What changed in this filing

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Item 1. Financial Statements

2021-04-29 compared with 2020-10-29 · 177 added, 501 removed, 539 unchanged (56% of the section changed)

2 unchanged sentences

Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In millions, except per share data 2021 2020

17 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In millions 2021 2020

4 unchanged sentences

Unrealized gain (loss) on net investment hedges, net of tax provision (benefit) of $ 1.5 and $ 1.7

( 6.2 ) 5.3 ( 2.7 ) 5.1

Total foreign currency adjustments, net of tax provision (benefit) of $ 1.5 and $ 1.7

21.4 ( 17.6 ) ( 16.9 ) ( 23.9 )

Derivative instruments:

Unrealized gain (loss), net of tax provision (benefit) of $ 0.4 and $( 1.4 )

0.7 ( 0.9 ) ( 4.5 ) ( 4.4 )

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

0.4 — 0.7 ( 0.5 )

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

Total derivative instruments, net of tax provision (benefit) of $ 0.4 and $( 1.4 )

1.1 ( 0.9 ) ( 3.8 ) ( 4.9 )

Pension & other postretirement benefits:

Unrealized actuarial gains (losses) and prior service (costs) credits, net of tax of zero for all periods

Reclassifications of net actuarial and other (gain) loss and amortization of prior service cost, included in net income, net of tax of zero for all periods

Total pension and other postretirement benefits, net of tax of zero for all periods

Other comprehensive income (loss), net of tax provision (benefit) of $ 1.9 and $ 0.3

22.6 ( 18.5 ) ( 20.6 ) ( 28.8 )

Comprehensive income (loss) $ 57.2 $ 6.2

2 unchanged sentences

Condensed Consolidated Balance Sheets

In millions, except share and par value data September 30, 2020 December 31, 2019

In millions, except share and par value data March 31, 2021 December 31, 2020

Assets (Unaudited)

9 unchanged sentences

Deferred income taxes 7.9 8.1

Restricted investment , net of allowance for credit losses of $ 1.1 million - 2020

Restricted investment , net of allowance for credit losses of $ 0.6 million - 2021 and $ 0.9 million - 2020

Other assets 58.1 52.8

23 unchanged sentences

Accumulated other comprehensive income (loss) 13.2 4.7

Treasury stock, common stock, at cost ( 1,617,498 shares - 2020;

849,035 shares - 2019)

Treasury stock, common stock, at cost ( 2,964,570 shares - 2021 and 2,402,849 shares - 2020)

( 204.0 ) ( 162.3 )

4 unchanged sentences

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30,

Three Months Ended March 31,

In millions 2021 2020

5 unchanged sentences

Deferred income taxes ( 0.6 ) 6.5

Restructuring and other (income) charges, net 1.7 —

Share-based compensation 2.5 0.8

Pension and other postretirement benefit costs — —

Other non-cash items 2.9 5.4

3 unchanged sentences

Prepaid and other current assets 0.5 ( 0.2 )

Current liabilities ( 17.3 ) ( 22.4 )

Accounts payable 8.4 9.4

Accrued expenses ( 2.2 ) ( 3.2 )

Accrued payroll and employee benefits ( 8.6 ) ( 12.4 )

Income taxes 11.3 2.0

4 unchanged sentences

Capital expenditures $ ( 17.0 ) $ ( 19.5 )

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

Finance lease expenditures ( 23.8 ) —

Other investing activities, net ( 0.3 ) ( 0.7 )

2 unchanged sentences

Proceeds from revolving credit facility $ — $ 346.1

Proceeds from long-term borrowings — 375.0

Payments on revolving credit facility — ( 102.3 )

Payments on long-term borrowings ( 9.4 ) ( 4.7 )

Debt issuance costs — ( 1.8 )

Finance lease obligations, net ( 0.1 ) —

7 unchanged sentences

Change in cash, cash equivalents, and restricted cash ( 20.0 ) 246.1

135.8 ( 0.9 )

Cash, cash equivalents, and restricted cash at beginning of period 258.4 64.6

1 unchanged sentence

$ 238.4 $ 310.7

(1) Includes restricted cash of $ 2.2 million and $ 1.0 million and cash and cash equivalents of $ 198.2 million and $ 75.6 million at September 30, 2020 and 2019, respectively.

(1) Includes restricted cash of $ 0.6 million and $ 8.0 million and cash and cash equivalents of $ 237.8 million and $ 302.7 million at March 31, 2021 and 2020, respectively.

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

8 unchanged sentences

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

March 31, 2021

Description of Business and Basis of Presentation

3 unchanged sentences

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

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

Performance Materials manufactures products in the form of powder, granular, extruded pellets, extruded honeycombs, and activated carbon sheets.

Automotive technologies products are sold into gasoline vapor emission control applications within the automotive industry, while process purification products are sold into the food, water, beverage, and chemical purification industries.

Our Performance Chemicals segment consists of our pavement technologies, oilfield technologies, industrial specialties, and engineered polymers product lines.

Performance Chemicals manufactures products derived from crude tall oil ("CTO") and lignin extracted from the kraft paper making process as well as caprolactone monomers and derivatives derived from cyclohexanone and hydrogen peroxide.

Performance Chemicals products serve as critical inputs used in a variety of high performance applications, including pavement preservation, pavement adhesion promotion, and warm mix paving (pavement technologies product line), oil well service additives, oil production, and downstream application chemicals (oilfield technologies product line), printing inks, adhesives, agrochemicals, lubricants, and industrial intermediates (industrial specialties product line), coatings, resins, elastomers, adhesives, and bio-plastics (engineered polymers product line).

Basis of Presentation

5 unchanged sentences

Actual results could differ from these estimates.

During the three and nine months ended September 30, 2020 and subsequent to this date, there have been significant changes to the global economic situation and to public securities markets as a consequence of the novel strain of coronavirus ("COVID-19") pandemic.

It is reasonably possible that this could cause changes to estimates as a result of the financial circumstances of the markets in which we operate, the price of our publicly traded equity in comparison to the carrying value, and the health of the global economy.

Such changes to estimates could potentially result in impacts that would be material to the condensed consolidated financial statements.

While there was not a material impact to our condensed consolidated financial statements as of and for the three and nine ended September 30, 2020, our future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.

Certain prior year amounts have been reclassified to conform with the current year's presentation.

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

Coronavirus Pandemic

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide.

COVID-19 has led to adverse impacts on the U.S.

and global economies, and created uncertainty regarding potential impacts to our supply chain, operations, and customer demand.

We have been classified as an essential business in the jurisdictions that have made this determination to date, allowing us to continue operations.

However, our facilities - as well as the operations of our suppliers, customers, third-party sales representatives, and distributors - have been, and will continue to be, disrupted by governmental and private sector responses to COVID-19.

This includes business shutdowns, work-from-home orders and social distancing protocols, travel or health-related restrictions, as well as quarantines, self-isolations, and disruptions to transportation channels.

On March 27, 2020, the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment.

We estimate the payment of approximately $ 5.3 million of employer payroll taxes otherwise due in 2020 will be delayed with 50 percent due by December 31, 2021 and the remaining 50 percent by December 31, 2022.

The CARES Act is not expected to have a material impact on our condensed consolidated financial statements.

In order to strengthen our short-term liquidity and to ensure financial flexibility, in March 2020, we drew down $ 250 million from our revolving credit facility as a precautionary measure and also suspended our share repurchase program.

During the three and nine months ended September 30, 2020, we paid back $ 50 million and $ 205 million, respectively, of this drawn down amount.

We also implemented work-from-home policies and protocols for the majority of our global salaried workforce, as well as social distancing practices to ensure the safety of our employees at our manufacturing facilities.

During the second quarter, we decreased production at some of our U.S.

and China based manufacturing plants due to COVID-19 customer demand impacts and implemented a cost reduction initiative further described in Note 14.

During the third quarter, we resumed normal production at all manufacturing plants as customer demand improved.

While the disruptions caused by the pandemic are currently expected to be temporary, there is uncertainty regarding the virus's duration and severity.

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

New Accounting Guidance

4 unchanged sentences

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15 "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract." This ASU requires companies to defer specific implementation costs incurred in a Cloud Computing Arrangement ("CCA") that are often expensed as incurred under current GAAP, and recognize the expense over the noncancellable term of the CCA.

We adopted this standard on a prospective basis on January 1, 2020.

As a result of the adoption, we anticipate capitalizing certain implementation costs that were previously expensed as incurred, which will be recorded to either prepaid and other current assets or other assets on the condensed consolidated balance sheets, depending on the duration of the agreement.

The impact of the adoption did not have a material impact on our condensed consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit losses:

Measurement of Credit Losses on Financial Instruments." In 2019 and 2020, the FASB issued several ASUs to amend and clarify the credit loss guidance in the original ASU 2016-13 (ASU 2016-13 and its amendments are herein referred to as “ASC 326” or "CECL").

ASC 326 amends FASB's guidance on the impairment of financial instruments, specifically adding an impairment model to GAAP that is based on expected losses, rather than incurred losses, which is intended to result in more timely recognition of such losses.

We adopted this standard on January 1, 2020.

We have updated our internal controls and operational processes and procedures, to include certain forward-looking considerations in our current process of developing and recognizing credit losses for our

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

accounts receivable and restricted investment accounted for at amortized cost.

Generally, the adoption of ASC 326 did not have a material impact on our condensed consolidated balance sheet, results of operations or cash flows.

ASC 326 had an immaterial impact to our allowance for credit losses reported in accounts receivable on our condensed consolidated balance sheet upon adoption.

Additionally, upon adoption of ASC 326, we estimated an allowance for credit losses for our restricted investment on our condensed consolidated balance sheet.

Our restricted investment, which is accounted for as a held-to-maturity investment, consists of highly rated corporate long-term bonds that mature in 2025 and 2026.

To calculate our expected credit loss allowance, we utilized a probability-of-default method (“PDM”) for each bond based on each securities term.

This process uses historical credit loss experience on similar product types, adjusted for reasonable and supportable forecasts of future default rates.

Using a PDM, we calculated an expected credit loss allowance at January 1, 2020 of $ 0.6 million, which was recorded as an adjustment to the opening balance of retained earnings.

The following table displays changes in our allowance for credit losses as of September 30, 2020, including the transition impact of adopting the CECL standard.

(in millions) Balance at

December 31, 2019 (1)

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

September 30, 2020 (2)

Allowance for credit losses $ 0.5 0.6 1.1 1.8 $ 2.9

______________

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

(2) The allowance for credit losses at September 30, 2020 of $ 1.8 million and $ 1.1 million was included "Accounts receivable, net" and "Restricted investment" on the condensed consolidated balance sheets, respectively.

Our expected credit losses can vary from period to period based on several factors, such as changes in bond ratings, actual observed bond defaults, and overall economic environment.

The primary factor that contributed to our provision for expected credit losses in the nine months ended September 30, 2020 was a pessimistic outlook of the macroeconomic environment due to the COVID-19 pandemic, and related effects on the financial performance of U.S.-based corporations.

The increase in the allowance for credit losses of $ 1.8 million in the nine months ended September 30, 2020 is attributed to $ 0.5 million for Level 1 securities and $ 1.3 million for accounts receivable expected credit losses.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-14 "Compensation — Retirement Benefits — Defined Benefit Plans — General (Topic 715-20):

Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans." This ASU amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans.

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

Although we are still evaluating the impact of this new standard, we do not believe that the adoption will materially impact our condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12 "Income Taxes (Topic 740):

1 unchanged sentence

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

Although we are still evaluating the impact of this new standard, we do not believe that the adoption of this new standard will materially impact our condensed consolidated financial statements and related disclosures.

We adopted the new guidance effective January 1, 2021.

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

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04 "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The ASU is intended to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates.

This guidance became effective beginning on March 12, 2020, and we may elect to apply the amendments prospectively until December 31, 2022.

As of September 30, 2020, we have not yet elected any optional expedients provided in the standard.

We will apply the accounting relief, if necessary, as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period.

We do not expect this new standard to have a material impact on our consolidated financial statements.

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

Perstorp Holding AB's Caprolactone Business

On February 13, 2019, we completed the acquisition of 100 % of the equity of Perstorp UK Ltd with Perstorp Holding AB ("Seller"), including the Seller's entire caprolactone business ("Caprolactone Business"), herein referred to as the "Caprolactone Acquisition." The Caprolactone Acquisition was completed for an aggregate purchase price of € 578.9 million ($ 652.5 million), less assumed debt of € 100.4 million ($ 113.1 million).

At closing, the assumed debt was settled with an affiliate of the Seller.

The Caprolactone Acquisition has been integrated into our Performance Chemicals segment and represented as our engineered polymers product line.

As a result, we are not able to separate operating performance of the Caprolactone Acquisition from our existing Performance Chemicals' operating results.

The Caprolactone Acquisition contributed Net sales of $ 93.2 million and $ 90.9 million for the nine months ended September 30, 2020 and 2019, respectively, to our consolidated operating results.

Purchase Price Allocation

The following table summarizes the consideration paid for the Caprolactone Business, the assets acquired, and liabilities assumed, which was finalized in Q4 2019:

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

Purchase Price Allocation

In millions Weighted Average Amortization Period Fair Value

Cash and cash equivalents $ 0.7

Accounts receivable 15.7

Inventories (1)

Prepaid and other current assets 1.9

Property, plant and equipment 86.3

Operating lease assets, net 1.8

Intangible assets (2)

Customer relationships 17 years 159.0

Developed technology 12 years 64.8

Brands 17 years 67.0

Non-compete agreement 3 years 0.5

Goodwill 295.1

Other assets 1.3

Total fair value of assets acquired $ 715.8

Accounts payable 13.6

Accrued expenses 2.3

Long-term debt 113.1

Operating lease liabilities 1.7

Deferred income taxes 45.7

Total fair value of liabilities assumed $ 176.4

Cash and restricted cash acquired (3)

Payments for acquired businesses, net of cash acquired $ 537.9

______________

(1) Fair value of finished goods inventories acquired included a step-up in the value of approximately $ 8.4 million, all of which was expensed in the three months ended March 31, 2019.

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

Inventories are accounted for on a first-in, first-out basis of accounting.

(2) The aggregate amortization expense was $ 4.8 million and $ 3.7 million for the three months ended September 30, 2020 and 2019, respectively, and the aggregate amortization expense was $ 14.3 million and $ 9.5 million for the nine months ended September 30, 2020 and 2019, respectively.

Estimated amortization expense is as follows:

2020 - $ 19.1 million, 2021 - $ 19.1 million, 2022 - $ 19.0 million, 2023 - $ 18.9 million, and 2024 - $ 18.9 million.

The estimated pre-tax amortization expense may fluctuate due to changes in foreign currency.

(3) Cash and cash equivalents and restricted cash were $ 0.7 million and $ 0.8 million, respectively, at closing.

Restricted cash is included in "Prepaid and other current assets" in the above purchase price allocation.

Unaudited Pro Forma Financial Information

The following unaudited pro forma results of operations assume that the Caprolactone Acquisition occurred at the beginning of the periods presented.

These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been if the acquisition occurred at the beginning of the periods presented, nor are they indicative of future results of operations.

The pro forma results include additional interest expense on the debt issued to finance the acquisition, amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and tangible assets, and related tax effects.

The pro forma results presented below are adjusted for the removal of Acquisition and other-related costs for the nine months ended September 30, 2019 of $ 33.3 million.

This guidance became effective beginning on March 12, 2020, and we may elect to apply the amendments

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

In millions, except per share data Nine Months Ended September 30, 2019

Net sales $ 1,007.2

Income (loss) before income taxes 205.7

Diluted earnings (loss) per share $ 3.92

Acquisition and other-related costs

Costs incurred to complete and integrate the Caprolactone Acquisition into our Performance Chemicals segment are expensed as incurred on our condensed consolidated statement of operations.

The following table summarizes such costs.

Three Months Ended September 30, Nine Months Ended September 30,

In millions 2020 2019 2020 2019

Legal and professional service fees $ — $ 1.3 $ 1.7 $ 12.2

Loss on hedging purchase price — — — 12.7

Acquisition-related costs $ — $ 1.3 $ 1.7 $ 24.9

Inventory fair value step-up amortization (1)

Acquisition and other-related costs $ — $ 1.3 $ 1.7 $ 33.3

______________

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

Ingevity's operating segments are (i) Performance Materials and (ii) Performance Chemicals.

A description of both operating segments is included in Note 1.

March 31, 2021

prospectively until December 31, 2022.

As of March 31, 2021, 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.

Disaggregation of Revenue

The following table presents our Net sales disaggregated by product line.

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In millions 2021 2020

Automotive Technologies product line $ 136.9 $ 120.5 $ 324.5 $ 334.1

Process Purification product line 6.9 9.7 24.8 28.3

Performance Materials segment (1)

Oilfield Technologies product line 14.0 27.6 58.4 86.5

$ 140.7 $ 121.1

Performance Chemicals segment

Pavement Technologies product line 21.4 20.7

1 unchanged sentence

Engineered Polymers product line 46.1 36.3

25.3 32.4 93.2 90.9

Performance Chemicals segment $ 187.9 $ 229.7 $ 541.2 $ 627.1

Total $ 179.6 $ 167.1

Net sales $ 320.3 $ 288.2

______________

(1) Engineered Polymers product line was acquired on February 13, 2019;

see Note 4 for more information.

(1) Beginning in Q1 2021, we updated disaggregated revenue disclosures, combining certain product groups to reflect categories that depict how the nature, amount, and uncertainty of revenue and cash flows are affected by economic factors.

As a result, Automotive Technologies and Process Purification product lines have been combined within the Performance Materials segment.

Similarly, the Oilfield Technologies product line has been combined with the Industrial Specialties product line within the Performance Chemicals segment.

The following table presents our Net sales disaggregated by geography, based on the delivery address of our customer.

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In millions 2021 2020

10 unchanged sentences

For all periods presented we had no contract liabilities.

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

March 31, 2021

Contract Asset

September 30,

In millions 2021 2020

7 unchanged sentences

Fair Value Measurements

We have categorized our assets and liabilities that are recorded at fair value, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

If the inputs used to measure the assets and liabilities fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The carrying value of our financial instruments:

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

See Note 10 for more information regarding our fair value measurements of our financial instruments and risk management activities.

Recurring Fair Value Measurements

The following information is presented for assets and liabilities that are recorded in the condensed consolidated balance sheets at fair value measured at each reporting date (i.e.

on a recurring basis).

There were no transfers of assets and liabilities that were recorded at fair value between Level 1 and Level 2 during the periods reported.

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

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

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

March 31, 2021

In millions Level 1 (1)

September 30, 2020

Equity securities (4)

$ 0.1 $ — $ — $ 0.1

March 31, 2021

Deferred compensation plan investments (4)

$ 1.8 $ — $ — $ 1.8

Total assets $ 1.8 $ — $ — $ 1.8

10 unchanged sentences

$ 11.6 $ — $ — $ 11.6

Separation-related reimbursement awards (6)

Contingent consideration (5)

Total liabilities $ 11.6 $ — $ 0.8 $ 12.4

3 unchanged sentences

(3) Significant unobservable inputs.

(4) Included within "Prepaid and other current assets" on the condensed consolidated balance sheets.

(4) Consists of a deferred compensation arrangement, through which we hold various investment securities.

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

In addition to the investment securities, we also have company-owned life insurance ("COLI") deferred compensation arrangement.

COLI is recorded at cash surrender value and included in "Other assets" on the condensed consolidated balance sheets in the amount of $ 9.0 million and $ 8.4 million at September 30, 2020 and December 31, 2019, respectively.

(6) Included within "Accrued expenses" on the condensed consolidated balance sheets.

In addition to the investment securities, we also have company-owned life insurance ("COLI") related to the deferred compensation arrangement.

COLI is recorded at cash surrender value and included in "Other assets" on the condensed consolidated balance sheets in the amount of $ 10.9 million and $ 10.8 million at March 31, 2021 and December 31, 2020 respectively.

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

(6) Included within "Prepaid and other current assets" on the condensed consolidated balance sheets.

Nonrecurring Fair Value Measurements

The following table presents our fair value hierarchy for those assets measured at fair value on a non-recurring basis in the condensed consolidated balance sheets during the nine months ended September 30, 2020.

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

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

In millions September 30, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Gains (Losses) (Period Ended September 30, 2020)

Impairment of operating lease assets, net (1)

$ — $ — $ — $ — $ ( 1.7 )

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

______________

(1) During the period ended September 30, 2020 we exited certain leased assets previously used in our daily operations.

These leased assets have remaining lease obligations through 2023.

This impairment charge was recorded adjust their fair value on our condensed consolidated balance sheet to zero.

Equity Securities

The aggregate carrying value of investments in equity securities where fair value is not readily determinable totaled zero and $ 1.5 million as of September 30, 2020 and December 31, 2019, respectively, and is included in "Other assets" on the condensed consolidated balance sheets.

During the three and nine months ended September 30, 2020, we recorded an impairment charge of zero and $ 1.5 million, respectively, to an equity security where fair value is not readily determinable held within our Performance Materials segment.

The impairment charge represented the difference between liquidation value of the investment and our book value at the time our investment was liquidated.

Restricted Investment

Our restricted investment is a trust managed in order to secure repayment of the finance lease obligation, associated with Performance Materials' Wickliffe, Kentucky manufacturing site, at maturity.

The trust, presented as restricted investment on our condensed consolidated balance sheets, purchased long-term bonds that mature in 2025 and 2026.

The principal received at maturity of the bonds along with interest income that is reinvested in the trust are expected to be equal to or more than the $ 80.0 million finance lease obligation that is due in 2027.

Because the provisions of the trust provide us the ability, and it is our intent, to hold the investments to maturity, the investments held by the trust are accounted for as held to maturity ("HTM");

therefore, they are held at their amortized cost.

The investments held by the trust earn interest at the stated coupon rate of the invested bonds.

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

At September 30, 2020, the book value of our restricted investment, which is accounted for as HTM and therefore held at amortized costs, was $ 73.0 million, net of an allowance for credit losses of $ 1.1 million and included cash of $ 1.9 million.

The fair value at September 30, 2020 was $ 79.9 million, based on Level 1 inputs.

At March 31, 2021 and December 31, 2020, the carrying value of our restricted investment, which is accounted for as held-to-maturity ("HTM") and therefore recorded at amortized costs, was $ 74.4 million and $ 73.6 million, net of an allowance for credit losses of $ 0.6 million and $ 0.9 million, and included cash of $ 2.9 million and $ 2.4 million, respectively.

The fair value at March 31, 2021 and December 31, 2020 was $ 79.8 million and $ 81.5 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.

1 unchanged sentence

As the rating decreases, the risk present in holding the bond is inherently increased, leading to an increase in expected credit losses.

September 30, 2020

In millions AA+ AA A A- BBB+ Total

HTM Debt Securities

Debt Obligations

At September 30, 2020, the book value of finance lease obligations was $ 103.3 million and the fair value was $ 128.4 million.

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

In millions AA+ AA A A- BBB+ Total

March 31, 2021 $ 13.5 10.6 24.2 13.4 10.4 $ 72.1

December 31, 2020 $ 13.5 10.6 24.2 13.4 10.4 $ 72.1

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

The carrying amount, excluding debt issuance fees, of our variable interest rate long-term debt was $ 901.8 million as of September 30, 2020.

March 31, 2021

Debt Obligations

At March 31, 2021 and December 31, 2020, the carrying value of finance lease obligations was $ 103.0 million and $ 103.1 million, respectively, and the fair value was $ 121.4 million and $ 127.0 million, respectively.

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

The carrying amount, excluding debt issuance fees, of our variable interest rate long-term debt was $ 342.2 million and $ 353.4 million as of March 31, 2021 and December 31, 2020, respectively.

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

At September 30, 2020, the book value of our fixed rate debt was $ 300.0 million, and the fair value was $ 304.1 million, based on Level 2 inputs.

At March 31, 2021 and December 31, 2020, the carrying value of our fixed rate debt was $ 850.0 million and the fair value was $ 839.0 million and $ 864.1 million, respectively, based on Level 2 inputs.

Contingent Consideration

In connection with the acquisition of certain assets in May 2020, we are contingently obligated to make an additional payment for such assets of up to an aggregate amount of $ 7.0 million.

The contingent consideration is payable if certain sales volume targets are achieved prior to the expiration on December 31, 2024, therein referred to as "Revenue Earn-out."

The fair value of the five-year Revenue Earn-out consideration was $ 1.1 million at September 30, 2020.

Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a selling, general and administrative expense.

The contingent consideration is payable if certain sales volume targets are achieved prior to December 31, 2024, herein referred to as "Revenue Earn-out."

The fair value of the five-year Revenue Earn-out consideration was $ 0.8 million at March 31, 2021 and December 31, 2020, respectively.

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 on the condensed consolidated statements of operations.

The following table summarizes the activity for financial liabilities utilizing Level 3 fair value measurements:

Contingent Consideration

In millions September 30, 2020

In millions March 31, 2021

Beginning balance $ 0.8

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Inventories, net

In millions September 30, 2020 December 31, 2019

In millions March 31, 2021 December 31, 2020

Raw materials $ 39.7 $ 39.1

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Subtotal 220.2 203.3

adjustment of inventories to LIFO basis ( 13.5 ) ( 10.4 )

LIFO reserve ( 16.0 ) ( 14.3 )

Inventories, net $ 204.2 $ 189.0

1 unchanged sentence

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

March 31, 2021

Property, Plant, and Equipment, net

In millions September 30, 2020 December 31, 2019

In millions March 31, 2021 December 31, 2020

Machinery and equipment $ 1,084.9 $ 1,065.5

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Property, plant, and equipment, net $ 697.9 $ 703.6

$ 685.3 $ 664.7

Goodwill and Other Intangible Assets, net

3 unchanged sentences

Foreign currency translation 2.4 — 2.4

September 30, 2020 $ 423.5 $ 4.3 $ 427.8

There were no events or circumstances indicating that goodwill might be impaired as of September 30, 2020.

March 31, 2021 $ 443.4 $ 4.3 $ 447.7

There were no interim triggering events or circumstances indicating that goodwill might be impaired as of March 31, 2021.

Other Intangible Assets

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

In millions Gross Accumulated amortization Net Gross Accumulated amortization Net

Intangible assets subject to amortization

Customer contracts and relationships $ 320.9 $ 79.2 $ 241.7 $ 319.5 $ 73.6 $ 245.9

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Other 2.7 2.6 0.1 2.7 2.4 0.3

Total Other intangibles, net $ 460.6 $ 94.1 $ 366.5 $ 466.1 $ 69.9 $ 396.2

Other intangibles, net $ 480.1 $ 113.0 $ 367.1 $ 477.6 $ 104.3 $ 373.3

_______________

(1) Represents trademarks, trade names, and know-how.

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

In millions March 31, 2021 December 31, 2020

Performance Materials $ 2.1 $ 2.1

Performance Chemicals 365.0 371.2

Other intangibles, net $ 367.1 $ 373.3

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

At September 30, 2020 and December 31, 2019 , the intangible assets subject to amortization were allocated among our business segments as follows:

In millions September 30, 2020 December 31, 2019

Performance Chemicals $ 364.3 $ 396.2

Performance Materials 2.2 —

Total Other intangibles, net $ 366.5 $ 396.2

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

Three Months Ended September 30, Nine Months Ended September 30,

March 31, 2021

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

Three Months Ended March 31,

In millions 2021 2020

2 unchanged sentences

Total amortization expense $ 8.4 $ 8.3

$ 8.2 $ 7.3 $ 24.4 $ 20.2

_______________

(1) See Note 4 for more information about the Caprolactone Acquisition, and the related increase in amortization expense.

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

2021 - $ 33.3 million, 2022 - $ 33.0 million, 2023 - $ 33.0 million, 2024 - $ 32.6 million, and 2025 - $ 32.6 million.

The estimated pre-tax amortization expense may fluctuate due to changes in foreign currency.

The estimated pre-tax amortization expense may fluctuate due to changes in foreign currency exchange rates.

Financial Instruments and Risk Management

5 unchanged sentences

This effectively converts a portion of our U.S.

dollar denominated fixed-rate debt from a weighted average rate of 3.79 percent to a euro denominated weighted average fixed-rate debt at a rate of 1.35 percent.

Any difference between the fixed interest rate between the U.S.

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

The fair value of the fixed-to-fixed cross currency interest rate swap was a net asset (liability) of $( 0.4 ) million and $ 3.0 million at September 30, 2020 and December 31, 2019, respectively.

During the three and nine months ended September 30, 2020, we recognized net interest income associated with this financial instrument of $ 0.2 million and $ 1.5 million, respectively, and during both the three and nine months ended September 30, 2019, we recognized net interest income associated with this financial instrument of $ 0.9 million and $ 1.5 million, respectively.

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

dollar denominated fixed-rate debt from a weighted average rate of 3.79 percent to a euro denominated weighted average fixed rate of 1.71 percent.

The difference between the fixed interest rate on the U.S.

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

The fair value of the fixed-to-fixed cross currency interest rate swap was a net asset (liability) of $( 2.2 ) million and $( 8.6 ) million at March 31, 2021 and December 31, 2020 , respectively.

During the three months ended March 31, 2021 and 2020, we recognized net interest income associated with this financial instrument of $ 0.1 million and $ 0.8 million, respectively.

Cash Flow Hedges

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Designated cash flow hedges entered to minimize foreign currency exchange risk of forecasted revenue transactions are recorded to Net sales on the consolidated statement of operations when the forecasted transaction occurs.

As of September 30, 2020, there were $ 4.0 million open foreign currency derivative contracts.

The fair value of the designated foreign currency hedge contracts was an asset (liability) of $( 0.1 ) million and zero at September 30, 2020 and December 31, 2019, respectively.

As of March 31, 2021, there were $ 6.5 million open foreign currency derivative contracts.

The fair value of the designated foreign currency hedge contracts was an asset (liability) of $ 0.2 million and $( 0.1 ) at March 31, 2021 and December 31, 2020, respectively.

Commodity Price Risk Management

2 unchanged sentences

To mitigate expected fluctuations in market prices and the volatility to earnings and cash flow resulting from changes to pricing of natural gas purchases, from time to time, we will enter into swap contracts and zero cost collar option contracts and designate these contracts as cash flow hedges.

As of September 30, 2020, we had 1.2 million and 1.1 million mmBTUS (millions of British Thermal Units) in aggregate notional volume of outstanding natural gas commodity swap contracts and zero cost collar option contracts, respectively.

Designated commodity cash flow hedge gains or losses recorded in Accumulated other comprehensive income ("AOCI") are recognized in "Cost of sales" on the condensed consolidated statements of operations when the inventory is sold.

As of September 30, 2020, open commodity contracts hedge forecasted transactions until November 2021.

The fair value of the outstanding designated natural gas commodity hedge contracts as of September 30, 2020 and December 31, 2019 was an asset (liability) of $ 0.3 million and $( 0.5 ) million, respectively.

As of March 31, 2021, we had 0.7 million and 1.0 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 March 31, 2021, open

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

March 31, 2021

commodity contracts hedge forecasted transactions until February 2022.

The fair value of the outstanding designated natural gas commodity hedge contracts as of March 31, 2021 and December 31, 2020 was a net asset (liability) of zero and $( 0.1 ) million, respectively.

Interest Rate Risk Management

Our policy is to manage interest expense using a mix of fixed and variable rate debt.

To manage interest rate risk effectively, from time to time, we may enter into cash flow interest rate derivative instruments, which can consist of forward starting swaps and treasury locks.

To manage interest rate risk effectively, from time to time, we may enter into interest rate derivative instruments, which can consist of forward starting swaps.

In all cases, the notional amount of the interest rate swap agreements is equal to or less than the designated debt being hedged.

Designated interest rate cash flow hedge gains or losses recorded in AOCI are recognized in "Interest expense, net" on the condensed consolidated statements of operations on a straight-line basis over the remaining maturity of the underlying debt.

These instruments are designated as cash flow hedges.

As of September 30, 2020, we have entered into interest rate swaps with a notional amount of $ 166.2 million to manage the variability of cash flows in the interest rate payments associated with our existing LIBOR-based interest payments, effectively converting $ 166.2 million of our floating rate debt to a fixed rate.

Designated interest rate cash flow hedge gains or losses are recorded in Accumulated other comprehensive income (loss) ("AOCI") and 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.

As of March 31, 2021, we have floating-to-fixed interest rate swaps with a notional amount of $ 166.2 million to manage the variability of cash flows in the interest rate payments associated with our existing LIBOR-based interest payments, effectively converting $ 166.2 million of our floating rate debt to a fixed rate.

In accordance with the terms of this instrument, we receive floating rate interest payments based upon three-month U.S.

dollar LIBOR and in return are obligated to pay interest at a weighted average fixed rate of 3.79 percent until July 2023.

The fair value of the interest rate swap was an asset (liability) of $( 9.6 ) million and $( 3.9 ) million at September 30, 2020 and December 31, 2019, respectively.

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 $( 7.5 ) million and $( 8.9 ) million at March 31, 2021 and December 31, 2020, respectively.

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

March 31, 2021

Effect of Cash Flow and Net Investment Hedge Accounting on AOCI

In millions Amount of Gain (Loss) Recognized in AOCI Amount of Gain (Loss) Reclassified from AOCI into Net income Location of Gain (Loss) Reclassified from AOCI in Net income

Three Months Ended September 30,

2020 2019 2020 2019

Cash flow hedging derivatives

Currency exchange contracts $ ( 0.3 ) $ — $ ( 0.2 ) $ — Net sales

Natural gas contracts 0.4 ( 0.2 ) ( 0.3 ) — Cost of sales

Interest rate swap contracts 0.8 ( 0.9 ) — — Interest expense, net

Total $ 0.9 $ ( 1.1 ) $ ( 0.5 ) $ —

Amount of Gain (Loss) Recognized in AOCI Amount of Gain (Loss) Recognized in Income on Derivative

(Amount Excluded from Effectiveness Testing) Location of Gain or (Loss) Recognized in Income on Derivative

(Amount Excluded from

Effectiveness Testing)

Three Months Ended September 30,

2020 2019 2020 2019

Net investment hedging derivative

Currency exchange contracts (1)

$ ( 8.1 ) $ 6.9 $ 0.2 $ 0.9 Interest expense, net

Total $ ( 8.1 ) $ 6.9 $ 0.2 $ 0.9

In millions Amount of Gain (Loss) Recognized in AOCI Amount of Gain (Loss) Reclassified from AOCI into Net income Location of Gain (Loss) Reclassified from AOCI in Net income

Nine Months Ended September 30,

Three Months Ended March 31,

2021 2020 2021 2020

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Effectiveness Testing)

Nine Months Ended September 30,

Three Months Ended March 31,

2021 2020 2021 2020

5 unchanged sentences

Gains and losses would be reclassified from AOCI to Other (income) expense, net.

Within the next twelve months, we expect to reclassify $ 0.1 million of net losses from AOCI to income, before taxes.

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

Within the next twelve months, we expect to reclassify $ 0.1 million of net gains from AOCI to income, before taxes.

Fair Value Measurements

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

See Note 6 financial instruments for more information on our fair value measurements.

There were no transfers of assets and liabilities that are recorded at fair value between Level 1 and Level 2 during the periods reported.

There were no nonrecurring fair value measurements in the condensed consolidated balance sheets as of September 30, 2020 or December 31, 2019 relating to our derivatives.

There were no nonrecurring fair value measurements related to derivative assets and liabilities on the condensed consolidated balance sheets as of March 31, 2021 or December 31, 2020.

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

March 31, 2021

In millions Level 1 (1)

September 30, 2020

March 31, 2021

Currency exchange contracts (4)

$ — $ 0.2 $ — $ 0.2

Natural gas contracts (4)

Net investment hedge (5)

Total assets $ — $ 0.3 $ — $ 0.3

Currency exchange contracts (5)

Natural gas contracts (5)

$ — $ 0.1 $ — $ 0.1

Net investment hedge (6)

3 unchanged sentences

December 31, 2020

Net investment hedge (5)

Natural gas contracts (4)

$ — $ 0.1 $ — $ 0.1

1 unchanged sentence

Natural gas contracts (5)

Currency exchange contracts (5)

$ — $ 0.1 $ — $ 0.1

Net investment hedge (6)

Interest rate swap contracts (6)

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

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

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

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Notes to the Condensed Consolidated Financial Statements

September 30, 2020

March 31, 2021

Debt including Finance Lease Obligations

Current and long-term debt including finance lease obligations consisted of the following:

September 30, 2020

In millions, except percentages Interest rate Maturity date September 30, 2020 December 31, 2019

March 31, 2021

In millions, except percentages Interest rate Maturity date March 31, 2021 December 31, 2020

Variable Rate Debt:

Revolving Credit Facility (1)

1.36 % 2025 $ — $ —

Term Loans 1.44 % 2022-2023 726.6 740.6

Senior Notes 4.50 % 2026 300.0 300.0

Term Loan 1.71 % 2023 342.2 351.6

Other notes payable — % 2021 — 1.8

Fixed Rate Debt:

2020 Senior Note 3.88 % 2028 550.0 550.0

2018 Senior Note 4.50 % 2026 300.0 300.0

Finance lease obligations 7.17 % 2027-2035 103.0 103.1

7.16 % 2027-2035 103.3 80.0

Other 4.77 % 2020-2021 5.2 5.9

Total debt including finance lease obligations 1,295.2 1,306.5

4 unchanged sentences

______________

(1) Letters of credit outstanding under the revolving credit facility were $ 2.4 million and undrawn capacity under the facility was $ 577.6 million at September 30, 2020.

(2) Includes finance lease obligations of $ 80.0 million related assets at our Wickliffe, Kentucky facility and $ 23.3 million related to our corporate headquarters.

(1) Letters of credit outstanding under the revolving credit facility were $ 2.3 million and undrawn capacity under the facility was $ 497.7 million at March 31, 2021 and December 31, 2020, respectively.

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

2020 Senior Notes Issuance and Revolving Credit Facility Amendment

On October 28, 2020 we issued $ 550.0 million aggregate principal amount of 3.875 percent senior unsecured notes due 2028.

Also on October 28, 2020, we entered into an Incremental Facility Agreement and Amendment no.

5 to modify our existing credit agreement.

See Note 19 for more information on both of these actions.

Debt Covenants

Our 4.50 percent senior unsecured notes due in 2026 (the "Senior Notes") contain certain customary covenants (including covenants limiting Ingevity's and its restricted subsidiaries’ ability to grant or permit liens on certain property securing debt, declare or pay dividends, make distributions on or repurchase or redeem capital stock, make investments in unrestricted subsidiaries, engage in sale and lease-back transactions, and engage in a consolidation or merger, or sell, transfer or otherwise dispose of all or substantially all of the assets of our and our restricted subsidiaries, taken as a whole, subject, in each of the above cases, to certain qualifications and exceptions) and events of default (subject in certain cases to customary exceptions, as well as grace and cure periods).

The occurrence of an event of default under the Senior Notes could result in the acceleration of the Senior Notes and could cause a cross-default that could result in the acceleration of other indebtedness of Ingevity and its subsidiaries.

The revolving credit facility and term loans contain customary default provisions, including defaults for non-payment, breach of representations and warranties, insolvency, non-compliance with covenants and cross-defaults to other material indebtedness.

The occurrence of an uncured event of default under the revolving credit facility and term loans could result in all loans and other obligations becoming immediately due and payable and the facilities being terminated.

The revolving credit facility and term loans' financial covenants require Ingevity to maintain on a consolidated basis a maximum total leverage ratio of 4.0 to 1.0 (which may be increased to 4.5 to 1.0 under certain circumstances) and a minimum interest coverage ratio of 3.0 to 1.0.

Our actual leverage for the four consecutive quarters ended September 30, 2020 was 3.3 , and our actual interest coverage for the four consecutive quarters ended September 30, 2020 was 8.3 .

We were in compliance with all covenants at September 30, 2020.

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 March 31, 2021.

The credit agreement governing our revolving credit facility and 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 March 31, 2021 were 2.9 and 2.4 , respectively, and our actual interest coverage for the four consecutive quarters ended March 31, 2021 was 12.2 .

We were in compliance with all covenants at March 31, 2021.

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

March 31, 2021

The tables below provide a roll forward of equity.

6 unchanged sentences

Common stock issued 97 — — — — — —

Exercise of stock options, net 24 — 0.9 — — — 0.9

Tax payments related to vested restricted stock units — — — — — ( 2.3 ) ( 2.3 )

1 unchanged sentence

Share-based compensation plans — — 2.6 — — — 2.6

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

Balance at March 31, 2021 43,034 $ 0.4 $ 124.8 $ 726.7 $ 13.2 $ ( 204.0 ) $ 661.1

Net income (loss) — — — 20.2 — — 20.2

Other comprehensive income (loss) — — — — ( 4.1 ) — ( 4.1 )

Common stock issued 5 — — — — — —

Exercise of stock options, net 50 — 1.4 — — — 1.4

Tax payments related to vested restricted stock units — — — — — 0.1 0.1

Share-based compensation plans — — 1.3 — — 1.9 3.2

Balance at June 30, 2020 42,891 $ 0.4 $ 116.3 $ 562.1 $ ( 48.2 ) $ ( 107.7 ) $ 522.9

Net income (loss) — — — 69.9 — — 69.9

Other comprehensive income (loss) — — — — 22.6 — 22.6

Common stock issued 3 — — — — — —

Exercise of stock options, net 1 — — — — — —

Tax payments related to vested restricted stock units — — — — — ( 0.1 ) ( 0.1 )

Share-based compensation plans — — 0.5 — — 1.2 1.7

Balance at September 30, 2020 42,895 $ 0.4 $ 116.8 $ 632.0 $ ( 25.6 ) $ ( 106.6 ) $ 617.0

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

In millions, except per share data in thousands Shares Amount Additional paid in capital Retained earnings Accumulated

5 unchanged sentences

Common stock issued 161 — — — — — —

Exercise of stock options, net 51 — 1.4 — — — 1.4

Tax payments related to vested restricted stock units — — — — — ( 3.1 ) ( 3.1 )

1 unchanged sentence

Share-based compensation plans — — 0.8 — — 0.4 1.2

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

Balance at March 31, 2020 42,836 $ 0.4 $ 113.6 $ 541.9 $ ( 44.1 ) $ ( 109.7 ) $ 502.1

Net income (loss) — — — 56.8 — — 56.8

Other comprehensive income (loss) — — — — ( 19.4 ) — ( 19.4 )

Common stock issued 5 — — — — — —

Exercise of stock options, net 6 — 0.2 — — — 0.2

Share-based compensation plans — — 3.5 — — 0.9 4.4

Balance at June 30, 2019 42,670 $ 0.4 $ 107.5 $ 393.0 $ ( 28.0 ) $ ( 72.2 ) $ 400.7

Net income (loss) — — — 59.9 — — 59.9

Other comprehensive income (loss) — — — — ( 18.5 ) — ( 18.5 )

Exercise of stock options, net 2 — 0.1 — — — 0.1

Share repurchase program — — — — — ( 3.1 ) ( 3.1 )

Share-based compensation plans — — 3.8 — — 0.4 4.2

Balance at September 30, 2019 42,672 $ 0.4 $ 111.4 $ 452.9 $ ( 46.5 ) $ ( 74.9 ) $ 443.3

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

March 31, 2021

Accumulated other comprehensive income (loss)

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In millions 2021 2020

1 unchanged sentence

Beginning balance $ 16.4 $ 1.5

Gains (losses) on foreign currency translation 27.6 ( 22.9 ) ( 14.2 ) ( 29.0 )

tax provision (benefit) — — — —

Net gains (losses) on foreign currency translation 2.4 ( 40.1 )

16 unchanged sentences

Beginning balance $ ( 4.8 ) $ ( 3.0 )

Unrealized actuarial gains (losses) and prior service (costs) credits — — — —

tax provision (benefit) — — — —

Net actuarial gains (losses) and prior service (costs) credits — — — —

Actuarial and other (gains) losses, amortization of prior service cost (credits), and settlement and curtailment (income) charge reclassified to net income 0.1 — 0.1 —

tax (provision) benefit — — — —

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

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

Ending balance $ ( 4.8 ) $ ( 3.0 )

Total AOCI ending balance at September 30 $ ( 25.6 ) $ ( 46.5 ) $ ( 25.6 ) $ ( 46.5 )

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

Total AOCI ending balance at March 31 $ 13.2 $ ( 44.1 )

Reclassifications of accumulated other comprehensive income (loss)

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In millions 2021 2020

1 unchanged sentence

Currency exchange contracts (1)

$ ( 0.2 ) $ — $ — $ —

Natural gas contracts (2)

( 0.3 ) — ( 0.9 ) 0.6

Total before tax 0.1 ( 0.1 )

1 unchanged sentence

Amount included in net income (loss) $ 0.1 $ ( 0.1 )

Pension and other post retirement benefits

Amortization of prior service costs (2)

______________

Amortization of unrecognized net actuarial and other gains (losses) (3)

Total before tax ( 0.1 ) — ( 0.1 ) —

(Provision) benefit for income taxes — — — —

Amount included in net income (loss) $ ( 0.1 ) $ — $ ( 0.1 ) $ —

______________

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

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

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

Share Repurchases

On February 28, 2020, our Board of Directors authorized the repurchase of up to $ 500.0 million of our common stock, and rescinded the prior two authorizations from 2017 and 2018 of $ 100.0 million and $ 350.0 million, respectively.

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

Shares may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of market prevailing conditions and other factors.

During the three months ended September 30, 2020, no shares of our common stock were repurchased as we previously suspended share repurchases in light of the uncertainty caused by the COVID-19 pandemic.

At September 30, 2020, $ 467.6 million remained unused under our Board-authorized repurchase program.

We record shares of common stock repurchased at cost as treasury stock, resulting in a reduction of stockholders’ equity in the condensed consolidated balance sheets.

When the treasury shares are contributed under our employee benefit plans or issued for option exercises, we use a first-in, first-out method for determining cost.

The difference between the cost of the shares and the market price at the time of contribution to an employee benefit plan is added to or deducted from the related capital in excess of par value of common stock.

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

March 31, 2021

Share Repurchases

At March 31, 2021, $ 372.6 million remained unused under our Board-authorized repurchase program.

During the three months ended March 31, 2021, we repurchased $ 39.4 million in common stock, representing 527,550 shares of our common stock at a weighted average cost per share of $ 74.64 .

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.

Retirement Plans

The following table summarizes the components of net periodic benefit cost (income) for our defined benefit pension plans:

Three Months Ended September 30,

Pensions Other Benefits

In millions 2020 2019 2020 2019

Components of net periodic benefit cost (income):

Service cost (1)

$ 0.4 $ 0.2 $ — $ —

Interest cost (2)

Expected return on plan assets (2)

( 0.3 ) ( 0.2 ) — —

Amortization of prior service cost (credit) (1)

Amortization of net actuarial and other (gain) loss (2)

Net periodic benefit cost (income) $ 0.5 $ 0.3 $ — $ —

Nine Months Ended September 30,

Three Months Ended March 31,

Pensions Other Benefits

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Contributions

We did no t make any voluntary cash contributions to our Union Hourly defined benefit pension plan in the nine months ended September 30, 2020.

We did no t make any voluntary cash contributions to our Union Hourly defined benefit pension plan in the three months ended March 31, 2021.

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

Restructuring and Other (Income) Charges, net

We continually perform strategic reviews and assess the return on our operations which sometimes results in a plan to restructure the business.

The cost and benefit of these strategic restructuring initiatives are recorded as restructuring and other (income) charges, net in our condensed consolidated statements of operations.

These costs are excluded from our operating segment results.

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

March 31, 2021

Restructuring and Other (Income) Charges, net

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In millions 2021 2020

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

Severance and other employee-related costs 0.1 0.2

Other 1.7 — 1.7 0.7

Restructuring charges 0.1 0.2

Business transformation costs 3.8 0.3

Other — — — —

Other (income) charges, net 3.8 0.3

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2020-2021 activities

During the second quarter of 2020, we implemented a cost reduction initiative to realign our cost structure in response to reduced demand for some of our products in response to the COVID-19 pandemic.

As a result of this cost reduction initiative, we recorded $ 0.3 million and $ 6.3 million in severance and other employee-related costs in the three and nine months ended September 30, 2020, respe ctively.

Additionally, during the three and nine months ended September 30, 2020, we recorded $ 1.7 million related to an impairment of an operating lease asset that is no longer in use.

2019 activities

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

As a result of this reorganization, we recorded $ 1.7 million in severance and other employee-related costs in the three and nine months ended September 30, 2019.

In April 2019, we sold assets from the Performance Chemicals derivatives operations in Palmeira, Brazil.

These assets were part of a facility that was closed as a result of a restructuring event in 2016.

As a result of this sale, we recorded $ 0.4 million as a gain on sale of assets, as well as $ 0.7 million related to other miscellaneous exit costs, in the nine months ended September 30, 2019.

During the three months ended March 31, 2021, we recorded $ 0.1 million in severance and other employee-related costs related to the cost reduction initiative announced in the second quarter of 2020 to realign our cost structure in response to reduced demand for some of our products in response to the COVID-19 pandemic.

During the three months ended March 31, 2020, we recorded $ 0.2 million in severance and other employee-related costs related to the reorganization announced in the third quarter of 2019 as part of an effort to improve our Performance Chemical’s workflow and efficiency to best serve our customers’ needs and reduce costs.

Rollforward of Restructuring Reserves

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(2) Includes severance and other employee-related costs.

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

Other (income) charges, net

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Such an implementation initiative is a major financial undertaking and will require substantial time and attention of management and key employees.

Costs incurred, during the three and nine months ended September 30, 2020, of $ 3.5 million and $ 5.3 million, respectively, represent costs directly associated with the business transformation initiative that, in accordance with GAAP, cannot be capitalized.

Costs incurred, during the three months ended March 31, 2021 and 2020, of $ 3.8 million and $ 0.3 million, respectively, represent costs directly associated with the business transformation initiative that, in accordance with GAAP, cannot be capitalized.

Over the course of this initiative, we anticipate incurring approximately $ 60 - 70 million of total costs, which includes $ 30 - 35 million of non-capitalizable costs, $ 18 - 20 million of which we expect to be incurred in 2021.

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

March 31, 2021

The effective tax rates, including discrete items, were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Effective tax rate 21.2 % 17.9 %

8 unchanged sentences

As such, there may be significant volatility in interim tax provisions.

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

The below table provides a reconciliation between our reported effective tax rates and the EAETR.

Three Months Ended September 30,

In millions, except percentages Before tax Tax Effective tax rate % impact Before tax Tax Effective tax rate % impact

Consolidated operations $ 88.1 $ 18.2 20.7 % $ 77.4 $ 17.5 22.6 %

Discrete items:

Restructuring and other (income) charges, net (1)

2.0 0.3 1.7 0.4

Acquisition and other-related costs (2)

Other tax only discrete items

— ( 0.2 ) — ( 0.1 )

Total discrete items 2.0 0.1 3.0 0.7

Consolidated operations, before discrete items $ 90.1 $ 18.3 $ 80.4 $ 18.2

Quarterly effect of changes in the EAETR 20.3 % 22.6 %

Nine Months Ended September 30,

Three Months Ended March 31,

In millions, except percentages Before tax Tax Effective tax rate % impact Before tax Tax Effective tax rate % impact

2 unchanged sentences

Restructuring and other (income) charges, net (1)

8.0 1.7 2.0 0.4

Acquisition and other-related costs (2)

1.7 0.4 33.3 6.0

Other tax only discrete items — 0.1 — 1.3

4 unchanged sentences

(1) See Note 12 for more information on our restructuring and other (income) charges, net.

(2) See Note 4 for more information on our acquisition and other-related costs.

(3) Decrease in EAETR for the nine months ended September 30, 2020, as compared to September 30, 2019, is due to a change in the mix of forecasted earnings in various tax jurisdictions with varying rates, reduction of the officer’s compensation limitation due to forfeited equity awards already disallowed for tax purposes, as well as an increased benefit due to the generation of additional state tax credits as a result of the new corporate headquarters.

At September 30, 2020 and December 31, 2019, we had deferred tax assets of $ 9.8 million and $ 13.0 million, respectively, resulting from certain historical net operating losses from our Brazilian operations and U.S.

(2) Costs incurred to integrate the Perstorp Capa business into our Performance Chemicals segment.

(3) Increase in EAETR for the three months ended March 31, 2021, as compared to March 31, 2020, is due to an overall increase and a change in the mix of forecasted earnings in various tax jurisdictions with varying rates.

This increase in earnings was partially offset by an increased benefit associated with foreign-derived intangible income deduction.

Increase limitation associated with the officer’s compensation as well as a reduced benefit associated with the generation of state tax credits further contributed to the higher rate.

At March 31, 2021 and December 31, 2020, we had deferred tax assets of $ 8.0 million and $ 8.4 million, respectively, resulting from certain historical net operating losses from our Brazilian operations and U.S.

state tax credits for which a valuation allowance has been established.

1 unchanged sentence

In evaluating the realizability of these deferred tax assets, we consider projected future taxable income and tax planning strategies in making our assessment.

As of September 30, 2020, we cannot objectively assert that these deferred tax assets are more likely than not to be realized and therefore we have maintained a valuation allowance.

As of March 31, 2021, we cannot objectively assert that these deferred tax assets are more likely than not to be realized and therefore we have maintained a valuation allowance.

We intend to continue maintaining a valuation allowance on these deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.

A release of all or a portion of the valuation allowance could be possible, if we determine that sufficient positive evidence becomes available to allow us to reach a conclusion that the valuation allowance will no longer be needed.

A release of the valuation allowance would result in the recognition of certain deferred tax assets and a reduction to income tax

A release of all or a portion of the valuation allowance could be possible, if we determine that sufficient positive

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

expense for the period the release is recorded.

March 31, 2021

evidence becomes available to allow us to reach a conclusion that the valuation allowance will no longer be needed.

A release of the valuation allowance would result in the recognition of certain deferred tax assets and a reduction to income tax expense for the period the release is recorded.

However, the exact timing and amount of the valuation allowance release are subject to change based on the level of profitability that we are able to actually achieve.

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None of the litigation or other legal matters in which we are currently involved, individually or in the aggregate, is material to our consolidated financial condition, liquidity, or results of operations nor are we aware of any material pending or contemplated proceedings.

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

March 31, 2021

Segment Information

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In millions 2021 2020

22 unchanged sentences

We have excluded the following items from segment EBITDA:

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

(3) Income (charges) for all periods presented relate to restructuring activity and costs associated with the business transformation initiative.

For the three and nine months ended September 30, 2020, charges of $ 2.6 million and $ 5.4 million relate to the Performance Materials segment, respectively, and charges of $ 2.9 million and $ 7.9 million relate to the Performance Chemicals segment.

For the three and nine months ended September 30, 2019, all charges relate to the Performance Chemicals segment.

For more detail on the charges incurred see Note 14 within these condensed consolidated financial statements.

(4) Charges associated with the acquisition and integration of the Caprolactone Business.

For more detail on the charges incurred see Note 4 within these condensed consolidated financial statements.

For the three months ended March 31, 2021, charges of $ 1.7 million relate to the Performance Materials segment and charges of $ 2.2 million relate to the Performance Chemicals segment.

For the three months ended March 31, 2020, charges of $ 0.1 million relate to the Performance Materials segment and charges of $ 0.4 million relate to the Performance Chemicals segment.

For more detail on the charges incurred see Note 12.

(4) Costs incurred to integrate the Perstorp Capa business into our Performance Chemicals segment.

INGEVITY CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

March 31, 2021

Earnings (Loss) per Share

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The calculation of diluted net income per share excludes all antidilutive common shares.

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In millions, except share and per share data 2021 2020

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The following average number of potential common shares were antidilutive, and therefore, were not included in the diluted earnings per share calculation:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In thousands 2021 2020

Average number of potential common shares - antidilutive 135 210

Subsequent Event

2020 Senior Notes

On October 28, 2020, we issued $ 550.0 million aggregate principal amount of 3.875 percent senior unsecured notes due 2028 (the “Notes”).

The Notes were issued pursuant to an indenture dated as of October 28, 2020 (the “Indenture”), by and among Ingevity, the subsidiary guarantors party thereto and U.S.

Bank National Association, as trustee.

The Notes were offered and sold only to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to certain non-U.S.

persons outside the U.S.

pursuant to Regulation S under the Securities Act of 1933, as amended (the “Securities Act”).

The Notes have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the U.S.

absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws.

The net proceeds from the sale of the Notes, after deducting anticipated financing fees of $ 8 million were approximately $ 542 million.

We intend to use the net proceeds from the sale of the Notes to repay our existing $ 375.0 million term loan facility due in August 2022, with the remainder being utilized to repay outstanding balances under our revolving credit facility.

Interest payments on the Notes are due semiannually in arrears on November 1st and May 1st of each year, beginning on May 1, 2021, at a rate of 3.875 percent per year.

The Notes will mature on November 1, 2028.

Ingevity Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

Revolving Credit Facility

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

5 (the “Amendment no.

5") to our existing credit agreement, dated as of March 7, 2016 (“Credit Agreement”) (as amended, supplemented or otherwise modified prior to the date hereof, including pursuant to Amendment no.

4, dated as of March 7, 2019, Amendment no.

3, dated as of March 7, 2019, the Incremental Facility Agreement and Amendment no.

2, dated as of August 7, 2018, the Incremental Facility Agreement and Amendment No.

1, dated as of August 21, 2017, and the Credit Agreement).

Among other things, Amendment no.

5 extends the maturity date with respect to our revolving credit facility from August 7, 2023 to October 28, 2025 and reduced the aggregate principal amount of revolving commitments thereunder from $ 750.0 million to $ 500.0 million.

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-Q

Item 1. Financial Statements