adjusted LIBOR rate (or a comparable or successor rate), in each case, plus an applicable margin (the “2019 Term Loan Applicable Margin”), in the case of base rate loans, ranging between zero and 0.25 percent, and in the case of adjusted LIBOR rate loans, ranging between 0.75 percent and 1.25 percent.

The 2019 Term Loan Applicable Margin is based on a total leverage based pricing grid.

As consideration for Amendments, we paid to each lender party thereto a consent fee equal to 0.05 percent of the aggregate principal amount of the commitments and outstanding loans under held by such lender.

Fees of $1.8 million were incurred to secure the 2019 Term Loan.

These fees have been deferred and will be amortized over the term of the loan.

We used the proceeds of the 2019 Term Loan to repay loans outstanding under our Revolving Credit Facility.

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 “2020 Notes”) in a private placement pursuant to an indenture dated as of October 28, 2020, by and among Ingevity, the subsidiary guarantors party thereto and U.S.

Bank National Association, as trustee.

The net proceeds from the sale of the 2020 Notes, after deducting deferred financing fees of $8.8 million, were used to repay our $375.0 million term loan from 2019, with the remainder being utilized to repay outstanding balances under our revolving credit facility.

Interest payments on the 2020 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 2020 Notes will mature on November 1, 2028.

Revolving Credit Facility Amendment

On October 28, 2020, we entered into Amendment No.

5 to our existing credit agreement, dated as of March 7, 2016.

Among other things, Amendment No.

5 extended 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.

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, and third-party sales agents 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 provided a payment delay of the employer's portion of U.S.

Social Security taxes during 2020, after the date of enactment.

We deferred $4.7 million of employer U.S.

Social Security taxes due in 2020, 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 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, all of which was repaid by year end.

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 16 to the consolidated financial statements included in Part II Item 8 of this Form 10-K.

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 and the effectiveness of vaccines.

COVID-19 has impacted, and will continue to impact, our results of operations, financial position, and liquidity.

Results of Operations

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Net income (loss) attributable to Ingevity stockholders $ 181.4 $ 183.7 $ 169.1

Net Sales Comparison of Years Ended December 31, 2019, 2018, and 2017

The table below shows 2020 and 2019 Net sales and percentage variances from 2019 and 2018, respectively.

Percentage change vs.

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Year Ended December 31, 2020 vs.

The sales decrease in 2020 was driven by a volume decline of $85.2 million (seven percent of sales), primarily related to a volume decline in Performance Chemicals of $89.1 million, offset slightly by a volume increase in Performance Materials of $3.9 million, favorable pricing and product mix of $7.6 million (one percent of sales) and favorable foreign exchange impacts of $0.8 million (less than one percent of sales).

Year Ended December 31, 2019 vs.

The sales increase in 2019 was driven primarily by a volume increase of $123.7 million (11 percent of sales).

Performance Materials and Performance Chemicals contributed $70.1 million and $53.6 million, respectively, to the volume growth during the year.

The Caprolactone Acquisition, completed in the first quarter of 2019, contributed $122.1 million to the favorable volume growth during the period.

The acquisition of Caprolactone Business ("Caprolactone Acquisition"), completed in the first quarter of 2019, contributed $122.1 million to the favorable volume growth during the period.

Additionally, the favorable pricing and product mix of $43.2 million (four percent of sales) across both segments, offset partially by unfavorable foreign exchange impacts of $7.6 million (one percent of sales) resulted in the year over year Net sales increase.

Year Ended December 31, 2020 vs.

The sales increase in 2018 was driven by a volume increase of $142.9 million (15 percent of sales).

Performance Materials and Performance Chemicals contributed $44.6 million and $98.3 million, respectively, to the volume impacts during the year.

Additionally, the favorable pricing and product mix of $13.5 million (one percent of sales) across both segments, as well as favorable foreign exchange impacts of $4.8 million (one percent of sales) resulted in the year over year Net sales increase.

Year Ended December 31, 2019 vs.

Gross profit improvement of $65.2 million was driven by favorable sales volume contributing $62.0 million of additional gross profit and pricing and product mix improvement contributing $39.5 million.

These positive impacts were offset by increased manufacturing costs of $26.0 million, inventory step-up amortization related to the Pine Chemical Acquisition and Caprolactone Acquisition of $7.0 million (see Note 17 within the Condensed Consolidated Financial Statements included within Part II.

Item 8 of the Form 10-K for more information), and unfavorable foreign currency exchange of $3.3 million.

Gross profit decline of $16.5 million was driven by unfavorable sales volume impacting gross profit by $35.8 million, increased manufacturing costs of $2.3 million due to reduced plant throughput, and unfavorable foreign currency exchange of $0.8 million, which were partially offset by favorable pricing and product mix improvement of $14.0 million.

Additionally, the prior year was negatively impacted by inventory step-up amortization related to the Caprolactone Acquisition of $8.4 million (see Note 17 within the consolidated financial statements included within Part II.

Item 8 of the Form 10-K for more information).

Refer to the Segment Operating Results section included within this MD&A for more information on the drivers to the changes in gross profit period over period for both segments.

Year Ended December 31, 2019 vs.

Gross profit improvement of $87.8 million was driven by favorable sales volume contributing $67.1 million of additional gross profit, pricing and product mix improvement of $20.6 million, and favorable foreign currency exchange of $1.9 million.

These positive impacts were offset by increased manufacturing costs of $0.4 million, inventory step-up amortization related to the Pine Chemical Acquisition of $1.4 million (see Note 17 within the Condensed Consolidated Financial Statements included within Part II.

Item 8 of the Form 10-K for more information).

Gross profit improvement of $65.2 million was driven by favorable sales volume contributing $62.0 million of additional gross profit, pricing and product mix improvement of $39.5 million.

These positive impacts were offset by increased manufacturing costs of $26.0 million, inventory step-up amortization related to the acquisitions of the Pine Chemical Business and the Caprolactone Business of $7.0 million (see Note 17 within the consolidated financial statements included within Part II.

Item 8 of the Form 10-K for more information), and unfavorable foreign currency exchange of $3.3 million.

Refer to the Segment Operating Results section included within this MD&A for more information on the drivers to the changes in gross profit period over period for both segments.

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Selling, general and administrative ("SG&A") expenses were $149.4 million (12 percent of sales) and $163.1 million (13 percent of sales) for the years ended December 31, 2020 and 2019, respectively.

The increase in SG&A is primarily due to intangible asset amortization associated with the Caprolactone Acquisition and Pine Chemical Acquisition of $16.5 million and increased legal costs associated with our Performance Materials' intellectual property litigation of $10.2 million, and increased spending related to the new engineered polymers product line.

The decrease in SG&A expenses is primarily due to reduced travel and other miscellaneous costs of $12.8 million, due to the COVID-19 pandemic, decreased intellectual property litigation costs of $5.0 million, and lower employee-related incentive costs of $3.0 million.

The positive impact was partially offset by an increase in amortization costs associated with intangible assets acquired from in Caprolactone Acquisition (see Note 17 within the consolidated financial statements included within Part II.

Item 8 of the Form 10-K for more information) and an increase in our credit allowance reserve which increased by a combined $7.1 million.

Year Ended December 31, 2019 vs.

SG&A expenses were $163.1 million (13 percent of sales) and $132.4 million (12 percent of sales) for the years ended December 31, 2019 and 2018, respectively.

The increase in SG&A is primarily due to intangible asset amortization of $10.6 million associated with the Pine Chemical Acquisition, litigation expenses of $4.9 million in our Performance Materials segment, and growth related spending in both segments.

The increase in SG&A is primarily due to intangible asset amortization associated with the Caprolactone Acquisition and Pine Chemical Acquisition of $16.5 million and increased intellectual property litigation costs associated with our Performance Materials' intellectual property litigation of $10.2 million, and increased spending related to the new engineered polymers product line.

Research and technical expenses

Years Ended December 31, 2020, 2019, and 2018

Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, decreasing to 1.5 percent in the year ended December 31, 2019 from 1.9 percent and 2.0 percent in the years ended December 31, 2018 and 2017, respectively.

Restructuring and other (income) charges, net

2019 activities

During the third quarter of 2019, we initiated a reorganization as part of an effort to improve our Performance Chemicals segment's workflow and efficiency to best serve our customers’ needs and reduce costs.

As a result of this reorganization, we recorded $1.5 million in severance and other employee-related costs in the year ended December 31, 2019.

During the second quarter of 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 in proceeds from the sales as a gain on sale of assets, which was offset by a $0.7 million charge related to other miscellaneous exit costs in the year ended December 31, 2019.

2018 activities

In February 2018, we sold assets from the Performance Chemicals derivatives operations in Duque De Caxias, Rio de Janeiro, 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 $0.6 million as a gain on sale of assets offset by other employee related costs of $0.1 million for the year ended December 31, 2018.

2017 activities

In January 2017, we initiated a reorganization to streamline our leadership team, flatten the organization and reduce costs.

Because of this reorganization, we recorded $1.3 million in severance and other employee-related costs for the year ended December 31, 2017.

During the year ended December 31, 2017, we also recorded $2.4 million of additional miscellaneous exit costs primarily associated with the exit of our Performance Chemicals' manufacturing operations in Palmeira, Santa Catarina, Brazil which began in the fourth quarter of 2016.

Detail on these restructuring charges and asset disposal activities is provided below.

Years Ended December 31,

In millions 2019 2018 2017

Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, increasing to 1.9 percent in the year ended December 31, 2020 from 1.5 percent and 1.9 percent in the years ended December 31, 2019 and 2018, respectively.

Restructuring and other (income) charges, net

Gain on sale of assets and businesses $ (0.4) $ (0.6) $ —

Severance and other employee-related costs (1)

Other (income) charges, net (2)

Total restructuring and other (income) charges, net $ 1.8 $ (0.5) $ 3.7

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(1) Represents severance and employee benefit charges.

(2) Primarily represents costs associated with rental payments, contract terminations, and other miscellaneous exit costs.

Other Income primarily represents favorable developments on previously recorded exit costs as recoveries associated with restructuring activities.

Restructuring and other (income) charges, net, of $18.5 million, $1.8 million, and $(0.5) million for the years ended December 31, 2020, 2019, and 2018, respectively, with the increase in 2020 primarily attributable to our business transformation initiative and certain cost reduction initiatives.

See Note 16 to the consolidated financial statements included within Part II.

Item 8 of this Form 10-K for more information.

Acquisition-related costs

Years Ended December 31, 2020, 2019, and 2018

Acquisition costs of $26.9 million, $10.8 million, and $7.1 million for the years ended December 31, 2019, 2018, and 2017, respectively, were comprised of charges incurred in connection with the acquisitions of the Caprolactone Business and Pine Chemical Business.

Acquisition costs of $1.8 million, $26.9 million, and $10.8 million for the years ended December 31, 2020, 2019, and 2018, respectively, were comprised of charges incurred in connection with the Caprolactone Acquisition and Pine Chemical Acquisition.

See Note 17 to the consolidated financial statements included within Part II.

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Other (income) expense, net

Years Ended December 31, 2020, 2019, and 2018

Years Ended December 31,

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Interest expense

Years Ended December 31, 2020, 2019, and 2018

Years Ended December 31,

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Years Ended December 31 2020, 2019, and 2018

Interest income was $7.7 million, $3.4 million, and $2.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Interest income is primarily related to the interest earned on our restricted investment of $2.0 million and $2.3 million from our fixed-to-fixed cross-currency interest rate swap (see Note 6 and 10 to the Consolidated Financial Statements included in Part II.

Years Ended December 31,

In millions 2020 2019 2018

Interest income on restricted investment (1)

$ 2.0 $ 2.0 $ 2.0

Interest income on fixed-to-fixed cross-currency interest rate swap (2)

Other 1.3 3.4 1.4

Total interest expense $ 4.9 $ 7.7 $ 3.4

_______________

(1) See Note 6 to the consolidated financial statements included in Part II.

Item 8 of this Form 10-K for more information.

(2) See Note 10 to the consolidated financial statements included in Part II.

Item 8 of this Form 10-K for more information.

Provision (benefit) for income taxes

Detail explaining the change in the effective tax rate is presented in Note 18 to the Consolidated Financial Statements included within Part II.

Years Ended December 31, 2020, 2019, and 2018

For the years ended December 31, 2020, 2019, and 2018, our effective tax rate was 22.8 percent, 19.4 percent, and 18.0 percent respectively.

An explanation of the change in the effective tax rate is presented in Note 18 to the consolidated financial statements included within Part II.

Item 8 of this Form 10-K.

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Year Ended December 31, 2020, 2019, and 2018

Net income (loss) attributable to noncontrolling interests was zero, $12.7 million and $18.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Net income (loss) attributable to noncontrolling interests was zero, zero and $12.7 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Our noncontrolling interest represented the 30 percent ownership interest held by a third-party U.S.-based company in our consolidated Purification Cellutions, LLC legal entity, prior to our purchase of this remaining interest on August 1, 2018.

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We have excluded the following items from segment EBITDA:

interest expense associated with corporate debt facilities, income taxes, depreciation, amortization, restructuring and other (income) charges, acquisition and other related costs, pension and postretirement settlement and curtailment (income) charge.

interest expense 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) charge.

In general, the accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in Note 3 to the consolidated financial statements included within Part II.

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Segment net sales.

The increase in 2020 was driven by favorable pricing and product mix of $13.6 million (three percent of sales).

Additionally, $3.9 million (one percent of sales) in volume improvements in automotive evaporative emission canister products due to stricter environmental regulation in the Chinese, North American, and European automotive markets and favorable foreign currency exchange impacts of $1.9 million (less than one percent of sales) contributed to the overall increase.

Segment EBITDA.

Segment EBITDA increased $35.8 million due to favorable pricing and product mix, which contributed $18.7 million, favorable volume, primarily in the automotive evaporative emission canister products, which contributed $2.8 million, lower manufacturing costs of $5.0 million and decreased SG&A expenses and research and technical costs of $8.0 million, primarily due to reduced travel and decreased intellectual property litigation costs.

Favorable foreign currency exchange impacts, offset slightly by other miscellaneous charges, also contributed $1.3 million to the increase.

Year Ended December 31, 2019 vs.

Segment net sales.

The increase in 2019 was driven by $70.1 million (18 percent of sales) in volume improvements in automotive evaporative emission canister products due to stricter environmental regulation in the Chinese, North American, and European automotive markets.

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Segment EBITDA increased $44.0 million due to favorable volume primarily in the automotive carbon application, which contributed $41.3 million and favorable pricing and product mix, which contributed $18.9 million.

These gains were partially offset by increased manufacturing costs of $5.4 million and increased SG&A and research and technical costs of $14.6 million, primarily due to increased intellectual property litigation costs of $10.2 million.

These gains were partially offset by increased manufacturing costs of $5.4 million and increased SG&A expenses and research and technical costs of $14.6 million, primarily due to increased intellectual property litigation costs of $10.2 million.

Favorable foreign currency exchange impacts and other miscellaneous income of $3.8 million also contributed to the increase.

Year Ended December 31, 2018 vs.

Segment net sales.

The increase in 2018 was driven by $44.6 million (13 percent of sales) in volume improvements in the automotive carbon market due to strong growth in high content vehicle production for sale into the North American automotive market and increased vehicle content due to regulatory adoption.

Additionally, we had improved price and product mix of $5.2 million (two percent of sales) and favorable foreign currency exchange impacts of $1.3 million (less than one percent of sales).

Segment EBITDA.

Segment EBITDA $27.6 million primarily due to $28.6 million in favorable volumes and $8.2 million in favorable pricing and product mix, and lower production and operating costs of $1.8 million .

These gains were

partially offset by higher SG&A expenses of $8.9 million, unfavorable foreign currency exchange impacts of $0.6 million, and the impairment of an equity investment of $1.5 million.

Performance Chemicals

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In millions 2020 2019 2018

Pavement Technologies product line $ 111.4 $ 114.2 $ 77.8

Oilfield Technologies product line $ 75.6 $ 111.4 $ 114.2

Pavement Technologies product line 186.8 183.3 178.5

Industrial Specialties product line 316.0 385.5 440.5

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The Pine Chemical Business has been integrated into our Performance Chemicals segment and has been included within our results of operations since March 8, 2018.

The Caprolactone Business is being integrated into our Performance Chemicals segment and has been included within our results of operations since it was acquired on February 13, 2019.

The information presented below for the years ended December 31, 2019 and 2018, includes the results of these acquisitions as compared to historical results.

For a pro forma comparative analysis of 2019 versus 2018 results, refer to the section below titled "Performance Chemicals Pro Forma Financial Results with the Pine Chemical Business and Caprolactone Business."

The Caprolactone Business has been integrated into our Performance Chemicals segment and has been included within our results of operations since it was acquired on February 13, 2019.

The information presented below includes the results of these acquisitions as compared to historical results.

For a pro forma comparative analysis of 2020 versus 2019 and 2019 versus 2018 results, refer to the section below titled "Performance Chemicals Pro Forma Financial Results with the Pine Chemical Business and Caprolactone Business."

Year Ended December 31, 2020 vs.

Segment net sales.

The sales increase was driven by favorable volume of $53.6 million (seven percent of sales), which consisted of a favorable increase in engineered polymers ($122.1 million), partially offset by volume declines in industrial specialties ($63.9 million), oilfield technologies ($3.3 million) and pavement technologies product lines ($1.3 million).

Also driving the net sales increase was pricing and product mix of $20.3 million (three percent of sales) in industrial specialties ($12.3 million), oilfield technologies ($0.8 million), and pavement technologies product lines ($7.2 million), which were partially offset by unfavorable $4.8 million (one percent of sales) of foreign currency exchange impact.

The sales decrease was driven by unfavorable volume of $89.1 million (11 percent of sales), which consisted of volume declines in industrial specialties ($60.1 million) and oilfield technologies ($35.8 million), partially offset by volume growth in engineered polymers ($5.9 million) and pavement technologies product lines ($0.9 million).

Also driving the net sales decline was unfavorable pricing and product mix of $6.0 million (one percent of sales) in industrial specialties ($9.0 million), which was partially offset by favorable pricing and product mix in oilfield technologies ($0.1 million) and pavement technologies product lines ($2.9 million).

Unfavorable foreign currency of $1.1 million (less than one percent of sales) contributed to the overall decline impact.

Segment EBITDA.

Segment EBITDA increased $32.4 million due to favorable volume of $20.7 million, favorable price and product mix of $20.6 million, as well as favorable SG&A costs of $2.0 million.

These favorable operating results were partially offset by $10.4 million of unfavorable manufacturing productivity, primarily driven by higher freight costs, and unfavorable foreign currency exchange impacts and other miscellaneous charges of $0.5 million.

Segment EBITDA decreased $34.8 million, mainly due to the decline in volume of $38.6 million, unfavorable pricing and product mix of $4.7 million, and unfavorable foreign currency exchange impacts and other miscellaneous charges of $2.0 million.

Favorable SG&A expenses due to reduced travel and lower employee-related costs of $10.3 million and favorable manufacturing productivity of $0.2 million offset part of the overall decline.

Year Ended December 31, 2019 vs.

Segment net sales.

The sales increase was driven by favorable volume of $98.3 million (16 percent of sales) driven by industrial specialties ($52.3 million), oilfield technologies ($33.9 million) and pavement technologies product lines ($12.1 million).

Additionally, favorable pricing and product mix of $8.3 million (one percent of sales) in industrial specialties ($3.3 million), oilfield technologies ($2.3 million), and pavement technologies product lines ($2.7 million) markets and favorable $3.5 million (one percent of sales) of foreign currency exchange contributed to results.

driving the net sales increase was pricing and product mix of $20.3 million (three percent of sales) in industrial specialties ($12.3 million), oilfield technologies ($0.8 million), and pavement technologies product lines ($7.2 million), which were partially offset by unfavorable $4.8 million (one percent of sales) of foreign currency exchange.

Segment EBITDA.

Segment EBITDA increased $50.2 million due to favorable volume of $38.5 million, favorable price and product mix of $12.4 million, favorable manufacturing and production costs, net of freight inflation, of $3.5 million, and favorable foreign currency exchange and other miscellaneous income of $4.2 million.

These gains were partially offset by unfavorable SG&A expenses of $8.4 million, which was partially due to higher employee-related costs.

Performance Chemical Pro Forma Financial Results with the Pine Chemical Business and Caprolactone Business

Segment EBITDA increased $32.4 million due to favorable volume of $20.7 million, favorable price and product mix of $20.6 million, as well as favorable SG&A expenses of $2.0 million.

Performance Chemical Pro Forma Financial Results with the

Pine Chemical Business and Caprolactone Business

We believe that reviewing our operating results by combining actual and pro forma results for our Performance Chemicals segment is useful in identifying trends in, or reaching conclusions regarding, the overall operating performance.

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Our pro forma results are adjusted for the effects of acquisition accounting but do not include adjustments for costs related to integration activities, cost savings or synergies that might be achieved by the combined businesses.

Pro forma amounts presented are not necessarily indicative of what our results would have been had we operated the Pine Chemical Business and Caprolactone Business since January 1st in the year preceding the acquisition, nor will the pro forma amounts necessarily be indicative of our future results.

Performance Chemical Pro Forma Financial Results

Year Ended December 31,

Pro forma amounts presented are not necessarily indicative of what our results would have been had we operated the Pine Chemical Business and Caprolactone Business since January 1st in the year preceding the acquisition, nor are the pro forma amounts necessarily indicative of future results.

Performance Chemical Pro Forma Financial Results Comparison

Years Ended December 31,

In millions 2020 2019

Pro Forma 2018

Performance Chemicals, as reported (1)

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Pine Chemical Business and Caprolactone Business, pro forma (2)

Pro Forma Combined Net Sales (3)

Net Sales (3)

$ 706.1 $ 820.0 $ 920.4

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Pine Chemical Business and Caprolactone Business, pro forma (2)

Pro Forma Combined Segment EBITDA (3)

Segment EBITDA (3)

$ 148.7 $ 189.0 $ 217.0

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(3) The pro forma combined results are not necessarily indicative of what the results would have been had we acquired the Pine Chemical Business and Caprolactone Business on January 1st in the year preceding the acquisition, nor are they indicative of future results.

Performance Chemical Pro Forma Combined Net Sales

Year Ended December 31,

Performance Chemicals Pro Forma Net Sales Comparison

Years Ended December 31,

In millions 2020 2019

Pro Forma 2018

Oilfield Technologies product line $ 75.6 $ 111.4 $ 118.8

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Engineered Polymers product line 127.7 139.8 167.0

Pro Forma Combined Net Sales - Performance Chemicals $ 820.0 $ 920.4

Pro Forma Comparison of Year Ended December 31, 2019 vs.

Net Sales - Performance Chemicals $ 706.1 $ 820.0 $ 920.4

Pro Forma Comparison of Year Ended December 31, 2020, 2019, and 2018

Percentage change vs.

Performance Chemicals (In millions, except percentages)

Pro Forma Combined Net sales Total change Currency

Net Sales Total change Currency

effect Price/Mix Volume

Year Ended December 31, 2020 $ 706.1 (14) % — % (1) % (13) %

Pro Forma Combined Results - Year Ended December 31, 2019 vs.

Pro Forma Combined Net Sales.

Year Ended December 31, 2019 $ 820.0 (11) % (1) % 3 % (13) %

Pro Forma Results Comparison - Year Ended December 31, 2020 vs.

The decrease was driven by unfavorable volume of $106.8 million (13 percent of sales), which consisted of unfavorable volumes in industrial specialties ($60.1 million), oilfield technologies ($35.8 million) and engineered polymers product lines ($11.8 million), partially offset by a slight increase in pavement technologies ($0.9 million).

Also contributing to the decline was unfavorable pricing and product mix of $6.0 million (one percent of sales) driven by unfavorable price and product mix in industrial specialties product lines ($9.0 million), partially offset by pavement technologies ($2.9 million) and oilfield technologies ($0.1 million).

In addition, unfavorable foreign currency exchange impacted Net sales by $1.1 million (less than one percent of sales).

Segment EBITDA .

Pro Forma Segment EBITDA decreased by $40.3 million primarily due to decreased volumes of $44.0 million, increased manufacturing, freight and warehousing costs of $2.0 million, unfavorable pricing and product mix of $4.7 million, and unfavorable foreign currency exchange impact of $1.6 million.

These declines were partially offset by $12.0 million of favorable SG&A expenses.

Pro Forma Results Comparison - Year Ended December 31, 2019 vs.

The decrease was driven by unfavorable volume of $115.4 million (13 percent of sales), which consisted of unfavorable volumes in industrial specialties ($79.2 million), engineered polymers ($26.7 million), pavement technologies ($1.6 million), and oilfield technologies product lines ($7.9 million).

This decline was partially offset by pricing and product mix increase of $20.3 million (three percent of sales) driven by favorable price and product mix in oilfield technologies ($0.8 million), pavement technologies ($7.2 million), and industrial specialties product lines ($12.3 million).

In addition, unfavorable foreign currency exchange impacted Pro Forma Combined Net Sales by $5.3 million (less than one percent of sales).

Pro Forma Combined Segment EBITDA .

Pro Forma Combined Segment EBITDA decreased by $28.0 million primarily due to decreased volumes of $50.3 million, increased manufacturing, freight and warehousing costs of $5.9 million, and unfavorable foreign currency exchange impact of $1.9 million.

These declines were partially offset by $19.8 million of favorable pricing and product mix and $10.3 million of favorable SG&A costs.

In addition, unfavorable foreign currency exchange impacted Net sales by $5.3 million (less than one percent of sales).

Segment EBITDA .

Pro Forma Segment EBITDA decreased by $28.0 million primarily due to decreased volumes of $50.3 million, increased manufacturing, freight and warehousing costs of $5.9 million, and unfavorable foreign currency exchange impact of $1.9 million.

These declines were partially offset by $19.8 million of favorable pricing and product mix and $10.3 million of favorable SG&A expenses.

Use of Non-GAAP Financial Measures

Ingevity has presented the financial measure, Adjusted EBITDA, defined below, which has not been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) and has provided a reconciliation to net income, the most directly comparable financial measure calculated in accordance with GAAP.

generally accepted accounting principles (“GAAP”) and has provided a reconciliation to net income, the

most directly comparable financial measure calculated in accordance with GAAP.

Adjusted EBITDA is not meant to be considered in isolation or as a substitute for the most directly comparable financial measure calculated in accordance with GAAP.

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We believe this non-GAAP financial measure provides management as well as investors, potential investors, securities analysts and others with useful information to evaluate the performance of the business, because such measure, when viewed together with our financial results computed in accordance with GAAP, provides a more complete understanding of the factors and trends affecting our historical financial performance and projected future results.

We believe Adjusted EBITDA is a useful measure because it excludes the effects of investment activities as well as non-operating activities.

Adjusted EBITDA is defined as net income (loss) plus provision (benefit) for income taxes, interest expense, net, depreciation, amortization, restructuring and other (income) charges, net, acquisition and other-related costs, and pension and postretirement settlement and curtailment (income) charges.

We believe Adjusted EBITDA is a useful measure because it excludes the effects of financing and investment activities as well as non-operating activities.

This non-GAAP measure is not intended to replace the presentation of financial results in accordance with GAAP and investors should consider the limitations associated with these non-GAAP measures, including the potential lack of comparability of these measures from one company to another.

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Depreciation and amortization - Performance Chemicals 69.0 60.8 34.8

Pension and postretirement settlement and curtailment income (charges) — 0.2 —

Separation costs — — 0.9

Pension and postretirement settlement and curtailment income (charges), net 0.1 — 0.2

Restructuring and other (income) charges, net 18.5 1.8 (0.5)

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1.8 35.3 12.2

Separation costs — — 0.9

Adjusted EBITDA (Non-GAAP)

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Total Company Outlook and 2021 Guidance

For revenue, we expect favorable volume growth in Performance Materials’ automotive technologies product line driven by continued regulatory changes.

In Performance Chemicals, we expect volume growth in pavement technologies driven by continued chemistry adoption and global growth, and in engineered polymers as monomer markets stabilize and the use of caprolactone derivatives grow in targeted applications, spurred in part due to new product and innovation products.

The Performance Chemicals volume growth is expected to be partially offset by reduced volumes in the industrial specialties and oilfield technologies product lines.

We expect that first quarter 2020 revenue will be unfavorably impacted by $20 million to $30 million, due to the impacts of the novel coronavirus (COVID-19), however, we believe we will recover some or all of this impact over the course of the year.

For revenue, we expect favorable volume growth in Performance Materials’ automotive technologies product line largely due to continued industry efforts to refill the vehicle pipeline and despite the absence of any significant new gasoline vapor emission control regulations.

In Performance Chemicals, we expect moderate growth in demand for pavement technologies and engineered polymers based on strong paving project backlog, continued Evotherm® warm mix technology adoption, and increased demand for thermoplastics.

We also anticipate growth in merchant rosin sales and our agricultural dispersants products within industrial specialties, which will be partially offset by continued softness in publication inks and our oilfield chemicals business.

Our outlook reflects our expectation that the first half of 2021 will continue to be impacted by the COVID-19 pandemic and by the microchip shortage, which is disrupting the global automotive supply chain.

Adjusted EBITDA is expected to grow by one percent to six percent versus 2020.

In the Performance Materials segment, growth will be driven by continued volume, price and mix improvements, as the US and Canada continue adoption of

the Tier 3/LEV III standard, as China demand increases with continued adoption of China 6, and European demand increases as they continue implementation of Euro 6d.

This growth will be partially offset by marginally lower vehicle demand, maintenance expense associated with a kiln replacement in Covington, and continued legal costs to defend the company’s intellectual property.

In the Performance Chemicals segment, continued profitable growth in pavement technologies and a return to growth in engineered polymers is expected to be offset by somewhat lower volumes in industrial specialties and oilfield technologies, modest inflationary costs for freight and CTO, and lower throughput at our refineries.

Some risks to the 2020 outlook include lower than anticipated U.S., China, Canadian and European vehicle sales and production, higher non-CTO raw materials costs with higher oil prices, a shift towards smaller vehicles in the U.S.

(versus the 2016 to 2019 shift towards light trucks), lower oil prices and a reduction in oil drilling and production in oilfield technologies, Brexit, and ongoing trade and tariff discussions between the U.S.

and other countries.

We also expect the first quarter 2020 Adjusted EBITDA will be negatively impact by $10 million to $15 million as a result of the novel coronavirus (COVID-19), however, we believe we will recover some, if not all of, this impact over the course of the year.

In the Performance Materials segment, growth will be driven by continued volume, price, and mix improvements, due in part to a slight uptick in demand over 2020, and a continued refilling of the automotive pipeline.

This growth will be partially offset by higher logistics costs, increased compensation costs, and continued legal costs to defend our Performance Materials' intellectual property.

In our Performance Chemicals segment, continued profitable growth in pavement technologies and a return to growth in engineered polymers is expected to be partially offset by somewhat lower volumes in oilfield technologies, and modest inflationary costs for freight and primary raw materials.

Some risks to the 2021 outlook include lower than anticipated U.S., China, Canadian, and European vehicle sales and production, higher non-primary raw materials costs, a shift towards smaller vehicles in the U.S.

(versus the shift towards light trucks as seen in recent years), and further declines in oil drilling and production in oilfield technologies, negative impacts from Brexit, and prolonged disruptions in the global supply chain.

We expect to deliver fiscal year 2021 Adjusted EBITDA of $400 million to $420 million.

These estimates assume a slowdown of the 2019 novel coronavirus (COVID-19) public health crisis by the end of the first quarter.

These estimates assume that the first half of the year will continue to impacted by the COVID-19 pandemic, with improvements in economic conditions over the second half of the year.

A reconciliation of net income to adjusted EBITDA as projected for 2021 is not provided.

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Liquidity and Capital Resources

The primary source of liquidity for Ingevity’s business is the cash flow provided by operating activities.

The primary source of liquidity for our business is the cash flow provided by operating activities.

We expect our cash flow provided by operations combined with cash on hand and available capacity under our revolving credit facility to be sufficient to meet our working capital needs.

We believe these sources will be sufficient to fund our planned operations and meet our interest and other contractual obligations for at least the next twelve months.

Over the next twelve months, we expect to make interest payments, capital expenditures, principal repayments, treasury share repurchases, income tax payments, incurred additional spend associated with our Performance Materials' intellectual property litigation, and may incur additional acquisition-related costs.

As of December 31, 2019, our available capacity under our revolving credit facility was $616.6 million.

Over the next twelve months, we expect to make interest payments, capital expenditures, expenditures related to our business transformation initiative, principal repayments, purchases pursuant to our stock repurchase program, and income tax payments, and to incur additional spending associated with our Performance Materials' intellectual property litigation.

In addition, from time to time we may repurchase any of our outstanding 4.50 percent senior unsecured notes due in 2026 in open market or privately negotiated transactions or otherwise.

We believe our sources of liquidity will be sufficient to fund our planned operations and meet our interest and other contractual obligations for at least the next twelve months.

As of December 31, 2020, our undrawn capacity under our revolving credit facility was $497.7 million.

In addition, we also evaluate and consider strategic acquisitions, and joint ventures, as well as other transactions to create stockholder value and enhance financial performance.

Such transactions may require cash expenditures.

In connection with such transactions, or to fund other anticipated uses of cash, we may modify our existing debt facilities, seek additional debt financing, issue equity securities, or some combination thereof.

Cash and cash equivalents totaled $257.7 million at December 31, 2020.

Management continuously monitors deposit concentrations and the credit quality of the financial institutions that hold our cash and cash equivalents, as well as the credit quality of its insurance providers, customers, and key suppliers.

We continuously monitors deposit concentrations and the credit quality of the financial institutions that hold our cash and cash equivalents, as well as the credit quality of our insurance providers, customers, and key suppliers.

Due to the global nature of our operations, a portion of our cash is held outside the U.S.

The cash and cash equivalents balance at December 31, 2020 includ ed $88.2 million held by our foreign subsidiaries.

Cash and earnings of our foreign subsidiaries are generally used to finance our foreign operations and capital expenditures.

Cash and earnings of our foreign subsidiaries are generally used to finance our foreign operations and their capital expenditures.

We believe that our foreign holdings of cash will not have a material adverse impact on our U.S.

Management does not currently expect to repatriate cash earnings from our foreign operations in order to fund U.S.

If these earnings were distributed, such amounts would be subject to U.S.

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The potential tax implications of the repatriation of unremitted earnings are driven by facts at the time of distribution, therefore, it is not practicable to estimate the income tax liabilities that might be incurred if such cash and earnings were repatriated to the U.S.

Revolving Credit Facility and Term Loans

Management does not currently expect to repatriate cash earnings from our foreign operations in order to fund U.S.

Debt Obligations and Facilities

Refer to Note 11 to the consolidated financial statements included within Part II.

Item 8 of this Form 10-K for a summary of our revolving credit facility and outstanding term loans.

Item 8 of this Form 10-K for a summary of our outstanding debt obligations and revolving credit facility.

Other Potential Liquidity Needs

Share Repurchases

On February 20, 2017, the Board of Directors authorized the repurchase of up to $100.0 million of our common stock.

In addition, on November 1, 2018, the Board of Directors approved the authorization for the repurchase of up to an additional $350.0 million of Ingevity’s outstanding common stock.

The repurchase program does not include a specific timetable or price targets and may be suspended or terminated at any time.

On February 28, 2020, our Board of Directors authorized the repurchase of up to $500.0 million of our common stock, and at December 31, 2020, $412.0 million remained unused under this program.

We currently do not have any specific timetable or price targets for repurchasing shares, and may suspend or terminate the program 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 year ended December 31, 2019, we repurchased $6.4 million in common shares, representing 80,300 shares of our common stock at a weighted average cost per share of $80.22.

In the year ended December 31, 2020, we repurchased $88.0 million in common shares, representing 1,533,442 shares of our common stock at a weighted average cost per share of $57.38.

At December 31, 2020, $412.0 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 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 (“FIFO”) 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.

Capital Expenditures

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Cash flows provided by (used in) operating activities

During the year ended December 31, 2019, cash flow provided by operations increased primarily due to higher earnings, partially offset by working capital increases compared to 2018.

Working capital increases in 2019 when compared to 2018 are further explained below.

During the year ended December 31, 2020, cash flow provided by operations increased primarily due to working capital decreases compared to 2019, which are further explained below.

Current Assets and Liabilities

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Total current assets $ 628.7 $ 463.2

Current assets as of December 31, 2019, increased $40.5 million compared to December 31, 2018, primarily due to increases in inventories and accounts receivable.

Accounts receivable, net as of December 31, 2019, increased $31.1 million, which includes $13.2 million of receivables associated with the Caprolactone Acquisition.

The increase to accounts receivables was partially due to the increase in fourth quarter sales year over year and delayed customer receivable collections at the end of 2019.

Inventories, net also contributed to the overall increase in total current assets, primarily due to the inclusion of the Caprolactone Business' product inventory of $14.3 million.

See Note 17 in the Consolidated Financial Statements included within Part II.

Item 8 of this Form 10-K for more information on the Caprolactone Acquisition.

Additionally, Prepaid and other current assets increased by $9.3 million primarily related to the New Market Tax Credit transaction.

See Note 11 in the Consolidated Financial Statements included within Part II.

Current assets as of December 31, 2020, increased $165.5 million compared to December 31, 2019, primarily due to an increase in cash of $201.2 million.

This increase was partially offset by a decrease Inventories, net, of $23.5 million, due to a concerted effort to control inventory levels in 2020 due to the COVID-19 pandemic and higher that expected customer demand in the fourth quarter.

Prepaid and other current assets decreased by $10.2 million primarily related to a reduction in restricted cash from our New Market Tax Credit transaction (see Note 11 in the consolidated financial statements included within Part II.

Item 8 of this Form 10-K for more information).

Accounts receivable, net, was relatively flat, decreasing by $2.0 million in 2020.

In millions 2020 2019

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Total current liabilities $ 223.4 $ 215.5

Current liabilities as of December 31, 2019, increased by $32.2 million compared to December 31, 2018, driven primarily by the $17.1 million increase in Current operating lease liabilities associated with adoption of the new lease accounting standard (see Notes 4 and 14 in the Consolidated Financial Statements included within Part II.

Item 8 of this Form 10-K for more information on the adoption and current lease balances).

Also increasing current liabilities was an $11.3 million increase in the current portion of long-term debt (see Note 11 in the Consolidated Financial Statements included within Part II.

Item 8 of this Form 10-K for more information on our debt balances) as well a $14.8 million increase on our Income taxes payable.

See Note 18 in the Consolidated Financial Statements included within Part II.

Item 8 of this Form 10-K for more information as it relates to income taxes and related balances.

Offsetting the increases noted above was a decrease of

$13.8 million in Accrued payroll and employee benefits, primarily related to lower accrued incentive costs in the current year as compared to the year ended December 31, 2018.

Current liabilities as of December 31, 2020, increased by $7.9 million compared to December 31, 2019, driven primarily by the increase in Accrued expenses of $13.3 million, related to an increase in accrued taxes of $4.7 million, accrued interest of $2.8 million, and accrued rebates of $2.1 million.

Also increasing current liabilities was a $3.5 million increase in the current portion of long-term debt (see Note 11 in the consolidated financial statements included within Part II.

Item 8 of this Form 10-K for more information on our debt balances).

These increases were partially offset by a decrease of $10.0 million on our Income taxes payable (see Note 18 in the taxes and related balances) and a decrease of $3.1 million in Accrued payroll and employee benefits, primarily related to lower accrued incentive costs in the current year as compared to the year ended December 31, 2019.

Cash flows provided by (used in) investing activities

The cash used in investing activities for the year ended December 31, 2019 was primarily driven by the $537.9 million purchase of the Caprolactone Business (see Note 17 to the Consolidated Financial Statements Consolidated Financial Statements included within Part II.

The cash used in investing activities for the year ended December 31, 2020 was primarily driven by capital and finance lease expenditures.

See the table below for the capital expenditure spending by category.

The cash used in investing activities for the year ended December 31, 2019 was primarily driven by the $537.9 million purchase of the Caprolactone Business (see Note 17 to the consolidated financial statements included within Part II.

Item 8 of this Form 10-K for more information).

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For the year ended December 31, 2020, capital spending was driven primarily by maintenance and growth spending.

Our Performance Materials' facilities, including Covington, Virginia, Wickliffe, Kentucky, and Waynesboro, Georgia, incurred expenditures for growth and expansion projects, as well as base maintenance and safety spending.

Our Performance Chemicals' facility in Warrington, United Kingdom, completed a large, multi-year growth and cost improvement project, and there was additional spending at all of our Performance Chemicals' facilities for base maintenance and safety spending.

Additionally, we had capital expenditures related to our business transformation initiative (see Note 16 to the consolidated financial statements included within Part II.

Item 8 of this Form 10-K for more information) and our new corporate headquarters.

For the year ended December 31, 2019, capital spending was driven primarily by maintenance and growth spending.

Our Covington, Virginia facility incurred expenditures for its expansion project, along with base maintenance and other various equipment purchases.

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Cash flows provided by (used in) financing activities

Cash provided by financing activities for the year ended December 31, 2019 was $369.2 million, and was driven by proceeds from long-term borrowings from a new term loan in Q1 of 2019 of $375.0 million and $131.3 million in net borrowings related to our revolving credit facility (refer to Note 11 to the Consolidated Financial Statements Consolidated Financial Statements included within Part II.

Cash provided by financing activities for the year ended December 31, 2020 was $50.2 million, and was driven by proceeds from long-term borrowings from the senior notes that were issued in the fourth quarter of $550.0 million, net of debt issuance costs of $8.8 million.

We used these proceeds to repay the outstanding balance on the revolving credit facility of $131.2 million and the 2019 term loan of $375.0 million.

We also paid $2.2 million in debt issuance costs for the amendment to our revolving credit facility (refer to Note 11 to the consolidated financial statements included within Part II.

Item 8 of this Form 10-K for more information).

Additionally, we repaid $14.1 million of other long-term borrowings, repurchased $88.0 million of our common stock, and made payments of $3.2 million related to withholding tax on vested equity awards.

Cash provided by financing activities for the year ended December 31, 2019 was $369.2 million, and was driven by proceeds from long-term borrowings from a new term loan in the first quarter of 2019 of $375.0 million and $131.3 million in net borrowings related to our revolving credit facility (refer to Note 11 to the consolidated financial statements included within Part II.

Item 8 of this Form 10-K for more information).

This was offset by repayments of $122.5 million on our long-term borrowings.

Additionally, we made payments of $14.3 million related to tax withholdings on vested equity awards.

Additionally, we made payments of $14.3 million related to withholding tax on vested equity awards.

Cash provided by financing activities for the year ended December 31, 2018 was $153.7 million, and was driven by proceeds from long-term borrowings from the issuance of $300.0 million senior notes (refer to Note 11 to the consolidated financial statements included within Part II.

Item 8 of this Form 10-K for more information), offset by our purchase of the remaining portion of our joint venture with Purification Cellutions, LLC of $80.0 million (refer to Note 13 to the consolidated financial statements included within Part II.

Item 8 of this Form 10-K for more information), $47.4 million to repurchase shares according the publicly announced share repurchase program (also refer to Note 13 to the Consolidated Financial Statements included within Part II.

Item 8 of this Form 10-K for more information), $47.4 million to repurchase shares under a share repurchase program (also refer to Note 13 to the consolidated financial statements included within Part II.

Item 8 of this Form 10-K for more information), and noncontrolling interest distributions of $15.3 million.

Cash used by financing activities for the year ended December 31, 2017 was $57.8 million, and was driven by net repayments of $111.9 million, noncontrolling interest distributions of $12.3 million, and $6.6 million to repurchase shares according to the publicly announced share repurchase program.

Off-Balance Sheet Arrangements

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In millions Total at

December 31, 2019

2020 2021-2022 2023-2024 2025 and beyond

December 31, 2020 2021 2022-2023 2024-2025 2026 and beyond

Contractual obligations

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Variable rates are determined by the market and will fluctuate over time.

(2) Amounts include the interest payments under the finance lease as well as the principal payment due in 2027.

(2) Amounts include the interest payments, as well as the principal payment due in 2027, for the finance lease related to assets at

our Wickliffe, Kentucky facility, and payments related to the finance lease for our North Charleston, South Carolina corporate headquarters which will be paid through the lease term ending in 2035.

New Accounting Guidance

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The following is a list of those accounting policies that we have deemed most critical to the presentation and understanding of our results of operations and financial condition:

Revenue recognition and Accounts receivables

In May 2014, the Financial Accounting Standard Board ("FASB") issued ASU 2014-09 “Revenue from Contracts with Customers (Topic 606),” which supersedes both the revenue recognition requirement to ASC 605 “Revenue Recognition” and most industry-specific guidance.

The core principle of the new standard (ASC 606) is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

An entity must also disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.

In 2016 and 2017, the FASB issued several ASUs that provided additional clarity on numerous topics as well as providing technical corrections to ASU 2014-09.

We adopted this new standard on January 1, 2018, utilizing the modified retrospective method applied to those contracts, which were not completed as of that date.

Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be presented in accordance with our historic accounting under ASC 605.

Substantially all our revenue is recognized when products are shipped from our manufacturing and warehousing facilities, which represents the point at which control is transferred to the customer.

For certain limited contracts, where we are producing goods with no alternative use and for which we have an enforceable right to payment for performance completed to date, we are recognizing revenue as goods are manufactured, rather than when they are shipped.

Sales net of returns and customer incentives are based on the sale of manufactured products.

Net sales are recognized when obligations under the terms of a contract with our customer are satisfied;

Revenue recognition

Our revenue is derived from contracts with customers, and substantially all our revenue is recognized when products are either shipped from our manufacturing and warehousing facilities or delivered to the customer.

Revenue, net of returns and customer incentives, are based on the sale of manufactured products.

Revenues are recognized when performance obligations under the terms of a contract with our customer are satisfied;

generally, this occurs with the transfer of control of our products.

Revenues are presented as Net sales on the consolidated statements of operations to the consolidated financial statements.

Since Net sales are derived from product sales only, we have disaggregated our Net sales by our product lines within each reportable segment.

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Certain customers may receive cash-based incentives, including discounts and volume rebates, which are accounted for as variable consideration and included in Net sales.

Shipping and handling fees billed to customers continue to be included with Net sales.

If we pay for the freight and shipping, we recognize the cost when control of the product has transferred to the customer as an expense in Cost of sales on the consolidated statement of operations.

Shipping and handling fees billed to customers are included with Net sales.

If we pay for the freight and shipping, we recognize the cost when control of the product has transferred to the customer as an expense in Cost of sales on the consolidated statements of operations.

Although very rare, from time to time we incur expenses to obtain a sales contract.

In these cases, if these costs are for orders that are fulfilled in one year or less, we expense these costs as they are incurred.

Payment terms with our customers are typically in the range of zero to sixty days.

Because the period between when we transfer a promised good to a customer and when the customer pays for that good will be one year or less, we elect not to adjust the promised amount of consideration for the effects of any financing component, as it is not significant.

Accounts receivables consist of amounts owed to Ingevity from customer sales and are recorded at the invoiced amounts when revenue is recognized and generally do not bear interest.

The allowance for doubtful accounts is our best estimate of the amount of probable loss in the existing accounts receivable.

We determine the allowance based on historical write-off experience, current collection trends, and external business factors such as economic factors, including regional bankruptcy rates, and political factors.

Past due balances over a specified amount are reviewed individually for collectability.

Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.

Valuation of tangible and intangible long-lived assets and goodwill

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Goodwill represents the excess of cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.

We review the recorded value of goodwill at least annually at October 1, or sooner if events or changes in circumstances indicate that the fair value of a reporting unit is below its carrying value.

A reporting unit is the level at which discrete financial information is available and reviewed by business management on a regular basis.

An impairment exists when the carrying value of a reporting unit exceeds its fair value.

We conduct a required annual review of goodwill for potential impairment at October 1, or sooner if events or changes in circumstances indicate that the fair value of a reporting

unit is below its carrying value.

Our reporting units are our operating segments, i.e.

Performance Chemicals and Performance Materials.

If an indication exists that the fair value of a reporting unit with goodwill is less than its carrying value, a quantitative goodwill impairment test is performed.

The fair value of each reporting unit is estimated primarily using an income approach, specifically the discounted cash flow method.

The following assumptions are key to the income approach:

1) cash flow and earnings projections;

2) growth rates;

3) discount rates;

4) income tax rates;

and, 5) terminal value rates.

The factors we considered in developing our estimates and projections for cash flows and earnings include, but are not limited to, the following:

If the carrying value of a reporting unit that includes goodwill exceeds its fair value, which is determined using both the income approach and market approach, goodwill is considered impaired.

The income approach determines fair value based on discounted cash flow model derived from a reporting unit’s long-term forecasted cash flows.

The market approach determines fair value based on the application of earnings multiples of comparable companies to projected earnings of the reporting unit.

The amount of impairment loss is measured as the difference between the carrying value and the fair value of a reporting unit but is limited to the total amount of goodwill allocated to the reporting unit.

In performing the fair value analysis, management makes various judgments, estimates and assumptions, the most significant of which is the assumption related to revenue growth rates.

The factors we considered in developing our estimates and projections for cash flows include, but are not limited to, the following:

(i) macroeconomic conditions;

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and, (v) other relevant entity-specific events that impact our reporting units.

The discount rate we used represents the weighted average cost of capital for the reporting units, considering the risks and uncertainty inherent in the cash flows of the reporting units and in our internally-developed forecasts.

The determination of whether goodwill is impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the estimated fair values of our reporting units.

We believe that the assumptions and rates used in our impairment assessment are reasonable;

We believe that the estimates and assumptions used in our impairment assessment are reasonable;

however, these assumptions are judgmental and variations in any assumptions could result in materially different calculations of fair value.

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and contingent purchase consideration to be recognized at fair value on the acquisition date with subsequent adjustments recognized in the consolidated results of operations.

We generally use third party qualified consultants to assist management in determination of the fair value of assets acquired and liabilities assumed.

We generally use third-party qualified consultants to assist management in determining the fair value of assets acquired and liabilities assumed.

This includes, when necessary, assistance with the determination of lives and valuation of property and identifiable intangibles, assisting management in determining the fair value of obligations associated with employee related liabilities and assisting management in assessing obligations associated with legal and environmental claims.

The fair values assigned to identifiable intangible assets acquired are determined primarily by using an income approach, which is based on assumptions and estimates made by management.

Significant assumptions utilized in the income approach are the attrition rate, growth rates and discount rate.

The fair value assigned to identifiable intangible assets acquired are determined primarily by using an income approach, which is based on assumptions and estimates made by management.

Significant assumptions utilized in the income approach are the attrition rate, growth rate, and discount rate.

These assumptions are based on company specific information and projections, which are not observable in the market and are therefore considered Level 2 and Level 3 measurements.

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Operating results of the acquired entity are reflected in the consolidated financial statements from date of acquisition.

We are subject to income taxes in the United States and numerous foreign jurisdictions, including China and the United Kingdom.

We are subject to income taxes in the U.S.

and numerous foreign jurisdictions, including China and the United Kingdom.

The provision for income taxes includes income taxes paid, currently payable or receivable, and deferred taxes.

We follow the liability method of accounting for income taxes in accordance with current accounting standards regarding the accounting for income taxes.

Under this method, deferred income taxes are recorded based upon the differences between the

financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect at the time the underlying assets or liabilities are recovered or settled.

Under this method, deferred income taxes are recorded based upon the differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect at the time the underlying assets or liabilities are recovered or settled.

The ability to realize deferred tax assets is evaluated through the forecasting of taxable income, historical and projected future operating results, the reversal of existing temporary differences, and the availability of tax planning strategies.

Valuation allowances are recognized to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

Valuation allowances are recognized to reduce deferred tax assets when it is more

likely than not that a tax benefit will not be realized.

We do not provide income taxes on undistributed earnings of consolidated foreign subsidiaries as it is our intention that such earnings will remain invested in those companies.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis