What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-19 compared with 2020-02-26 · 570 added, 619 removed, 1415 unchanged (46% of the section changed)

22 unchanged sentences

Based on its assessment and those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2020.

Our assessment of the effectiveness of internal control over financial reporting as of December 31, 2019 did not include the internal controls at our Ingevity UK Ltd.

legal entity, as permitted by Securities and Exchange Commission guidelines that allow companies to exclude certain acquisitions from their assessment of internal control over financial reporting during the first year following an acquisition.

Ingevity UK Ltd.

is the legal entity that owns the acquired net assets of the Caprolactone Business that we acquired on February 13, 2019.

Six percent and nine percent of Ingevity's consolidated total assets and consolidated revenues, associated with Ingevity UK Ltd., as of and for the year ended December 31, 2019, were excluded from management's assessment of internal control over financial reporting.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of the Company's internal control over financial reporting as of December 31, 2020, as stated in their report, which is presented on the following page.

February 19, 2021

/S/ RICHARD B.

KELSON /S/ JOHN C.

Kelson John C.

Chairman of the Board, and Interim President and

Chief Executive Officer Executive Vice President and Chief Financial Officer

President and Chief Executive Officer and Interim Chief Financial Officer and Treasurer

Report of Independent Registered Public Accounting Firm

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Ingevity Corporation and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the index appearing under item 15(a)ii (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Ingevity Corporation and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended Decem ber 31, 2020, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)ii (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and December 31, 2018 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 4 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

As discussed in N ote 14 to the consolid ated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded the Ingevity UK Ltd.

legal entity, which holds the net assets acquired from Perstorp Holding AB’s Caprolactone Business, from its assessment of internal control over financial reporting as of December 31, 2019 because the Caprolactone Business was acquired by the Company in a purchase business combination during 2019.

We have also excluded Ingevity UK Ltd.

from our audit of internal control over financial reporting.

Ingevity UK Ltd.

is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 6% and 9%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2019.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Customer Relationships Intangible Asset – Perstorp Holding AB’s Caprolactone Business Acquisition

As described in Note 17 to the consolidated financial statements, the Company completed the acquisition of Perstorp Holding AB’s Caprolactone Business on February 13, 2019 for an aggregate purchase price of $652.5 million, less assumed debt of $113.1 million.

One of the most significant assets recorded was $159 million related to a customer relationships intangible asset.

The fair values assigned to the customer relationships intangible asset acquired was determined by using a multi-period excess earnings model.

Significant assumptions utilized in the model are the attrition rate, revenue growth rates, and the discount rate.

The principal considerations for our determination that performing procedures relating to the valuation of the customer relationships intangible asset acquired as part of the Perstorp Holdings AB’s Caprolactone Business acquisition is a critical audit matter are (i) there was a high degree of auditor judgment and subjectivity in applying our procedures related to the fair value measurement of the customer relationships intangible asset acquired due to the significant judgment by management when developing the estimate;

(ii) significant audit effort was required in evaluating the significant assumptions relating to the valuation of the customer relationships intangible asset, including the attrition rate, revenue growth rates, and the discount rate;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Goodwill Impairment Assessment – Performance Chemicals Reporting Unit

As described in Notes 3 and 9 to t he consolidated financial statements, the Company’s consolidated goodwill balance and goodwill balance for the Performance Chemicals reporting unit were $445.3 million and $441.0 million, respectively, as of December 31, 2020.

Management conducts 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.

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 a discounted cash flow model derived from a reporting unit’s long-term forecasted cash flows.

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 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 a reporting unit.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Performance Chemicals reporting unit is a critical audit matter are (i) the significant judgment by management when determining the fair value measurement of the reporting unit , which led to (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumption related to revenue growth rates used in the income approach.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationships intangible asset and the development of the assumptions related to the valuation of the customer relationships intangible asset, including the attrition rate, revenue growth rates, and the discount rate.

These procedures also included, among others (i) reading the purchase agreement;

(ii) testing management’s process for estimating the fair value of customer relationships intangible asset;

and (iii) testing the completeness and accuracy of the underlying data used in the model.

Testing management’s process included evaluating the appropriateness of the valuation model and the reasonableness of significant assumptions, including the attrition rate, revenue growth rates and the discount rate.

Evaluating the reasonableness of the attrition rate and revenue growth rates involved considering the past performance of the acquired Perstorp Holdings AB’s Caprolactone Business and whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating significant assumptions, including the discount rate and the attrition rate.

The discount rate was evaluated by considering the cost of capital of comparable businesses and other industry factors.

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment for the reporting unit, including controls over the development of the revenue growth rates utilized in the income approach.

These procedures also included, among others (i) testing management’s process for determining the fair value measurement;

(ii) evaluating the appropriateness of the discounted cash flow model;

(iii) testing the completeness and accuracy of underlying data used in the model;

and (iv) evaluating the reasonableness of the revenue growth rates used by management.

Evaluating the revenue growth rates involved evaluating whether the assumption used by management was reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether the assumption was consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

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Research and technical expenses 22.6 19.7 21.5

Separation costs — — 0.9

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

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Foreign currency translation adjustment 23.9 15.6 ( 6.3 )

Unrealized gain (loss) on net investment hedges, net of tax provision (benefit) of $0.7, zero, and zero 2.3 — —

Total foreign currency adjustments, net of tax provision (benefit) of $0.7, zero, and zero 17.9 ( 6.3 ) 8.3

Unrealized gain (loss) on net investment hedges, net of tax provision (benefit) of $( 2.7 ), $ 0.7 , and zero

( 9.0 ) 2.3 —

Total foreign currency adjustments, net of tax provision (benefit) of $( 2.7 ), $ 0.7 , and zero

14.9 17.9 ( 6.3 )

Derivative instruments:

Unrealized gain (loss), net of tax provision (benefit) of ($1.1), $0.4, and zero ( 3.7 ) 1.3 ( 0.1 )

Reclassifications of deferred derivative instruments (gain) loss, included in net income (loss), net of tax (provision) benefit of ($0.1), ($0.3), and zero ( 0.2 ) ( 0.9 ) 0.1

Total derivative instruments, net of tax provision (benefit) of ($1.2), $0.1, and zero ( 3.9 ) 0.4 —

Unrealized gain (loss), net of tax provision (benefit) of $( 1.3 ), $( 1.1 ), and $ 0.4

( 4.3 ) ( 3.7 ) 1.3

Reclassifications of deferred derivative instruments (gain) loss, included in net income (loss), net of tax (provision) benefit of $ 0.3 , $( 0.1 ), and $( 0.3 )

0.9 ( 0.2 ) ( 0.9 )

Total derivative instruments, net of tax provision (benefit) of $( 1.0 ), $( 1.2 ), and $ 0.1

( 3.4 ) ( 3.9 ) 0.4

Pension & other postretirement benefits:

Unrealized actuarial gains (losses) and prior service (costs) credits, net of tax provision (benefit) of $( 0.6 ), $( 0.4 ), and $( 0.1 )

Reclassifications of net actuarial and other (gain) loss, amortization of prior service cost, and settlement and curtailment (income) charges, included in net income, net of tax (provision) benefit of zero, $0.1, and zero 0.1 0.2 —

Total pension and other postretirement benefits, net of tax provision (benefit) of ($0.4), zero, and ($0.4) ( 1.3 ) ( 0.1 ) ( 0.7 )

( 2.1 ) ( 1.4 ) ( 0.3 )

Total pension and other postretirement benefits, net of tax provision (benefit) of $( 0.6 ), $( 0.4 ), and zero

( 1.8 ) ( 1.3 ) ( 0.1 )

Other comprehensive income (loss), net of tax provision (benefit) of $( 4.3 ), $( 0.9 ), and $ 0.1

9.7 12.7 ( 6.0 )

Comprehensive income (loss) 191.1 196.4 175.8

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Cash and cash equivalents $ 257.7 $ 56.5

Accounts receivable, net of allowance of $0.5 at 2019 and $0.4 at 2018 150.0 118.9

Accounts receivable, net of allowance for credit losses of $ 1.9 million - 2020 and $ 0.5 million - 2019

Inventories, net 189.0 212.5

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Deferred income taxes 8.1 5.0

Restricted investment 72.6 71.2

Restricted investment, net of allowance for credit losses of $ 0.9 million - 2020

Other assets 52.8 50.2

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Share-based compensation plans — — 12.3 — — 1.8 — 14.1

Reclassification of certain deferred tax effects — — — 0.3 ( 0.3 ) — — —

Adoption of accounting standard — — — 1.6 — — — 1.6

Acquisition of noncontrolling interest — — ( 54.3 ) — — — ( 11.4 ) ( 65.7 )

Balance at December 31, 2018 42,331.9 $ 0.4 $ 98.3 $ 313.5 $ ( 17.7 ) $ ( 55.8 ) $ — $ 338.7

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Share repurchase program — — — — — ( 6.4 ) — ( 6.4 )

Noncontrolling interest distributions — — — — — — ( 15.3 ) ( 15.3 )

Share-based compensation plans — — 12.8 — — 1.9 — 14.7

Adoption of accounting standard — — — 1.6 — — — 1.6

Acquisition of noncontrolling interest — — ( 54.3 ) — — — ( 11.4 ) ( 65.7 )

Balance at December 31, 2019 42,675.2 $ 0.4 $ 112.8 $ 497.2 $ ( 5.0 ) $ ( 74.6 ) $ — $ 530.8

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Share repurchase program — — — — — ( 88.0 ) — ( 88.0 )

Noncontrolling interest distributions — — — — — — — —

Share-based compensation plans — — 6.6 — — 3.5 — 10.1

Adoption of accounting standard — — — ( 0.6 ) — — — ( 0.6 )

Balance at December 31, 2020 42,912.8 $ 0.4 $ 121.3 $ 678.0 $ 4.7 $ ( 162.3 ) $ — $ 642.1

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Depreciation and amortization 100.2 85.0 57.0

Non cash operating lease costs 18.0 19.9 —

Deferred income taxes 16.2 14.8 0.9

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Income taxes ( 9.6 ) 14.7 5.0

Operating leases ( 18.5 ) ( 19.8 ) —

Pension contribution — — ( 1.6 )

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Capital expenditures ( 82.1 ) ( 114.8 ) ( 93.9 )

Finance lease expenditures ( 23.8 ) — —

Payments for acquired businesses, net of cash acquired — ( 537.9 ) ( 315.5 )

Purchase of equity securities — — ( 2.4 )

Sale of equity securities — — 1.1

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Debt issuance costs ( 11.0 ) ( 2.4 ) ( 7.1 )

Financing lease obligations, net 23.1 — —

Borrowings (repayments) of notes payable and other short-term borrowings, net ( 4.4 ) 2.1 3.9

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_______________

(1) Includes restricted cash of $8.1 million, $0.3 million, and zero and cash and cash equivalents of $56.5 million, $77.5 million, and $87.9 million for the years ended December 31, 2019, 2018, and 2017, respectively.

(1) Includes restricted cash of $ 0.7 million, $ 8.1 million, and $ 0.3 million and cash and cash equivalents of $ 257.7 million, $ 56.5 million, and $ 77.5 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Restricted cash is included within "Prepaid and other current assets" within the consolidated balance sheets.

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Note Page No.

2 Basis of Consolidation and Presentation

2 Coronavirus Pandemic

3 Summary of Significant Accounting Policies

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8 Property, Plant, and Equipment, net

9 Goodwill and Other Intangible Assets

9 Goodwill and Other Intangible Assets, net

10 Financial Instruments and Risk Management

11 Debt, including Capital Lease Obligations

11 Debt, including Fi nance Lease Obligations

12 Share-based Compensation

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December 31, 2020

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.

Description of Business

Ingevity Corporation ("Ingevity," "the company," "we," "us" or "our") provides products and technologies that purify, protect, and enhance the world around us.

Through a team of talented and experienced people, we develop, manufacture, and bring to market solutions that help customers solve complex problems and make the world more sustainable.

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.

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 purifications 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 (acquired in 2019;

see Note 17 for more information) 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).

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 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).

Basis of Consolidation and Presentation

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If Ingevity's ownership is less than 100 percent, the outside stockholders' interests are shown as noncontrolling interests.

In 2018 and 2017, our noncontrolling interest represented the 30 percent ownership interest held by a third-party U.S.

In 2018, 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, now known as Ingevity Georgia, LLC.

See Note 13 for information regarding our acquisition of the 30 percent interest in Purification Cellutions, LLC on August 1, 2018.

The preparation of the 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 year ended December 31, 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 consolidated financial statements.

While there was not a material impact to our consolidated financial statements as of and for the year ended December 31, 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.

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 -

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

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.

During the third quarter of 2020, 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.

Summary of Significant Accounting Policies

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Highly liquid securities with an original maturity of three months or less are considered to be cash equivalents.

Accounts receivable and allowance for doubtful accounts:

Accounts receivable, net on the consolidated balance sheets are comprised of trade receivables less allowances for doubtful accounts.

Accounts receivable and allowance for credit losses:

Accounts receivable, net on the consolidated balance sheets are comprised of trade receivables less allowances for credit losses.

Trade 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.

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

We determine the allowance based on our expected of future credit losses which in part is 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.

Allowance for doubtful accounts at December 31, 2019 and 2018, was $ 0.5 million and $ 0.4 million, respectively.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

Allowance for credit losses at December 31, 2020 and 2019, was $ 1.9 million and $ 0.5 million, respectively.

Concentration of credit risk:

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We had accounts receivable from our largest customer of $ 4.7 million and $ 3.2 million as of December 31, 2020 and 2019, respectively.

Sales to this customer, which are included in the Performance Materials segment, were six percent of total net sales for each of the years ended December 31, 2019, 2018, and 2017.

Sales to this customer, which are included in the Performance Materials segment, were approximately six percent, five percent, and three percent of total net sales for each of the years ended December 31, 2020, 2019, and 2018, respectively.

No customers individually accounted for greater than 10 percent of Ingevity's consolidated Net sales.

Inventories, net:

Inventories held in the U.S.

are valued at lower of cost or market.

Inventories held are valued at lower of cost or net realizable value, except for inventories determined using the the last-in, first-out method (“LIFO”), which are valued at the lower of LIFO or market cost.

The value of our U.S.

inventories is determined using the last-in, first-out method (“LIFO”) for substantially all raw materials, finished goods and production materials.

Cost of all other inventories, including stores and supplies inventories and inventories of non-U.S.

operations, is determined by the first-in, first-out ("FIFO") or average costs methods and are held at either lower of cost or net realizable value.

inventories is determined using LIFO for substantially all raw materials, finished goods, and production materials.

The value of all other inventories, including stores and supplies inventories and inventories of non-U.S.

operations, is determined by the first-in, first-out ("FIFO") or average costs methods.

Elements of cost in inventories include raw materials, direct labor, and manufacturing overhead.

We routinely assess inventory for both potential obsolescence and potential declines in anticipated selling prices, to derive a market value for the inventory on hand.

This review also includes an analysis of potentially obsolete, unmarketable, slow moving, or overvalued inventory.

This review also includes an analysis of potentially obsolete,

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

unmarketable, slow moving, or overvalued inventory.

If necessary, we will impair any inventories by an amount equal to the difference between the value of the held inventory (i.e.

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Depreciation:

The cost of plant and equipment is depreciated, utilizing the straight-line method, over the estimated useful lives of the assets, the majority of which range from 20 to 40 years for buildings and leasehold improvements and 5 to 30 years for machinery and equipment.

The cost of property, plant and equipment is depreciated, utilizing the straight-line method, over the estimated useful lives of the assets, the majority of which range from 20 to 40 years for buildings and leasehold improvements and 5 to 30 years for machinery and equipment.

The following table provides the detail behind the useful lives and proportion of our machinery and equipment (“M&E”) in each useful life category.

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11 15 Control systems, instrumentation, metering equipment

8 25 to 30 Blending equipment, storage tanks, piping, shipping equipment and platforms, safety equipment

19 5 to 10 Production control system equipment and hardware, laboratory testing equipment

Blending equipment, storage tanks, piping, shipping equipment and platforms, safety equipment

Production control system equipment and hardware, laboratory testing equipment

3 40 Machinery & equipment support structures and foundations

9 Various Various

We lease a variety of assets for use in our operations that are classified as operating leases.

At contract inception, we determine that a lease exists if the contract conveys the right to control an identified asset for a period of time in exchange for consideration.

Control is considered to exist when the lessee has the right to obtain substantially all of the economic benefits from the use of an identified asset as well as the right to direct the use of that asset.

If a contract is considered to be a lease, we recognize a lease liability based on the present value of the future lease payments, with an offsetting entry to recognize a right-of-use asset.

As a majority of our leases do not provide an implicit rate within the lease, an incremental borrowing rate is used which is based on information available at the commencement date.

The determination of the incremental borrowing rate for each individual lease was impacted by the following assumptions:

lease term, currency, and the economic environment for the physical location of the leased asset.

Our operating leases principally relate to the following leased asset classes:

Leased Asset Class Remaining Lease Term

Administrative offices 1 to 15 years

Manufacturing buildings 9 to 28 years

Manufacturing and office equipment 1 to 10 years

Warehousing and storage facilities 5 to 10 years

Vehicles 3 to 6 years

Rail cars 1 to 8 years

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Lease expense is recognized on a straight-line basis over the expected lease term.

Some of our leases include options to extend the lease term at our sole

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

We account for lease and non-lease components together as a single component for all lease asset classes.

The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain leases provide for escalation of the lease payments, as well as maintenance costs and taxes increase.

Impairment of long-lived assets:

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We report an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

Goodwill and other intangible assets:

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, such as significant adverse changes in operating results, market conditions, or changes in management’s business strategy indicate that there may be a probable indicator of impairment.

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.

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.

We will continue to evaluate goodwill on an annual basis as of October 1, and whenever events or changes in circumstances, such as significant adverse changes in operating results, market conditions, or changes in management’s business strategy indicate that there may be a probable indicator of impairment.

It is possible that the assumptions used by management related to the evaluation may change or that actual results may vary significantly from management’s estimates.

Other intangible assets are comprised of finite-lived intangible assets consisting primarily of brands:

representing trademarks, trade names and know-how, customer contracts and relationships, and developed technology.

Our fiscal year 2020 annual goodwill impairment test was performed as of October 1, 2020.

We determined that the fair value of both our reporting units were substantially in excess of their carrying value and therefore concluded that no goodwill impairment existed.

There were no events or circumstances indicating that goodwill might be impaired as of December 31, 2020.

No impairment charges have been recognized historically.

Other intangible assets are comprised of finite-lived intangible assets consisting primarily of brands (representing trademarks, trade names and know-how), customer contracts and relationships, and developed technology.

Other intangible assets are amortized over their estimated useful lives which range from 5 to 20 years.

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Amortization is recorded to Costs of sales on our consolidated statements of operations for software directly used in the production of inventory and Selling, general, and administrative expenses on our consolidated statements of operations for software used for non-production related activities.

L egal liabilities:

We recognize a liability for legal contingencies when a loss is probable and reasonably estimable.

Third-party fees for legal services are expensed as incurred.

Revenue recognition:

In May 2014, the 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

Ingevity Corporation

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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;

Legal liabilities:

We recognize a liability for legal contingencies when a loss is probable and reasonably estimable.

Third-party fees for legal services are expensed as incurred.

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.

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.

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 within 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 in 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.

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Royalty expense is recognized as incurred and recorded to Cost of sales on our consolidated statements of operations.

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 recorded within Restructuring and other (income) charges, net on our consolidated statement of operations.

These costs are excluded from our operating segment results.

We record an accrual for severance and other non-recurring costs under the provisions of the relevant accounting guidance.

Additionally, in some restructuring plans write-downs of long-lived assets may occur.

Two types of assets are impacted:

assets to be disposed of by sale and assets to be abandoned.

Assets to be disposed of by sale are measured at the lower of carrying amount or estimated net proceeds from the sale.

Assets to be abandoned with no remaining future service potential are written down to amounts expected to be recovered.

The useful lives of assets to be abandoned that have a remaining future service potential are adjusted and depreciation is recorded over the adjusted useful life.

Income taxes:

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

The Provision (benefit) 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.

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.

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

We follow the asset and 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 recognized based upon the temporary 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

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

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.

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.

See Note 18 for more information.

We recognize income tax positions that are more likely than not to be realized and accrue interest related to unrecognized income tax positions, which is included as a component of the Provision (benefit) for income taxes on the consolidated statements of operations.

We recognize income tax positions that are more-likely-than-not to be realized and accrue interest related to unrecognized income tax positions, which is included as a component of the income tax provision, on the consolidated statements of operations.

Pension and postretirement benefits:

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The costs (or benefits) and obligations for these benefit programs are also affected by other assumptions, such as average retirement age, mortality, employee turnover, and plan participation.

To the extent our plans' actual experience, as influenced by changing economic and financial market conditions or by changes to our own plans' demographics, differs from these assumptions, the costs and obligations for providing these benefits, as well as the plans'

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

funding requirements, could increase or decrease.

When actual results differ from our assumptions, the difference is typically recognized over future periods.

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See Note 20 for additional information.

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 6 for more information regarding the fair value measurements of our assets and liabilities, and Note 10 for more information regarding the fair value measurements of our financial instruments and risk management activities.

Derivative financial instruments:

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Changes in these rates and prices may have an impact on Ingevity’s future cash flow and earnings.

We formally document all relationships between the derivative financial instrument and hedged item, as well as the risk management objective and strategy for undertaking various hedge transactions.

We formally document all relationships

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

between the derivative financial instrument and hedged item, as well as the risk management objective and strategy for undertaking various hedge transactions.

We do not hold or issue derivative financial instruments for speculative or trading purposes.

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For example, designated cash flow hedges entered to minimize foreign currency exchange risk of forecasted revenue transactions are recorded to Net sales on the consolidated statements of operations when the forecasted transaction occurs.

Designated commodity cash flow hedges gains or losses recorded in AOCI are recognized in

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

Cost of sales on the consolidated statements of operations when the inventory is sold.

Designated commodity cash flow hedges gains or losses recorded in AOCI are recognized in Cost of sales on the consolidated statements of operations when the inventory is sold.

See Note 10 for more information regarding our cash flow hedges.

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Net investment hedges are defined as derivative or non-derivative instruments designated as and used to hedge the foreign currency exposure of the net investment in certain foreign operations.

The net of the change in the hedge instrument and the item being hedged against for qualifying net investment hedges is reported as a component of the foreign currency adjustments ("CTA") within Accumulated other comprehensive income ("AOCI") on the condensed consolidated balance sheet.

The gains (losses) on net investment hedges are reclassified to earnings only when the related CTA are required to be reclassified, usually upon sale or liquidation of the investment.

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The assets and liabilities of Ingevity's foreign subsidiaries are translated into U.S.

dollars using period-end exchange rates, and adjustments resulting from these financial statement translations are included in Accumulated other comprehensive income in the consolidated balance sheets.

dollars using period-end exchange rates, and adjustments resulting from these financial statement translations are included in Accumulated other comprehensive income (loss) in the consolidated balance sheets.

Revenues and expenses are translated at average rates prevailing during each period.

Business combinations:

We account for business combinations in accordance with ASC 805 “Business Combinations” which requires, among other things, the acquiring entity in a business combination to recognize the fair value of the assets acquired and liabilities assumed;

the recognition of Acquisition-related costs in the consolidated statement of operations;

the recognition of Restructuring and other (income) charges, net in the consolidated statement of operations for which the acquirer becomes obligated after the acquisition date;

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

acquired and liabilities assumed;

the recognition of Acquisition-related costs in the consolidated statements of operations;

the recognition of Restructuring and other (income) charges, net in the consolidated statements of operations for which the acquirer becomes obligated after the acquisition date;

and contingent purchase consideration to be recognized at fair value on the acquisition date with subsequent adjustments recognized in the consolidated statement 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 tangible property, plant, and equipment 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 the 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 the 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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New Accounting Guidance

The Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" or "Codification") is the sole source of authoritative U.S.

GAAP other than Securities and Exchange Commission ("SEC") issued rules and

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

regulations that apply only to SEC registrants.

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 our Consolidated Financial Statements.

Recently Adopted Accounting Pronouncement

In August 2018, the FASB issued ASU 2018-13 "Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." This ASU eliminates, amends, and adds disclosure requirements for fair value measurements.

The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

We adopted this standard on January 1, 2019.

The impact of adoption did not have a material impact on our Consolidated Financial Statements and related disclosures.

In June 2018, the FASB issued ASU 2018-07 "Compensation-Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting." This ASU provides for a single accounting model for all share-based payments, with the employee based guidance now applying to nonemployee share-based transactions.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

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 noncancelable 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 consolidated balance sheets, depending on the duration of the agreement.

The impact of the adoption did not have a material impact on our 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.

The impact of adoption did not have a material impact on our Consolidated Financial Statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02 "Leases (Topic 842)." Under the new guidance, lessees are required to recognize for all leases (with the exception of short-term leases) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Since the issuance of ASU 2016-02, the FASB issued several amendments that clarify certain points in Topic 842, including ASU 2018-20 ("Lease (Topic 842):

Narrow-Scope Improvements for Lessors"), ASU 2018-01 ("Land Easement Practical Expedient"), ASU 2018-10 ("Codification Improvements"), ASU 2018-11 ("Targeted Improvements") and ASU 2019-01 (“Codification Improvements”).

ASU 2016-02 and all subsequent amendments will herein be referred to as ASC 842.

We adopted ASC 842 utilizing the modified retrospective approach as of January 1, 2019.

The modified retrospective approach we selected provides a method of transition allowing for the recognition of existing leases as of the beginning of the period of adoption (i.e.

January 1, 2019), and which does not require the adjustment of comparative periods.

We have elected the practical expedient package upon transition that does not require reassessment of prior conclusions related to contracts containing a lease, lease classification, and initial direct costs for any leases that existed at the period of adoption of ASC 842.

We also adopted the practical expedient to apply hindsight in determining the lease term;

we chose to account for lease and non-lease components together as a single component for all lease asset classes;

and we elected the practical expedient related to land easements allowing us to carry-forward our current accounting treatment for land easements on existing agreements.

We include the option to extend or terminate a lease when it is reasonably certain that we will exercise the option.

In addition, we elected the accounting policy to not apply the balance sheet recognition criteria required in ASC 842 to leases with an initial lease term of twelve months or less by class of underlying asset for all lease asset classes.

Payments for these leases are recognized on a straight-line basis over the lease term.

As a lessee, most of our leases under prior guidance ASC 840 “Leases” were classified as operating leases, and therefore, were not recorded on the consolidated balance sheet but were recorded as expense in the consolidated statement of operations as incurred.

We cataloged our existing lease contracts and implemented changes to our systems to perform the lease accounting and reporting under the new guidance going forward.

The adoption of ASC 842 resulted in the recognition of lease assets and liabilities.

Our existing capital leases were accounted for as finance leases upon adoption of ASC 842.

Additionally, we do not expect a significant impact in the timing of expense recognition based on the classification of leases as either operating or financing.

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 accounts receivable and restricted investment accounted for at amortized cost.

Generally, the adoption of ASC 326 did not have a material impact on our 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 consolidated balance sheet upon adoption.

Additionally, upon adoption of ASC 326, we estimated an allowance for credit losses for our restricted investment on our 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

Ingevity Corporation

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In accordance with ASC 842, the impact of adoption on our consolidated balance sheet was as follows:

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 December 31, 2020, including the transition impact of adopting the CECL standard.

(in millions) Balance at

December 31, 2018 Adjustments Balance at

January 1, 2019

Prepaid and other current assets $ 34.9 $ ( 0.2 ) (1)

Operating lease assets,net — 64.6 (2)

Current operating lease liabilities — 18.4 (3)

Noncurrent operating lease liabilities — 46.3 (4)

Other liabilities 15.1 ( 0.3 ) (5)

December 31, 2019 (1)

Impact from Adoption of ASC 326 Balance at January 1, 2020 Current Period Provision Balance at

December 31, 2020 (2)

Allowance for credit losses $ 0.5 0.6 1.1 1.7 $ 2.8

______________

(1) Represents prepaid rent reclassified to operating lease assets.

(2) Represents capitalization of operating lease assets and straight-line rent accrual.

(3) Represents recognition of the current portion of operating lease liabilities.

(4) Represents recognition of the noncurrent operating lease liabilities.

(5) Represents accrued rent reclassified to operating lease liabilities.

Recently Issued 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.

The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Although we are still evaluating the impact of this new standard, we do not believe that the adoption will materially impact our Consolidated Financial Statements and related disclosures.

(1) The allowance for credit losses at December 31, 2019 of $ 0.5 million was included in "Accounts receivable, net" on the consolidated balance sheets.

(2) The allowance for credit losses at December 31, 2020 of $ 1.9 million and $ 0.9 million was included "Accounts receivable, net" and "Restricted investment" on the 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 year ended December 31, 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 $ 1.7 million in the year ended December 31, 2020 is attributed to $ 0.3 million for Level 1 securities and $ 1.4 million for accounts receivable expected credit losses.

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 ending 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 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 (Topic 326)” (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments.

The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and will be applied as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period for which the guidance is effective.

In April 2019, the FASB issued ASU 2019-04 which addresses issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things.

In May 2019, the FASB issued ASU 2019-05 “Financial Instruments – Credit Losses (Topic 326):

Targeted Transition Relief” (“ASU 2019-05”), which provides targeted transition relief allowing entities to make an irrevocable one-time election upon adoption of the new credit losses standard to measure financial assets previously measured at amortized cost (except held-to-maturity securities) using the fair value option.

The provisions of ASU 2019-04 related to Topic 326 and ASU 2019-05 are effective concurrent with the adoption of ASU 2016-13.

We are currently evaluating the impact of these ASUs and do not expect these provisions to have a material impact on our consolidated financial statements.

We adopted this standard on a prospective basis on January 1, 2020, and it had no material impact to our consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

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 ending after December 15, 2020.

Although we are still evaluating the impact of this

The new standard is effective for fiscal years beginning after December 15, 2020.

We adopted the new guidance effective January 1, 2021.

The adoption of the new guidance did not have a material impact.

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 December 31, 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.

Ingevity Corporation

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new standard, we do not believe that the adoption of this new standard will materially impact our Consolidated Financial Statements and related disclosures.

On January 1, 2018, we adopted ASC 606 using the modified retrospective method applied to contracts not completed as of January 1, 2018.

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 reported in accordance with our historic accounting under ASC 605.

Disaggregation of Revenue

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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 on contracts with certain customers.

The contract assets are recognized as accounts receivables when the rights become unconditional and the customer has been billed.

The contract assets primarily relate to our rights to consideration for products produced but not billed at the reporting date from contracts with certain customers.

The contract assets are recognized as accounts receivables when we have an enforceable right to payment for performance completed to date 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.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

In millions Contract Asset

Contract Asset

Years Ended December 31,

In millions 2020 2019

Balance at beginning of period $ 6.2 $ 5.1

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(1) Included within "Prepaid and other current assets" on the consolidated balance sheet.

Fair Value Measurements

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

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).

The carrying value of our financial instruments:

cash and cash equivalents, restricted cash, other receivables, other payables and accrued liabilities, approximate their fair values due to the short-term nature of these financial instruments.

Recurring Fair Value Measurements

The following information is presented for assets and liabilities that are recorded in the consolidated balance sheets at fair value measured on a recurring basis.

See Note 10 for more information regarding the recurring fair value measurements associated with our derivative instruments.

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 non-recurring fair value measurements during fiscal years ending December 31, 2019, 2018, or 2017, respectively.

There were no transfers of assets and liabilities that are recorded at fair value between the three-level fair value hierarchy during the periods reported.

In millions Level 1 (1)

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$ 11.6 $ — $ — $ 11.6

Separation-related reimbursement awards (6)

Contingent consideration (6)

Total liabilities $ 11.6 $ — $ 0.8 $ 12.4

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

In millions Level 1 (1)

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Both the asset and liability related to investment securities are recorded at fair value, and are included within "Other assets" and "Other liabilities" on the consolidated balance sheets, respectively.

In addition to the investment securities, we also had company-owned life insurance related to the deferred compensation arrangement recorded at cost in "Other assets" of $ 8.4 million and $ 3.1 million at December 31, 2019 and 2018, respectively.

In addition to the investment securities, we also had company-owned life insurance related to the deferred compensation arrangement recorded at cash surrender value in "Other assets" of $ 10.8 million and $ 8.4 million at December 31, 2020 and 2019, respectively.

(6) Included within "Other liabilities" on the consolidated balance sheet.

(7) Included within "Accrued expenses" on the consolidated balance sheet.

The income and (expense), respectively, recognized during the years ended December 31, 2019, 2018, and 2017 was zero , $ 0.1 million, and $( 0.3 ) million, respectively.

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 consolidated balance sheets during the year ended December 31, 2020.

There were no nonrecurring fair value measurements in the consolidated balance sheets during the year ended December 31, 2019.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

In millions December 31, 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)

(Year Ended December 31, 2020)

Impairment of operating lease assets, net (1)

$ — $ — $ — $ — $ ( 1.7 )

Total assets $ — $ — $ — $ — $ ( 1.7 )

______________

(1) During the year ended December 31, 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 to adjust their fair value on our consolidated balance sheet to zero.

Equity Securities

Our investments in equity securities with a readily determinable fair value totaled $ 0.4 million as of both December 31, 2019 and 2018.

The net realized gain/(loss) recognized during the years ended December 31, 2019 and 2018 was zero .

The net unrealized gain/(loss) during the years ended December 31, 2019 and 2018 was $ 0.1 million and $( 0.3 ) million, respectively.

The aggregate carrying value of investments in equity securities where fair value is not readily determinable totaled $ 1.5 million as of both December 31, 2019 and 2018, respectively.

There were no adjustments to the carrying value of the not readily determinable investments for impairment or observable price changes for the period ended December 31, 2019.

The aggregate carrying value of investments in equity securities where fair value is not readily determinable totaled zero and $ 1.5 million as of December 31, 2020 and 2019, respectively.

During the period ended December 31, 2020, we recorded an impairment charge of $ 1.4 million, related 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 carrying value at the time our investment was liquidated.

Restricted Investment

At December 31, 2019 and 2018, the book value of our restricted investment was $ 72.6 million and $ 71.2 million, respectively, and the fair value was $ 74.5 million and $ 66.7 million, respectively, based on Level 1 inputs.

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 consolidated balance sheet, purchased long term bonds that mature in 2025 and 2026.

The trust, presented as restricted investment on our 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;

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.

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Interest earned on the investments held by the trust is recognized as interest income and presented within interest income on our consolidated statement of operations.

At December 31, 2020 and 2019, the carrying value of our restricted investment, which is accounted for as HTM and therefore held at amortized costs, was $ 73.6 million and $ 72.6 million, net of an allowance for credit losses of $ 0.9 million and zero and included cash of $ 2.4 million and $ 0.2 million, respectively.

The fair value at December 31, 2020 and 2019 was $ 81.5 million and $ 74.5 million, respectively, 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.

December 31, 2020

In millions AA+ AA A A- BBB+ Total

HTM debt securities $ 13.5 10.6 24.2 13.4 10.4 $ 72.1

Debt Obligations

At December 31, 2019 and 2018, the book value of finance lease obligations was $ 80.0 million, and the fair value was $ 100.9 million and $ 90.4 million, respectively.

The fair value of our finance lease obligations is based on the period-end quoted market prices for the obligations, using Level 2 inputs.

At December 31, 2020 and 2019, the carrying value of finance lease obligations was $ 103.1 million and $ 80.0 million, respectively, and the fair value was $ 127.0 million and $ 100.9 million, respectively.

The fair value of our Performance Materials' Wickliffe, Kentucky finance lease obligations is based on the period-end quoted market prices for the obligations, using Level 2 inputs.

The fair value of all other finance lease obligations approximates their carrying values.

The carrying value, excluding debt issuance fees, of our variable rate debt was $ 353.4 million and $ 877.8 million as of December 31, 2020 and 2019, respectively.

The carrying value is a reasonable estimate of the fair value of our outstanding debt as our outstanding debt is variable interest rate debt.

Ingevity Corporation

1 unchanged sentence

December 31, 2020

The carrying amount, excluding debt issuance fees, of our variable interest rate long-term debt was $ 849.4 million and $ 363.8 million as of December 31, 2019 and 2018, respectively.

The carrying value is a reasonable estimate of the fair value of our outstanding debt as our outstanding debt is variable interest rate debt.

At December 31, 2019 and 2018, the book value of our fixed rate debt, the senior notes issued January 24, 2018, was $ 300.0 million, respectively, and the fair value was $ 305.4 million and $ 275.2 million, respectively, based on Level 2 inputs.

At December 31, 2020 and 2019, the carrying value of our fixed rate debt was $ 850.0 million and $ 300.0 million, respectively, and the fair value was $ 864.1 million and $ 305.4 million, respectively, based on Level 2 inputs.

Contingent Consideration

In connection with the acquisition of certain assets in 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 $ 0.8 million at December 31, 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 December 31, 2020

Beginning balance $ —

Newly issued 1.1

Change in revaluation of contingent consideration included in earnings ( 0.3 )

Exercises/settlements —

Ending balance (1)

______________

(1) Included within "Other liabilities" on the consolidated balance sheets.

Inventories, net

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As of December 31, 2019, approximately 31 percent, 11 percent, and 58 percent of our inventories were accounted for under the FIFO, average cost, and LIFO methods, respectively.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

Property, Plant, and Equipment, net

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Machinery and equipment $ 1,065.5 $ 964.3

Buildings and leasehold equipment 116.9 113.1

Buildings and leasehold improvements 174.0 116.9

Land and land improvements 20.0 19.0

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_______________

(1) This includes finance leases related to machinery and equipment at our Wickliffe, Kentucky facility of $ 68.8 million and $ 69.2 million, and net book value of $ 6.0 million and $ 6.7 million at December 31, 2019 and 2018, respectively.

This also includes finance leases related to our Waynesboro, Georgia manufacturing facility for (a) machinery and equipment of $ 18.4 million and $ 6.5 million and net book value of $ 16.8 million and $ 6.0 million, (b) construction in progress of $ 6.4 million and $ 13.7 million and (c) buildings and leasehold improvements of $ 4.2 million and $ 0.1 million at December 31, 2019 and 2018, respectively.

(1) This includes finance leases related to machinery and equipment at our Wickliffe, Kentucky facility of $ 67.2 million and $ 68.8 million, and net carrying value of $ 5.3 million and $ 6.0 million at December 31, 2020 and 2019, respectively.

This also includes finance leases related to our Waynesboro, Georgia manufacturing facility for (a) machinery and equipment of $ 18.8 million and $ 18.4 million and net carrying value of $ 16.0 million and $ 16.8 million, (b) construction in progress of $ 9.2 million and $ 6.4 million and (c) buildings and leasehold improvements of $ 5.2 million and $ 4.2 million, and net carrying value of $ 5.0 million and $ 4.2 million at December 31, 2020 and 2019, respectively.

Also included in buildings and leasehold improvements is a finance lease related to our new corporate headquarters of $ 23.8 million and net carrying value of $ 23.0 million at December 31, 2020.

Amortization expense associated with these finance leases is included within depreciation expense.

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Depreciation expense was $ 61.2 million, $ 52.3 million, and $ 41.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

Goodwill and Other Intangible Assets, net

2 unchanged sentences

December 31, 2018 $ 126.4 $ 4.3 $ 130.7

Foreign currency translation 10.6 — 10.6

Goodwill acquired (1)

295.1 — 295.1

Foreign currency translation ( 0.4 ) — ( 0.4 )

December 31, 2019 $ 432.1 $ 4.3 $ 436.4

Foreign currency translation 8.9 — 8.9

Goodwill acquired (1)

295.1 — 295.1

December 31, 2020 $ 441.0 $ 4.3 $ 445.3

1 unchanged sentence

(1) See Note 17 for more information about our acquisitions .

Our fiscal year 2019 annual goodwill impairment test was performed as of October 1, 2019.

We determined no goodwill impairment existed.

There were no events or circumstances indicating that goodwill might be impaired as of December 31, 2019.

No impairment charges have been recognized historically.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

Other Intangible Assets

All of Ingevity's other intangible assets, net are related to the Performance Chemicals operating segment.

The following table summarizes our intangible assets:

December 31, 2020 December 31, 2019

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The weighted average amortization period remaining for all intangibles is 13 years, while the weighted average amortization period remaining for customer contracts and relationships, brands, developed technology and other intangibles is 12.4 years, 15.1 years, 13.3 years, and 0.8 years, respectively.

Intangible assets subject to amortization were allocated among our business segments as follows:

In millions 2020 2019

Performance Chemicals $ 371.2 $ 396.2

Performance Materials 2.1 —

Other intangibles, net $ 373.3 $ 396.2

The amortization expense related to our intangible assets in the table above is shown in the table below.

7 unchanged sentences

(1) See Note 17 for more information about the Caprolactone Acquisition and Pine Chemical Acquisition and the related increase in amortization expense.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

Based on the current carrying values of intangible assets, estimated pre-tax amortization expense for the next five years is as follows:

3 unchanged sentences

Net Investment Hedges

During the second quarter of 2019, we entered into a fixed-to-fixed cross-currency interest rate swap with a notional amount of $ 141.3 million and a maturity date of July 2023.

We designated the swap to hedge a portion of our net investment in a euro functional currency denominated subsidiary against foreign currency fluctuations.

This contract involves the exchange of fixed U.S.

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 rate of 3.96 percent to euro denominated fixed-rate debt at a rate of 1.41 percent.

dollar denominated fixed-rate debt from a weighted average rate of 3.79 percent to euro denominated fixed-rate debt at a rate of 1.71 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 an asset (liability) of $ 3.0 million at December 31, 2019.

During the year ended December 31, 2019 we recognized net interest income associated with this financial instrument of $ 2.3 million.

dollar denominated debt to euro denominated debt is recorded as interest income on the consolidated statements of operations.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

The fair value of the fixed-to-fixed cross currency interest rate swap was a net asset (liability) of $( 8.6 ) million and $ 3.0 million at December 31, 2020 and 2019, respectively.

During the years ended December 31, 2020 and 2019, we recognized net interest income associated with this financial instrument of $ 1.6 million and $ 2.3 million, respectively.

Cash Flow Hedges

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These contracts are generally designated as cash flow hedges.

We began our foreign currency exchange risk hedging program in July 2017.

As of December 31, 2019, there were no open foreign currency derivative contracts.

The fair value of the foreign currency hedge was zero as of December 31, 2019, and an asset (liability) of $ 0.2 million as of December 31, 2018.

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 December 31, 2020, there were $ 9.1 million open foreign currency derivative contracts.

The fair value of the foreign currency hedge was an asset (liability) of $( 0.1 ) million as of December 31, 2020, and was zero as of December 31, 2019.

Commodity Price Risk Management

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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.

We began our commodity price risk hedging program in December 2017.

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 enter into swap contracts and zero cost collar option contracts and designate these contracts as cash flow hedges.

As of December 31, 2020, we had 0.9 million and 1.2 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 as cash flow hedges.

As of December 31, 2019, open commodity contracts hedge forecasted transactions until December 2020.

The fair value of the outstanding designated natural gas commodity hedge contracts was an asset (liability) of $( 0.5 ) million as of December 31, 2019 and zero as of December 31, 2018.

As of December 31, 2020, open commodity contracts hedge forecasted transactions until February 2022.

The fair value of the outstanding designated natural gas commodity hedge contracts was a net asset (liability) of $( 0.1 ) million and $( 0.5 ) million as of December 31, 2020 and 2019, respectively.

Interest Rate Risk Management

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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.

Designated interest rate cash flow hedge gains or losses recorded in AOCI are recognized in "Interest expense, net" on the 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.

During the second quarter of 2019, we entered into an interest rate swap with a notional amount of $ 141.3 million to manage the variability of cash flows in the interest rate payments associated with our existing LIBOR-based interest payments,

As of December 31, 2020, we a floating-to-fixed interest rate swap 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 fixed rate of 3.79 percent until July 2023.

The fair value of the interest rate swap was an asset (liability) of $( 8.9 ) million and $( 3.9 ) million at December 31, 2020 and 2019, respectively.

Ingevity Corporation

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December 31, 2020

effectively converting $ 141.3 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 fixed rate of 3.96 % until July 2023.

The fair value of the interest rate swap was an asset (liability) of $( 3.9 ) million at December 31, 2019.

Effect of Cash Flow and Net Investment Hedge Accounting on AOCI

5 unchanged sentences

Natural gas contracts ( 0.5 ) ( 0.9 ) 1.1 0.3 Cost of sales

Interest rate swap contracts ( 3.9 ) — — — Interest expense, net

Interest rate swap contracts ( 5.0 ) ( 3.9 ) — — Interest expense

Total $ ( 5.6 ) $ ( 4.8 ) $ 1.2 $ 0.3

6 unchanged sentences

Currency exchange contracts (1)

$ 3.0 $ — $ 2.3 $ — Interest expense, net

$ ( 11.7 ) $ 3.0 $ 1.6 $ 2.3 Interest income

Total $ ( 11.7 ) $ 3.0 $ 1.6 $ 2.3

4 unchanged sentences

The following information is presented for derivative assets and liabilities that are recorded in the consolidated balance sheets at fair value measured on a recurring basis.

See Note 6 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 non-recurring fair value measurements during fiscal years ending December 31, 2019, 2018, or 2017, respectively.

There were no non-recurring fair value measurements related to derivative assets and liabilities on our consolidated balance sheet during fiscal years ending December 31, 2020, 2019, or 2018, respectively.

Ingevity Corporation

3 unchanged sentences

December 31, 2020

Net investment hedge (4)

Natural gas contracts (4)

$ — $ 0.1 $ — $ 0.1

1 unchanged sentence

Natural gas contracts (6)

$ — $ 0.2 $ — $ 0.2

Currency exchange contracts (6)

Net investment hedge (7)

Interest rate swap contracts (7)

2 unchanged sentences

December 31, 2019

Currency exchange contracts (5)

Net investment hedge (5)

$ — $ 3.0 $ — $ 3.0

Natural gas contracts (5)

Total assets $ — $ 3.0 $ — $ 3.0

Currency exchange contracts (7)

$ — $ 3.9 $ — $ 3.9

Natural gas contracts (6)

$ — $ 0.5 $ — $ 0.5

Interest rate swap contracts (7)

Total liabilities $ — $ 4.4 $ — $ 4.4

2 unchanged sentences

(3) Significant unobservable inputs.

(4) Included within "Other current assets" on the consolidated balance sheet.

(5) Included within "Other assets" on the consolidated balance sheet.

1 unchanged sentence

(7) Included within "Other liabilities" on the consolidated balance sheet.

(7) This amount represents a non-designated foreign currency hedge associated with the purchase price of our acquisition of Perstorp AB's caprolactone business.

See Note 17 for more information.

The expense recognized during the year ended December 31, 2019 and 2018 was $ 12.7 million and $ 3.9 million, respectively.

Ingevity Corporation

5 unchanged sentences

In millions Interest rate Maturity date 2020 2019

Variable Rate Debt:

Revolving Credit Facility (1)

1.64 % 2025 $ — $ 131.3

Term Loans 3.11 % 2022-2023 740.6 375.0

Senior Notes 4.50 % 2026 300.0 300.0

2019 Term Loan — — — 375.0

2017 Term Loan 1.71 % 2023 351.6 365.6

Other notes payable 4.44 % 2021 1.8 5.9

Fixed Rate Debt:

2020 Senior Note 3.88 % 2028 550.0 —

2018 Senior Note 4.50 % 2026 300.0 300.0

Finance lease obligations (2)

7.17 % 2027-2035 103.1 80.0

Other notes payable 4.95 % 2020-2021 5.9 3.9

Total debt including capital lease obligations $ 1,257.8 $ 758.9

Total debt including finance lease obligations $ 1,306.5 $ 1,257.8

debt issuance costs 13.1 6.9

Total debt including capital lease obligations, net of debt issuance costs $ 1,250.9 $ 752.4

Total debt including finance lease obligations, net of debt issuance costs $ 1,293.4 $ 1,250.9

debt maturing within one year (3)

Long-term debt including capital lease obligations $ 1,228.4 $ 741.2

Long-term debt including finance lease obligations $ 1,267.4 $ 1,228.4

_______________

(1) Letters of credit outstanding under the revolving credit facility were $ 2.3 million and $ 2.1 million and available funds under the facility were $ 497.7 million and $ 616.6 million at December 31, 2020 and 2019, respectively.

(2) See Note 14 for more information.

(2) Includes finance lease obligations of $ 80.0 million related assets at our Performance Materials' Wickliffe, Kentucky manufacturing site and $ 23.1 million related to our corporate headquarters.

(3) Debt maturing within one year is included in "Notes payable and current maturities of long-term debt" on the consolidated balance sheet.

Revolving Credit Facility

Our revolving credit facility has a capacity of $ 750.0 million with a maturity date on August 7, 2023.

The terms and conditions of our revolving credit facility are governed by the Incremental Facility Agreement and Amendment No.

4, dated as of March 7, 2019 (the “Amendment No.

4” 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.

3, dated as of March 7, 2019 (“Amendment No.

3”), the Incremental Facility Agreement and Amendment No.

2, dated as of August 7, 2018 (“Amendment No.

2”), the Incremental Facility Agreement and Amendment No.

1, dated as of August 21, 2017 (“Amendment No.1”), and the Credit Agreement).

The revolving credit facility 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 "Revolving Credit Facility Applicable Margin"), in the case of base rate loans, ranging between zero percent and 0.75 percent, and in the case of adjusted LIBOR rate loans, ranging between 1.00 percent and 1.75 percent.

The Revolving Credit Facility Applicable Margin is based on a total leverage based pricing grid.

Fees of zero , $ 1.1 million and $ 0.8 million were incurred in 2019, 2018, and 2017, respectively, to secure the various amendments associated with our Revolving Credit Facility.

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.

The revolving credit facility 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, in the case of base rate loans, ranging between zero percent and 0.75 percent, and in the case of adjusted LIBOR rate loans, ranging between 1.00 percent and 1.75 percent.

The margin is based on a total leverage based pricing grid.

Fees of $ 2.2 million, zero and $ 1.1 million were incurred in 2020, 2019, and 2018, respectively, to secure the various amendments associated with our revolving credit facility.

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

Our term loans are comprised of two separate term loans:

the 2017 Term Loan and the 2019 Term Loan.

2019 Term Loan:

On March 7, 2019, we entered into 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

Ingevity Corporation

1 unchanged sentence

December 31, 2020

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 the 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.

Our term loans are comprised of two separate term loans:

the "2017 Term Loan" and the "2019 Term Loan." During the fourth quarter of 2020, we utilized a portion of the net proceeds from an issuance of senior notes to repay the outstanding principal amount of $ 375 million related to the 2019 Term Loan.

2019 Term Loan:

On August 21, 2017, we entered into Amendment No.1 to our Credit Agreement.

Among other things, Amendment No.

1 established incremental term loan commitments in the aggregate principal amount of $ 75.0 million in addition to the existing term loan of $ 300.0 million.

The combined borrowings, collectively referred to as the 2017 Term Loan, of $ 375.0 million which are treated as a single class.

On August 7, 2018, we entered into Amendment No.2 which, among other things, extended the maturity of the 2017 Term Loan to August 7, 2023.

The 2017 Term Loan amortizes at zero percent per annum during the first, second and third years after the initial funding date of May 9, 2016 and 1.25 percent per annum during each year to maturity, with the balance due at maturity.

The 2017 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 "2017 Term Loan Applicable Margin"), in the case of base rate loans, ranging between zero percent and 0.75 percent, and in the case of adjusted LIBOR rate loans, ranging between 1.00 percent and 1.75 percent.

The 2017 Term Loan Applicable Margin is based on a total leverage based pricing grid.

As consideration for Amendment No.1 and Amendment No.2, 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 held by such lender.

Fees of $ 0.3 million and $ 0.5 million were incurred in 2018 and 2017, respectively to secure the amendments associated with the 2017 Term Loan.

On March 7, 2019, we amended our credit agreement to, among other things, establish 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 was not subject to amortization;

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

The 2019 Term Loan bore 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, 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 margin was based on a total leverage based pricing grid.

As consideration for the amendments relating to the 2019 Term Loan, we paid to each lender a consent fee equal to 0.05 percent of the aggregate principal amount of the commitments and outstanding loans under held by such lender, resulting in aggregate fees of $ 1.8 million.

These fees were deferred and amortized over the original term of the loan.

During the fourth quarter 2020, with the repayment of the outstanding principal balance, we recorded the remaining deferred finance fees of $ 1.0 million to Interest expense on our consolidated statements of operations.

2017 Term Loan:

On August 21, 2017, we amended our credit agreement to among other things, establish incremental term loan commitments in the aggregate principal amount of $ 75.0 million in addition to the existing term loan of $ 300.0 million.

The combined borrowings of $ 375.0 million, collectively referred to as the 2017 Term Loan are treated as a single class.

On August 7, 2018, we further amended the credit agreement to, among other things, extended the maturity of the 2017 Term Loan to August 7, 2023.

The 2017 Term Loan amortized at zero percent per annum through May 9, 2019 and amortizes at 1.25 percent per annum during each year thereafter, with the balance due at maturity.

The 2017 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, in the case of base rate loans, ranging between zero percent and 0.75 percent, and in the case of adjusted LIBOR rate loans, ranging between 1.00 percent and 1.75 percent.

The margin is based on a total leverage based pricing grid.

As consideration for the amendments related to the 2017 Term Loan, we paid to each lender a consent fee equal to 0.05 percent of the aggregate principal amount of the commitments and outstanding loans held by such lender, resulting in aggregate fees of $ 0.3 million and $ 0.5 million in 2018 and 2017, respectively.

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

On January 24, 2018, we issued $ 300.0 million aggregate principal amount of 4.50 percent senior unsecured notes due 2026 (the “Notes”).

The Notes were issued pursuant to an indenture dated as of January 24, 2018 (the “Indenture”), by and among Ingevity, the subsidiary guarantors party thereto and U.S.

Our senior notes are comprised of two separate series of notes:

the "2020 Notes" and the "2018 Notes."

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.

The 2020 Notes were issued 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 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 deferred financing fees of $ 5.7 million, were approximately $ 294.3 million.

We used the net proceeds from the sale of the Notes to finance, in part, our purchase of substantially all the assets primarily used in the pine chemicals business of Georgia-Pacific Chemicals LLC and Georgia-Pacific LLC.

Interest payments on the Notes are due semiannually in arrears on February 1st and August 1st of each year, beginning on August 1, 2018, at a rate of 4.50 percent per year.

The Notes will mature on February 1, 2026.

Debt Covenants

Our Indenture contains 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

The net proceeds from the sale of the 2020 Notes, after deducting deferred financing fees of $ 8.8 million, were used to repay the existing 2019 Term Loan and the 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.

Ingevity Corporation

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December 31, 2020

our restricted subsidiaries, taken as a whole) 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 Notes could result in the acceleration of the 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 Facilities 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 December 31, 2019 was 3.0, and our actual interest coverage for the four consecutive quarters ended December 31, 2019 was 8.4.

2018 Senior Notes:

On January 24, 2018, we issued $ 300.0 million aggregate principal amount of 4.50 percent senior unsecured notes due 2026 (the “2018 Notes”) in a private placement.

The 2018 Notes were issued pursuant to an indenture dated as of January 24, 2018, 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 2018 Notes, after deducting deferred financing fees of $ 5.7 million, were used to finance, in part, the Pine Chemical Acquisition (see Note 17 for more information).

Interest payments on the 2018 Notes are due semiannually in arrears on February 1st and August 1st of each year, beginning on August 1, 2018, at a rate of 4.50 percent per year.

The 2018 Notes will mature on February 1, 2026.

Debt Covenants

Our indentures 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) 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 2018 Notes or 2020 Notes could result in the acceleration of the notes of such series and could cause a cross-default resulting in the acceleration of other indebtedness of Ingevity and its subsidiaries, including the other series.

We were in compliance with all covenants under the indentures as of December 31, 2020.

The credit agreement governing our revolving credit facility and the 2017 Term Loan 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 credit agreement could result in all loans and other obligations becoming immediately due and payable and our revolving credit facility and term loan facilities being terminated.

The credit agreement also contains certain customer covenants, including financial covenants.

The revolving credit facility financial covenants require Ingevity to maintain on a consolidated basis a maximum total net 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.

Additionally, the 2017 Term Loan financial covenants require Ingevity to maintain on a consolidated basis a maximum total gross 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 gross and net leverage for the four consecutive quarters ended December 31, 2020 were 3.1 and 2.5 , respectively, and our actual interest coverage for the four consecutive quarters ended December 31, 2020 was 10.0 .

We were in compliance with all covenants at December 31, 2020.

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The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (the “Act”) and is intended to induce capital investment in qualified lower income communities.

The Act permits taxpayers to claim credits against their federal income taxes for up to 39% of qualified investments in the equity of a community development entity (“CDE”).

The Act permits taxpayers to claim credits against their federal income taxes for up to 39 percent of qualified investments in the equity of a community development entity (“CDE”).

CDEs are conduit lenders through which privately managed investment institutions to make qualified low-income community investments.

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The proceeds of the loans from the Innovate CDE are to be restricted for use for the Project only.

In addition, in contemplation of this transaction, on November 14, 2019, Ingevity was required to restrict $ 1.0 million of cash to be used solely for the purpose of this Project.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

The $ 2.3 million contribution to the Investment Fund by Wells Fargo entitles Wells Fargo to substantially all of the tax benefits derived from the NMTC over a seven-year compliance period, while Ingevity effectively receives net loan proceeds equal to Wells Fargo’s contributions to the Investment Fund.

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We have concluded that Ingevity is the primary beneficiary of each VIE and we have therefore consolidated both Innovate CDE and Investment Fund, as VIEs, in accordance with ASC 810.

Post consolidation, the only material remaining balances presented on Ingevity's Consolidated Financial Statements are the original

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

contribution of $ 2.3 million from Wells Fargo in the Investment Fund, less the third-party debt financing (syndication) fees paid and any remaining restricted proceeds to be used solely for the purpose of the capital investments in the Project.

Post consolidation, the only material remaining balances presented on Ingevity's consolidated financial statements are the original contribution of $ 2.3 million from Wells Fargo in the Investment Fund, less the third-party debt financing (syndication) fees paid and any remaining restricted proceeds to be used solely for the purpose of the capital investments in the Project.

Although ASC 810 would indicate that noncontrolling interest in these VIEs should be presented separately from Ingevity's equity based on our evaluation, we have concluded that the $ 2.3 million (net of syndication fees) should be presented as a liability of Ingevity on our consolidated financial statements as this more accurately reflects the substance of the financing arrangement.

As a result of this financing arrangement, we incurred $ 0.6 million in syndication (debt issuance) fees, which are being amortized over the life of the note payable.

The proceeds of the loans from the Innovate CDE (including loans representing the capital contribution made by Wells Fargo, net of syndication fees) of $ 2.3 million, are restricted for use on the Project.

As of December 31, 2019, the balance of the loan liability, net of debt issuance fees of $ 0.6 million was $ 1.7 million.

The proceeds of the loans from the Innovate CDE (including loans representing the capital contribution made by Wells Fargo, net of syndication fees) of $ 2.3 million, were restricted for use on the Project.

As of December 31, 2020 and 2019, the balance of the loan liability, net of debt issuance fees of $ 0.5 million and $ 0.6 million, was $ 1.8 million and $ 1.7 million.

The loan liability, net of fees is recorded in Other liabilities on our consolidated balance sheets.

Additionally, at December 31, 2019, we had $ 7.7 million of cash restricted for use on the Project, this amount is recorded in Prepaid expenses and other current assets in our consolidated balance sheets.

We are able to request reimbursement of this restricted cash for certain expenditures made in connection with the Project which we expect to occur in the first half of 2020.

Expenditures that qualify for reimbursement include leasehold improvements, equipment purchases, and other expenditures tied to the Project.

As of December 31, 2020 all proceeds from this financing arrangement were used toward the Project and all capital expenditures have been placed in service.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

Share-based Compensation

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The initial offering period under the ESPP began on July 1, 2017.

During fiscal 2019, there were 33,945 shares issued under the ESPP at an average price of $ 58.95 .

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

During fiscal year 2020, there were 48,487 shares issued under the ESPP at an average price of $ 71.53 .

Our share-based compensation and ESPP expense is included in the table below.

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Expense related to stock options granted is based on the assumptions shown in the table below:

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

Years Ended December 31,

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Fair value per stock option $ 15.87 $ 39.29 $ 25.51

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

The following table summarizes Ingevity's stock option activity.

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Forfeited ( 68 ) 77.21

Outstanding, December 31, 2017 303 $ 36.72 8.7 $ 10,022

Granted 110 74.91

Exercised ( 6 ) 32.37

Forfeited ( 4 ) 51.66

Outstanding, December 31, 2018 403 $ 46.98 8.1 $ 14,450

Granted 61 115.03

Exercised ( 52 ) 32.91

Forfeited ( 2 ) 106.25

Canceled ( 3 ) 87.74

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The amount changes based on the fair market value of Ingevity's stock.

As of December 31, 2019, $ 1.8 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of one year.

As of December 31, 2020, $ 0.6 million of total unrecognized compensation expense related to stock options is expected to be recognized over a weighted-average period of one year.

Restricted Stock Units, Deferred Stock Units and Performance-based Restricted Stock Units

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171 $ 59.75 142 $ 66.22

Granted 56 77.98 56 74.91

Vested ( 89 ) 60.94 — —

Forfeited ( 1 ) 61.15 ( 1 ) 52.18

Nonvested, December 31, 2018 (2)

_______________

Granted 61 108.17 41 115.22

Vested ( 59 ) 50.58 ( 118 ) 28.07

Forfeited ( 2 ) 91.09 ( 4 ) 83.63

Nonvested, December 31, 2019 (2)

115 $ 90.65 158 $ 76.11

_______________

(1) The number granted represents the number of shares issuable upon vesting of RSUs and DSUs.

For PSUs the number granted represents the number of shares issuable upon vesting assuming that Ingevity performs at the target performance level in each year of the three-year performance period.

(2) The nonvested RSU and DSU number of shares at December 31, 2019 , 2018, and 2017 includes 10 thousand , 10 thousand, and eight thousand DSUs, respectively.

As of December 31, 2019, there was $ 6.2 million of unrecognized share-based compensation expense related to nonvested awards.

Those costs are expected to be recognized over a weighted-average period of 1.2 years.

(2) Excludes 9,191 non-employee director shares that were vested but unissued at December 31, 2020.

As of December 31, 2020, $ 7.8 million of unrecognized share-based compensation expense related to RSUs, DSUs and PSUs is expected to be recognized over a weighted-average period of 1.7 years.

Ingevity Corporation

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Accumulated other comprehensive income (loss)

Summarized below is the roll forward of accumulated other comprehensive income (loss), net of tax.

Summarized below is the roll forward of AOCI, net of tax.

Years Ended December 31,

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Net actuarial and other (gains) losses, amortization of prior service cost (credits), and settlement and curtailment (income) charge reclassified to net income 0.3 0.1 0.2

Reclassifications of certain deferred tax effects (1)

Other comprehensive income (loss), net of tax ( 1.8 ) ( 1.3 ) ( 0.1 )

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Total AOCI ending balance at December 31 $ 4.7 $ ( 5.0 ) $ ( 17.7 )

_______________

(1) Amounts reclassified to retained earnings due to early adoption of ASU 2018-02.

Ingevity Corporation

2 unchanged sentences

Reclassifications of accumulated other comprehensive income (loss)

The table below provides details about the reclassifications from accumulated other comprehensive income (loss) and the affected line items in the consolidated statements of income (loss) for each of the periods presented.

Twelve Months Ended December 31,

The table below provides details about the reclassifications from AOCI and the affected line items in the consolidated statements of income (loss) for each of the periods presented.

Years Ended December 31,

In millions 2020 2019 2018

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Natural gas contracts (2)

( 1.1 ) 0.3 0.2

Total before tax ( 1.2 ) 0.3 1.2

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Pension and other postretirement benefits

Amortization of prior service costs (credits) (2)

Amortization of prior service credit (costs) (2)

$ ( 0.1 ) $ — $ —

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( 0.1 ) ( 0.1 ) ( 0.1 )

Recognized loss due to curtailment and settlement (2)

Recognized gain (loss) due to curtailment and settlement (2)

( 0.1 ) — ( 0.2 )

Total before tax ( 0.3 ) ( 0.1 ) ( 0.3 )

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_______________

(1) Included within "Net sales" on the consolidated statement of operations.

(2) Included within "Cost of sales" on the consolidated statement of operations.

(3) Included within "Other (income) expense, net" on the consolidated statement of operations.

(1) Included within "Net sales" on the consolidated statements of operations.

(2) Included within "Cost of sales" on the consolidated statements of operations.

(3) Included within "Other (income) expense, net" on the consolidated statements of operations.

Noncontrolling interest acquisition

On August 1, 2018, we completed the acquisition of the remaining 30 percent noncontrolling interest in Purification Cellutions, LLC, now known as Ingevity Georgia, LLC, which was treated as a partnership for tax purposes, for a purchase price of $ 80.0 million.

On August 1, 2018, we acquired the remaining 30 percent noncontrolling interest in Purification Cellutions, LLC, now known as Ingevity Georgia, LLC, which was treated as a partnership for tax purposes, for a purchase price of $ 80.0 million.

The acquisition resulted in the elimination of Noncontrolling interest of $ 11.4 million and the recognition of a Deferred tax asset of $ 14.3 million, with the remainder being recorded against Additional paid in capital of $ 54.3 million in our consolidated financial statements.

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 rescinded the prior two outstanding authorizations.

Our 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.

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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 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 Additional paid-in capital on the consolidated balance sheets.

Ingevity Corporation

1 unchanged sentence

December 31, 2020

Operating Leases

We lease a variety of assets for use in our operations that are classified as operating leases.

At contract inception, we determine that a lease exists if the contract conveys the right to control an identified asset for a period of time in exchange for consideration.

If a contract is considered to be a lease, we recognize a lease liability based on the present value of the future lease payments, with an offsetting entry to recognize a right-of-use asset.

As a majority of our leases do not provide an implicit rate within the lease, an incremental borrowing rate is used which is based on information available at the commencement date.

Upon adoption of ASC 842, we used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date.

The determination of the incremental borrowing rate for each individual lease was impacted by the following assumptions:

lease term, currency, and the economic environment for the physical location of the leased asset.

Our operating leases principally relate to the following leased asset classes:

Leased Asset Class Expected Lease Term

Administrative offices 1 to 10 years

Manufacturing buildings 10 to 28 years

Manufacturing and office equipment 2 to 6 years

Warehousing and storage facilities 2 to 10 years

Vehicles 3 to 6 years

Rail cars 2 to 8 years

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Lease expense is recognized on a straight-line basis over the expected lease term.

Some of our leases include options to extend the lease term at our sole discretion.

We account for lease and non-lease components together as a single component for all lease asset classes.

The depreciable life of assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain leases provide for escalation of the lease payments, as well as maintenance costs and taxes increase.

Finance leases

Our finance lease obligations consist of $ 80.0 million at December 31, 2019 and 2018, respectively, owed to the city of Wickliffe, Kentucky, associated with Performance Materials' Wickliffe, Kentucky manufacturing site, which is due at maturity in 2027.

The interest rate on the $ 80.0 million finance lease obligation is 7.67 %.

Interest payments are payable semi-annually.

We have a finance lease obligation due in 2031 for certain assets located at our Performance Materials' Waynesboro, Georgia manufacturing facility.

The lease is with the Development Authority of Burke County (“Authority”).

The Authority established the sale-leaseback of these assets by issuing an industrial development revenue bond.

The bond was purchased by Ingevity and the obligations under the finance lease remain with Ingevity.

Accordingly, we offset the finance lease obligation and bond on our consolidated balance sheets.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

In millions Financial Statement Caption December 31, 2019

On January 1, 2019, we adopted ASC 842 utilizing the modified retrospective approach.

The modified retrospective approach we selected provides a method of transition allowing for the recognition of existing leases as of the beginning of the period of adoption (i.e.

January 1, 2019), and which does not require the adjustment of comparative periods.

Results for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 840.

Supplemental consolidated balance sheet information related to our leases is as follows:

In millions Financial Statement Caption 2020 2019

Operating lease assets, net (1)

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_______________

(1) Operating lease assets, net are recorded net of accumulated amortization of $ 17.6 million as of December 31, 2019.

(2) Finance lease assets, net are recorded net of accumulated amortization in Property, plant, and equipment, net and Other assets, net of $ 64.3 million and $ 0.3 million, as of December 31, 2019, respectively.

(3) Operating lease liabilities includes $ 0.2 million of accrued interest.

In millions Financial Statement Caption December 31, 2019

(1) Operating lease assets, net are recorded net of accumulated amortization of $ 29.4 million and $ 17.6 million, as of December 31, 2020 and 2019, respectively.

(2) Finance lease assets, net are recorded net of accumulated amortization in Property, plant, and equipment, net and Other assets, net of $ 65.8 million and $ 0.8 million, respectively, as of December 31, 2020, and $ 64.3 million and $ 0.3 million, respectively, as of December 31, 2019.

(3) Operating lease liabilities include $ 0.2 million and $ 0.2 million of accrued interest, as of December 31, 2020 and

2019, respectively.

Finance Leases

Our finance lease obligations of $ 103.1 million and $ 80.0 million at December 31, 2020 and 2019, respectively, consisting of two leases.

The first obligation of $ 80.0 million is owed to the city of Wickliffe, Kentucky, associated with Performance Materials' Wickliffe, Kentucky manufacturing site, which is due at maturity in 2027.

The second obligation of $ 23.1 million is owed to the lessor of our new corporate headquarters in North Charleston, South Carolina.

The lease commenced in July 2020, with a term of 15 years.

We also have a finance lease obligation due in 2031 for certain assets located at our Performance Materials' Waynesboro, Georgia manufacturing facility.

The lease is with the Development Authority of Burke County (“Authority”).

The Authority established the sale-leaseback of these assets by issuing an industrial development revenue bond.

The bond was purchased by Ingevity and the obligations under the finance lease remain with Ingevity.

Accordingly, we offset the finance lease obligation and bond on our consolidated balance sheets.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

Components of lease cost are as follows:

Years Ended December 31,

In millions Financial Statement Caption 2020 2019

Operating lease cost (1)

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Amortization of leased assets Cost of sales $ 2.6 $ 1.9

Selling, general, and administrative expenses 0.8 —

Interest on lease liabilities Interest expense, net 6.8 6.1

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$ 31.5 $ 31.9

_______________

(1) Includes short-term leases and variable lease costs, which are immaterial.

1 unchanged sentence

as a result this amount excludes sublease income which is immaterial.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

Maturity of Lease Liabilities

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_______________

(1) As of December 31, 2019, we have additional operating lease commitments that have not yet commenced of approximately $ 21.4 million for the relocation of our corporate headquarters.

The lease is expected to commence in the first half of 2020 and the lease term is for 15 years with two 5 year extensions.

Additionally, we have operating lease commitments that have not yet commenced of approximately $ 2.3 million primarily related to rail car leases.

Minimum lease payments pursuant to agreements as of December 31, 2018, under operating leases that have non-cancelable lease terms in excess of 12 months and under capital leases presented in accordance with ASC 840 are as follows:

In millions Operating leases Finance leases

2019 $ 21.9 $ 6.1

2020 17.2 6.1

2021 13.3 6.1

2024 and thereafter 5.9 101.5

Minimum lease payments $ 74.0 $ 132.0

amount representing interest 52.0

Finance lease obligations $ 80.0

(1) As of December 31, 2020, we have operating lease commitments that have not yet commenced of approximately $ 0.8 million primarily related to rail car leases.

Lease Term and Discount Rate

December 31, 2019

In millions, except percentages 2020 2019

Weighted-average remaining lease term (years)

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Other Information

In millions December 31, 2019

Years Ended December 31,

In millions 2020 2019

Cash paid for amounts included in the measurement of lease liabilities:

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The enhanced benefits consist of a transition contribution of four or ten percent of the employee’s eligible compensation for employees who were grandfathered into our prior parent's cash balance and final average pay pension plan, respectively.

The transition contributions will continue to December 31, 2020, unless the grandfathered employee terminates employment sooner.

The transition contributions continued until December 31, 2020, unless the grandfathered employee terminated employment sooner.

Charges associated with employer contributions to the Plan were $ 10.6 million, $ 10.6 million, and $ 10.2 million for the years ended December 31, 2020, 2019, and 2018, respectively.

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December 31, 2020

The following table summarizes the weighted average assumptions used and components of our defined benefit postretirement plans.

The following table also reflects a measurement date of December 31:

The following tables summarize the weighted average assumptions used and components of our defined benefit postretirement plans.

Pensions Other Benefits

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Net Funded Status of the Plan (Liability) $ ( 13.8 ) $ ( 9.7 ) $ ( 1.0 ) $ ( 0.9 )

Pensions Other Benefits

In millions 2020 2019 2020 2019

Amount recognized in the consolidated balance sheets:

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Changes in plan assets and benefit obligations recognized in other comprehensive income (loss) are as follows:

Pensions Other Benefits Total

Years Ended December 31,

Pensions Other Benefits Total

In millions 2020 2019 2018 2020 2019 2018 2020 2019 2018

2 unchanged sentences

Amortization of net actuarial (loss) gain and prior service (cost) credit ( 0.2 ) ( 0.1 ) ( 0.1 ) — — — ( 0.2 ) ( 0.1 ) ( 0.1 )

Curtailments — ( 0.2 ) — — — — — ( 0.2 ) —

Settlement and curtailment (charges) income, net ( 0.1 ) — ( 0.2 ) — — — ( 0.1 ) — ( 0.2 )

Total recognized in other comprehensive (income) loss, before taxes 2.3 1.6 0.2 0.1 0.1 ( 0.1 ) 2.4 1.7 0.1

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Accumulated other comprehensive (income) loss, after taxes $ 4.7 $ 3.0 $ 0.1 $ — $ 4.8 $ 3.0

The estimated net actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income (loss) into our net annual benefit cost during 2020 are zero and less than $ 0.1 million, respectively.

Ingevity Corporation

3 unchanged sentences

The following table summarizes the weighted-average assumptions used for the components of net annual benefit cost:

Pensions Other Benefits

Years Ended December 31,

Pensions Other Benefits

In millions, except percentages 2020 2019 2018 2020 2019 2018

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Amortization of net actuarial and other (gain) loss (3)

0.1 — — — — —

Recognized (gain) loss due to curtailments 0.1 — 0.2 — — —

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Contributions

We made a voluntary cash contribution of zero and $ 1.5 million to our Union Hourly defined benefit pension plan in the years ended December 31, 2019 and 2018, respectively.

There are no required cash contributions to our Union Hourly defined benefit pension plan in fiscal 2020, and we currently have no plans to make any voluntary cash contributions in fiscal 2020.

We made no voluntary cash contributions to our domestic hourly union defined benefit pension plan in the years ended December 31, 2020 and 2019.

There are no required cash contributions to our domestic hourly union defined benefit pension plan in fiscal 2021, and we currently have no plans to make any voluntary cash contributions in fiscal 2021.

Fair Value Hierarchy

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A one-half percent decrease in the assumed expected long-term rate of return on plan assets would have increased our qualified pension costs by $ 0.1 million for 2020.

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.

These costs are excluded from our operating segment results.

Ingevity Corporation

1 unchanged sentence

December 31, 2020

We record an accrual for severance and other non-recurring costs under the provisions of the relevant accounting guidance.

Additionally, in some restructuring plans write-downs of long-lived assets may occur.

Two types of assets are impacted:

assets to be disposed of by sale and assets to be abandoned.

Assets to be disposed of by sale are measured at the lower of carrying amount or estimated net proceeds from the sale.

Assets to be abandoned with no remaining future service potential are written down to amounts expected to be recovered.

The useful lives of assets to be abandoned that have a remaining future service potential are adjusted and depreciation is recorded over the adjusted useful life.

Below provides detail of the restructuring and other (income) charges, net incurred.

Restructuring and Other (Income) Charges, net

Detail on the restructuring charges and other (income) charges, net is provided below.

Years Ended December 31,

In millions 2020 2019 2018

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

Severance and other employee-related costs (1)

Restructuring charges 8.5 1.8 ( 0.5 )

Business transformation costs 10.0 — —

Other (income) charges, net 10.0 — —

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

_______________

(1) Represents severance and employee benefit charges.

(2) Primarily represents costs associated with an impairment of an operating lease asset that is no longer in use and other miscellaneous exit costs.

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.

We recorded $ 6.4 million in severance and other employee-related costs in the year ended December 31, 2020.

Additionally, during the year ended December 31, 2020, related to this cost reduction initiative.

Additionally, we recorded $ 1.7 million related to an impairment of an operating lease asset that is no longer in use and $ 0.4 million of other miscellaneous exit costs related to our Performance Chemicals derivatives operations in Palmeira, Brazil, which was closed in 2016.

2019 activities

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

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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 the restructuring charges and asset disposal activities is provided below.

Years Ended December 31,

In millions 2019 2018 2017

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

_______________

(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.

Ingevity Corporation

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Roll forward of Restructuring Reserves

The following table shows a roll forward of restructuring reserves that will result in cash spending.

The following table shows a roll forward of restructuring reserves that will result in cash spending (in millions):

Balance at Change in Cash Balance at Change in Cash Balance at

12/31/2018 (1)

Payments Other (3)

12/31/2018 (1)

Payments Other (3)

12/31/2019 (1)

Payments 12/31/2019 (1)

Payments 12/31/2020 (1)

$ — 2.2 ( 1.8 ) $ 0.4 6.8 ( 6.4 ) $ 0.8

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Any asset write-downs including accelerated depreciation and impairment charges are not included in the above table.

(3) Primarily non-cash charges and foreign currency translation adjustments.

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 year ended December 31, 2020, of $ 10.0 million, 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 $ 17 - 20 million of non-capitalizable costs.

Perstorp Holding AB's Caprolactone Business

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

The Caprolactone Acquisition contributed Net sales of $ 122.1 million for the year ended December 31, 2019, to the consolidated operating results.

Although the integration is not complete, a substantial portion of the Caprolactone Business was integrated into our existing Performance Chemicals operations during the fourth quarter of 2019.

As a result, we were no longer able to separate operating performance of the Caprolactone Acquisition from our existing Performance Chemicals' operating results.

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.

Purchase Price Allocation

The Caprolactone Acquisition is considered an acquisition of a business under business combinations accounting guidance, and therefore we applied acquisition accounting.

Acquisition accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

The aggregate purchase price noted above was allocated to the major categories of assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date using primarily Level 2 and Level 3 inputs.

These Level 2 and Level 3 valuation inputs include an estimate of future cash flows and discount rates.

Additionally, estimated fair values are based, in part, upon outside appraisals for certain assets, including specifically-identified intangible assets.

See Note 6 for additional explanation of Level 2 and Level 3 inputs.

We finalized the purchase price allocation in Q4 2019.

The following table represents our final purchase price allocation as well as an explanation of changes from the initial preliminary purchase price allocation.

The following table summarizes the consideration paid for the Caprolactone Business, the assets acquired, and liabilities assumed, which was finalized in the fourth quarter of 2019:

Ingevity Corporation

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Non-compete agreement 3 years 0.5

Goodwill (3) (5)

Other assets 1.3

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Inventories are accounted for on a FIFO basis of accounting.

(2) The aggregate amortization expense was $14.4 million for the year ended December 31, 2019.

(2) The aggregate amortization expense was $ 19.1 million and $ 14.4 million for the years ended December 31, 2020 and 2019, respectively.

Estimated amortization expense is as follows:

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Restricted cash is included in "Prepaid and other current assets" on the consolidated balance sheet.

(5) Since the acquisition, we completed a full physical asset inspection and assessment of the property, plant and equipment acquired.

We identified $2.5 million of assets, which were included in the original valuation that were no longer in use after the acquisition.

Reducing the asset value also required a reduction of the previously established deferred tax liability by $0.4 million.

The net adjustment resulted in an increase to Goodwill of $2.1 million.

We also obtained all outstanding lease contracts for the Caprolactone Business, and completed our assessment of the leases under ASC 842.

The result was the identification of operating lease assets, current lease liabilities, and noncurrent lease liabilities at the date of acquisition in the amounts of $1.8 million, $0.1 million, and $1.7 million, respectively.

Finally, we completed the acquired legal entity fiscal year 2018 tax filings, our assessment of potential uncertain tax positions, as well as our of the realizability of acquired deferred taxes at the acquisition date.

The result was a decrease to goodwill of $2.3 million and deferred income taxes of $1.7 million and an increase to taxes receivable of $0.6 million from the preliminary purchase price allocation.

(5) The fair values assigned to the Customer Relationships intangible asset was determined by using a multi-period excess earnings model ("MP-Model").

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The RfR-Model's significant assumptions include the revenue growth rates, royalty rate, and discount rate considered in the aggregate.

Georgia-Pacific's Pine Chemical Business

On March 8, 2018, pursuant to the terms and conditions set forth in the asset purchase agreement with Georgia-Pacific Chemicals LLC, Georgia-Pacific LLC (together with Georgia-Pacific Chemicals LLC, "GP") and Ingevity Arkansas, LLC, a wholly-owned subsidiary of Ingevity, we completed the acquisition (the "Pine Chemical Acquisition") of substantially all the assets primarily used in GP's pine chemical business (the "Pine Chemical Business") for an aggregate purchase price of $ 315.5

Ingevity Corporation

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December 31, 2020

Georgia-Pacific's Pine Chemical Business

The aggregate purchase price was finalized during the third quarter of 2018 with a final payment to GP in the amount of $ 0.5 million to finalize the net working capital acquired on March 8, 2018.

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

Although the integration was not complete, a substantial portion of the Pine Chemical Business was integrated into our existing Performance Chemicals operations as of September 30, 2018.

As a result, we were no longer able to separate net sales and operating performance of the Pine Chemical Acquisition from our existing Performance Chemicals' operating results.

Purchase Price Allocation

The following table summarizes the consideration paid for the Pine Chemical Business and the assets acquired and liabilities assumed:

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

Purchase Price Allocation

In millions Weighted Average Amortization Period Fair Value

Accounts receivable $ 16.2

Inventories (1)

Property, plant and equipment 39.3

Intangible assets (2)

Patents 12 years 1.9

Non-compete agreement 3 years 2.2

Customer relationships 11 years 129.0

Other assets 0.1

Total fair value of assets acquired $ 316.8

Accounts payable 0.8

Accrued expenses 0.5

Total fair value of liabilities assumed $ 1.3

Total cash paid $ 315.5

_______________

(1) Fair value of finished goods inventories acquired included a step-up in the value of $1.4 million, which was expensed in the year ended December 31, 2018.

The expense is included in "Cost of sales" on the consolidated statement of operations.

Inventories are accounted for on a LIFO basis of accounting.

(2) The aggregate amortization expense was $12.7 million and $10.6 million for the years ended December 31, 2019 and 2018, respectively.

Estimated amortization expense is as follows:

2020 - $12.7 million, 2021 - $12.0 million, 2022 - $11.8 million, 2023 - $11.8 million, and 2024 - $11.8 million.

(3) Goodwill largely consists of expected cost synergies and economies of scale resulting from the business combination.

We expect the full amount to be deductible for income tax purposes.

This acquired goodwill has been included within our Performance Chemicals reporting unit, see Note 9 for further information regarding our allocation of goodwill among our reporting segments.

Although the integration was not complete, a substantial portion of the Pine Chemical Business was integrated into our existing Performance Chemicals operations as of September 30, 2018, subsequent to which, we were no longer able to separate net sales and operating performance of the Pine Chemical Acquisition from our existing Performance Chemicals' operating results.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information assume that the Caprolactone Acquisition as well as the acquisition of the Pine Chemical Business occurred at the beginning of the periods presented.

The following unaudited pro forma financial information assumes that the Caprolactone Acquisition as well as the Pine Chemical 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 acquisitions 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 of $ 35.3 million and $ 12.2 million for the years ended December 31, 2019 and 2018, respectively.

The pro forma results presented below are adjusted for the removal of Acquisition and other-related costs of $ 35.3 million and $ 12.2 million for the years ended December 31, 2019 and 2018.

Years Ended December 31,

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Diluted earnings (loss) per share attributable to Ingevity stockholders $ 5.01 $ 4.48

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2019

Acquisition and other-related costs

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(1) Included within "Cost of sales" on the consolidated statement of operations.

Ingevity Corporation

Notes to the Consolidated Financial Statements

December 31, 2020

Domestic and foreign components of Income (loss) before income taxes are shown below:

26 unchanged sentences

State and local income taxes, net of federal benefit 5.0 6.3 4.4

Foreign income tax rate differential 1.5 1.3 1.0

Changes in valuation allowance ( 1.9 ) ( 1.9 ) ( 2.2 )

Domestic manufacturing deduction — — ( 5.1 )

Deferred adjustments (including rate change) 3.9 ( 1.4 ) ( 0.1 )

Noncontrolling interest in consolidated partnership — — ( 2.7 )

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Effective tax rate 22.8 % 19.4 % 18.0 %

The increase in our effective tax rate from 2018 to 2019 was due to several factors as described below.

The increase in our effective tax rate from 2019 to 2020 was primarily driven by the reduction in the excess stock compensation benefit derived by declining stock prices in 2020, as well as a rate increase in the United Kingdom ("UK").

This effective tax rate increase was partially offset by a reduction of the officer's compensation limitation due to forfeited equity awards already disallowed for tax purposes, as well as increased benefit due to the generation of additional state tax credits as a result of the new corporate headquarters.

The increase in our effective tax rate from 2018 to 2019 was driven by multiple factors.

The August 1, 2018 acquisition of the remaining 30 percent noncontrolling interest in Purification Cellutions, LLC (see Note 13 for more information) resulted in an increase to our effective tax rate in 2019 as compared to 2018.

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domestic earnings.

The increase in our effective tax rate from 2017 to 2018 is mainly due to the benefit of reducing our net deferred tax liability to the 21.0 percent rate in 2017 and effects of certain provisions under U.S.

net deferred tax liabilities as of December 31, 2017 were remeasured from 35.0 percent to 21.0 percent, resulting in $ 24.5 million of provisional deferred income tax benefit and a reduction in our effective tax rate of 14.0 percent in 2017.

During the year ended December 31, 2018, we further adjusted our net deferred tax liabilities by $ 1.9 million due to further interpretations of U.S.

The remaining difference in our effective tax rate for the years ended December 31, 2018 and 2017, respectively, is due to the change in certain favorable tax deductions under U.S.

Tax Reform, such as the elimination of the domestic manufacturing deduction and the addition of the foreign-derived intangible income deduction.

In addition to the impact of U.S.

Tax Reform, the change in the effective tax rate period over period was also driven by the acquisition of our noncontrolling interest.

Ingevity Corporation

4 unchanged sentences

Deferred tax assets:

Accrued restructuring $ 0.1 $ 7.7

Employee benefits $ 13.0 $ 12.0

Intangibles — 17.1

Net operating losses 10.6 15.4

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_______________

(1) Presentation in the table above is on a gross basis, however due to jurisdictional netting, our net deferred tax asset and liability recorded on our consolidated balance sheets is $ 5.0 million and $ 100.3 million million, respectively, as of December 31, 2019 and $ 2.9 million and $ 36.9 million, respectively, as of December 31, 2018 .

(1) Presentation in the table above is on a gross basis, however due to jurisdictional netting, our net deferred tax asset and liability recorded on our consolidated balance sheets is $ 8.1 million and $ 117.0 million, respectively, as of December 31, 2020 and $ 5.0 million and $ 100.3 million, respectively, as of December 31, 2019 .

Our net deferred tax liabilities increased $ 13.6 million at December 31, 2020 as compared to December 31, 2019.

The Caprolactone Acquisition, completed on February 13, 2019.

resulted in the recognition of $ 45.7 million of net deferred tax liabilities (see Note 17 for more information).

In April 2019, we sold assets from the Performance Chemicals derivatives operations in Palmeira, Brazil (see Note 16 for more information) the resulting loss increased our net operating loss deferred tax asset by $ 6.0 million in 2019.

Additionally, deferred tax liabilities associated with fixed assets increased significantly in 2019 due to an increase in assets placed in service in 2019 versus 2018 resulting in additional bonus depreciation deductions.

Also, in connection with the adoption of ASC 842 (see Note 14 for more information), we recorded a deferred tax asset and corresponding deferred tax liability, which effectively offset.

Deferred tax liabilities associated with fixed assets increased significantly in 2020 due to an increase in assets placed in service in 2020 versus 2019 resulting in additional bonus depreciation deductions.

Additionally, a rise in the UK tax rate caused an increase in our overall deferred tax liability.

This increase in the liability was partially offset by increase in miscellaneous new deferred tax assets, including a capital loss carryover and deferred earn out associated with the ANGP asset acquisition.

Additionally, as a part of the CARES Act, payments associated with payroll taxes were allowed to be extended into 2021 creating a deferred tax asset.

We have deferred tax assets, including net operating loss carryforwards, which are available to offset future taxable income.

A valuation allowance has been provided where management has determined that it is more likely than not that the deferred tax assets will not be realized.

In 2019, we recognized a tax benefit of $ 2.4 million by releasing a valuation allowance that was associated with our Chinese operations.

In 2020, we recognized a tax benefit of $ 2.7 million by releasing a valuation allowance that was associated with our Brazil operations.

The decision to release the valuation allowance due to positive evidence supporting future taxable income available to offset these losses.

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At December 31, 2020, 2019, and 2018, no deferred income taxes have been provided for our share of undistributed net earnings of foreign operations due to management’s intent to reinvest such amounts indefinitely.

The determination of the amount of taxes that may be due if

The determination of the amount of taxes that may be due if earnings are remitted is not practicable because such liability, if any, is dependent on circumstances that exist if and when remittance occurs.

The circumstances that would affect the calculations include the source location and amount of the distribution, the underlying tax rate already paid on the earnings, foreign withholding taxes, the opportunity to use foreign tax

Ingevity Corporation

1 unchanged sentence

December 31, 2020

earnings are remitted is not practicable because such liability, if any, is dependent on circumstances that exist if and when remittance occurs.

credits, and the potential impact of U.S.

Positive undistributed earnings considered to be indefinitely reinvested totaled $ 35.6 million at December 31, 2020.

3 unchanged sentences

Additions for tax positions related to current year — — 0.2

Additions for tax positions related to prior years — — 0.1

Reduction from lapse of statute of limitation — ( 0.2 ) ( 0.2 )

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Depreciation and amortization - Performance Chemicals ( 69.0 ) ( 60.8 ) ( 34.8 )

Pension and postretirement settlement and curtailment charges (income) (3)

Separation costs — — ( 0.9 )

Pension and postretirement settlement and curtailment charges (income), net (3)

( 0.1 ) — ( 0.2 )

Restructuring and other income (charges), net (4)

9 unchanged sentences

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.

(3) Our pension and postretirement settlement and curtailment (income) charges are related to the acceleration of prior service costs, as a result of a reduction in the number of participants within the Union Hourly defined benefit pension plan during 2018.

interest expense, net 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.

These are excluded from our segment results because we consider these costs to be outside our operational performance.

We continue to include the service cost, amortization of prior service cost, interest costs, expected return on plan assets, and amortized actual gains and losses in our segment EBITDA.

(4) For the year ended December, 31, 2020, charges of $ 7.4 million and $ 11.1 million relate to the Performance Materials segment and Performance Chemicals segment, respectively.

For the years end December 31, 2019 and 2018, all income (charges) relate to the Performance Chemicals segment.

Information about how restructuring and other (income) charges relate to our reporting segments is discussed in Note 16.

62 unchanged sentences

Advances to suppliers 0.6 0.5

Equity securities (Note 6) 0.4 0.4

Prepaid software as a service 3.2 1.5

Contract asset (Note 5) 5.7 6.2

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Deferred financing charges $ 3.8 $ 2.5

Capitalized software, net (Note 3) 16.9 14.2

Capitalized software, net 18.9 16.9

Land-use rights 5.1 5.6

Planned major maintenance activities (Note 3) 3.5 3.2

Planned major maintenance activities 2.8 3.5

Deferred software as a service 2.2 0.2

Deferred compensation plan assets (Note 6) 12.5 9.8

Net investment hedge (Note 10) — 3.0

Finance lease assets, net (Note 14) 0.8 1.2

Other 6.7 7.5

7 unchanged sentences

Restructuring reserves (Note 16) 0.8 0.4

Separation-related reimbursement awards (Notes 6) 0.1 0.1

Accrued royalties and commissions 2.5 2.0

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Unrecognized tax benefits (Note 18) 0.1 0.1

Net investment hedge (Note 10) 8.6 —

Interest rate swaps (Note 10) 8.9 3.9

New market tax credit payable (Note 11) 1.8 1.7

Contingent consideration (Note 6) 0.8 —

Other 3.3 3.7

3 unchanged sentences

In millions 2020 2019 2018

Foreign currency translation (gain)/loss $ 0.2 $ 2.0 $ 1.2

Royalty (income)/expense ( 1.9 ) ( 0.8 ) ( 0.7 )

Impairment of equity investment — 1.5 —

Other (gain)/loss ( 2.6 ) ( 1.7 ) —

Foreign currency translation (income)/loss $ ( 5.8 ) $ 0.2 $ 2.0

Royalty and sundry (income)/loss ( 0.4 ) ( 1.9 ) ( 0.8 )

Impairment of equity investment (Note 6) 1.4 — 1.5

Other (income)/expense, net 0.7 ( 2.6 ) ( 1.7 )

$ ( 4.1 ) $ ( 4.3 ) $ 1.0

6 unchanged sentences

Net income (loss) 45.3 20.2 69.9 46.0 22.7 56.8 59.9 44.3

Net income (loss) attributable to noncontrolling interests — — — — 5.0 5.5 2.2 —

Net income (loss) attributable to Ingevity stockholders $ 22.7 $ 56.8 $ 59.9 $ 44.3 $ 30.8 $ 46.7 $ 49.5 $ 42.1

Basic earnings (loss) per common share attributable to Ingevity stockholders (1)

$ 1.09 $ 0.49 $ 1.69 $ 1.12 $ 0.54 $ 1.36 $ 1.42 $ 1.06

Diluted earnings (loss) per common share attributable to Ingevity stockholders (1)

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Provision/ (Benefit)

(in millions) Balance, Beginning of Year Charged to Costs and Expenses Charged to Other Comprehensive Income Write-offs (1) Balance, End of Year

(in millions) Balance, Beginning of Year Charged to Costs and Expenses Charged to Other Comprehensive Income Charged to Retained Earnings (1)

Write-offs (2)

Balance, End of Year

December 31, 2020

Reserve for doubtful accounts (2)

Accounts receivable credit loss allowance (3)

$ 0.5 1.4 — — — $ 1.9

Held-to-maturity debt securities credit loss allowance (4)

$ — 0.3 — 0.6 — $ 0.9

Deferred tax valuation allowance $ 13.0 ( 1.9 ) ( 2.7 ) — — $ 8.4

December 31, 2019

Reserve for doubtful accounts (2)

Accounts receivable credit loss allowance (3)

$ 0.4 0.1 — — — $ 0.5

1 unchanged sentence

December 31, 2018

Reserve for doubtful accounts (2)

Accounts receivable credit loss allowance (3)

$ 0.4 — — — — $ 0.4

1 unchanged sentence

_______________

(1) See Note 4 within the consolidated financial statements included within Part II.

Item 8 of the Form 10-K for more information related to our adoption of the new accounting standard related to credit losses (ASU 2016-13).

(2) Write-offs are net of recoveries.

(2) Reserve for doubtful accounts is included within Accounts receivable, net on the consolidated balance sheet.

(3) Allowance for credit losses on accounts receivable is included within Accounts receivable, net on the consolidated balance sheet.

(4) Allowance for credit losses on held-to-maturity debt securities is included within Restricted investment on the consolidated balance sheet.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data