Ingevity Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction Management’s discussion and analysis of Ingevity Corporation's ( “ Ingevity, ” “ the company, ” “ we, ” “ us, ” or “ our ” ) financial condition and results of operations (“MD&A”) is provided as a supplement to the Condensed Consolidated Financial Statements and related notes included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations. The following discussion should be read in conjunction with Ingevity’s consolidated financial statements as of and for the year ended December 31, 2021 filed on February 24, 2022 with the Securities and Exchange Commission ("SEC") as part of the Company's Annual Reporting on Form 10-K ("2021 Annual Report") and the unaudited interim Condensed Consolidated Financial Statements and notes to the unaudited interim Condensed Consolidated Financial Statements, which are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Investors are cautioned that the forward-looking statements contained in this section and other parts of this Quarterly Report on Form 10-Q involve both risk and uncertainty. Several important factors could cause actual results to differ materially from those anticipated by these statements. Many of these statements are macroeconomic in nature and are, therefore, beyond the control of management. See "Cautionary Statements About Forward-Looking Statements" below and at the beginning of our 2021 Annual Report. Cautionary Statements About Forward-Looking Statements This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Private Securities Litigation Reform Act of 1995 that reflect our current expectations, beliefs, plans or forecasts with respect to, among other things, future events and financial performance. Forward-looking statements are often characterized by words or phrases such as “may,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “outlook,” “project,” “intend,” “plan,” “believe,” “target,” “prospects,” “potential” and “forecast,” and other words, terms and phrases of similar meaning. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. We caution readers that a forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. Such risks and uncertainties include, among others, those discussed in Part I, Item 1A. Risk Factors of our 2021 Annual Report, as well as in our unaudited Condensed Consolidated Financial Statements, related notes, and the other information appearing elsewhere in this report and our other filings with the SEC. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. In addition to any such risks, uncertainties and other factors discussed elsewhere herein, risks, uncertainties and other factors that could cause or contribute to actual results differing materially from those expressed or implied by the forward-looking statements include, but are not limited to the following: • adverse effects from the novel coronavirus ("COVID-19") pandemic; • we may be adversely affected by general global economic, geopolitical and financial conditions beyond our control, including inflation and war in Ukraine; • we are exposed to risks related to our international sales and operations; • adverse conditions in the automotive market have and may continue to negatively impact demand for our automotive carbon products; • we face competition from substitute products, new technologies and new or emerging competitors; • if more stringent air quality standards worldwide are not adopted, our growth could be impacted; • we may be adversely affected by a decrease in government infrastructure spending; • adverse conditions in cyclical end markets may adversely affect demand for our products; • our Performance Chemicals segment is highly dependent on crude tall oil ("CTO") which is limited in supply and subject to price increases that we may be unable to pass through; 24 • lack of access to sufficient CTO and other raw materials upon which we depend would impact our ability to produce our products; • the inability to make or effectively integrate future acquisitions may negatively affect our results; • we are dependent upon third parties for the provision of certain critical operating services at several of our facilities; • we may continue to be adversely affected by disruptions in our supply chain; • the occurrence of natural disasters and extreme weather or other unanticipated problem such as labor difficulties (including work stoppages), equipment failure or unscheduled maintenance and repair, which could result in operational disruptions of varied duration; • we are dependent upon attracting and retaining key personnel; • we are dependent on certain large customers; • from time to time, we may be engaged in legal actions associated with our intellectual property rights; • if we are unable to protect our intellectual property and other proprietary information, we may lose significant competitive advantage; • information technology security breaches and other disruptions; • complications with the design or implementation of our new enterprise resource planning system; • government policies and regulations, including, but not limited to, those affecting the environment, climate change, tax policies, tariffs and the chemicals industry; and • losses due to lawsuits arising out of environmental damage or personal injuries associated with chemical or other manufacturing processes. Overview Ingevity is a leading global manufacturer of specialty chemicals and high performance activated carbon materials. We provide innovative solutions to meet our customers’ unique and demanding requirements through proprietary formulated products. We report in two business segments, Performance Materials and Performance Chemicals . Recent Developments 2026 Senior Notes In March 2022, we provided notice to the holders and trustee of our 4.50% Senior Notes due in 2026, indicating our intent to redeem the $300.0 million outstanding aggregate principal balance prior to maturity. As a result of this notice, we classified these outstanding notes as current on our March 31, 2022 condensed consolidated balance sheet. The redemption occurred on April 27, 2022 and was primarily funded utilizing the outstanding capacity under our revolving credit facility. At redemption, we recognized the $3.4 million redemption premium and accelerated the remaining deferred finance fees of $2.7 million. Legal expenses associated with this redemption have been recorded as incurred. War in Ukraine We are monitoring the ongoing war between Russia and Ukraine including the related sanctions imposed on Russia and Belarus by the U.S. and other countries. Currently, we do not foresee any direct material adverse effects on our business, however, the global implications of the Russia/Ukraine war are difficult to predict at this time and we will continue to monitor the situation. 25 Results of Operations Three Months Ended March 31, In millions 2022 2021 Net sales $ 382.8 $ 320.3 Cost of sales 245.0 194.1 Gross profit 137.8 126.2 Selling, general, and administrative expenses 40.0 40.0 Research and technical expenses 7.3 6.6 Restructuring and other (income) charges, net 3.6 3.9 Acquisition-related costs — 0.3 Other (income) expense, net (1.4) 1.2 Interest expense, net 10.7 12.4 Income (loss) before income taxes 77.6 61.8 Provision (benefit) for income taxes 16.8 13.1 Net income (loss) $ 60.8 $ 48.7 Net sales The table below shows the 2022 Net sales and variances from 2021: Change vs. prior year In millions Prior year Net sales Volume Price/Mix Currency effect Current year Net Sales Three months ended March 31, 2022 vs. 2021 $ 320.3 6.6 58.7 (2.8) $ 382.8 Three Months Ended March 31, 2022 vs. 2021 The sales increase of $62.5 million in 2022 was driven by favorable pricing of $58.7 million (eighteen percent) and favorable volume growth in both of our segments for a combined impact of $6.6 million (two percent), partially offset by unfavorable foreign currency exchange of $2.8 million (one percent). Gross Profit Gross profit increase of $11.6 million was driven by favorable pricing improvement of $58.3 million and favorable sales volume of $2.7 million, partially offset by unfavorable foreign currency exchange of $1.5 million and increased manufacturing costs of $47.9 million due to raw material and energy cost inflationary pressures. Refer to the Segment Operating Results section included within this MD&A for more information on the drivers to the changes in gross profit period over period for both segments. Selling, general and administrative expenses Three Months Ended March 31, 2022 vs. 2021 Selling, general and administrative expenses ("SG&A") were $40.0 million (10.4 percent of Net sales) and $40.0 million (12.5 percent of Net sales) for the three months ended March 31, 2022 and 2021, respectively. The decrease in SG&A as a percentage of Net sales was driven by higher sales and reduced travel and other miscellaneous costs of $3.2 million. The positive impact was partially offset by higher employee-related costs of $1.4 million and increased legal costs of $1.8 million. 26 Research and technical expenses Three Months Ended March 31, 2022 vs. 2021 Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, decreasing to 1.9 percent from 2.1 percent for the three months ended March 31, 2022 and 2021, respectively. Restructuring and other (income) charges, net Three Months Ended March 31, 2022 vs. 2021 Restructuring and other (income) charges, net were $3.6 million and $3.9 million for the three months ended March 31, 2022 and 2021, respectively. See Note 12 within the Condensed Consolidated Financial Statements for more information. Acquisition-related costs Three Months Ended March 31, 2022 vs. 2021 Acquisition-related costs were zero and $0.3 million for the three months ended March 31, 2022 and 2021, respectively. The 2021 costs were incurred in connection with the integration of Perstorp Holding AB's caprolactone business into our Performance Chemicals segment. Other (income) expense, net Three Months Ended March 31, 2022 vs. 2021 Three Months Ended March 31, In millions 2022 2021 Foreign currency exchange (income) loss $ 0.3 $ 1.7 Other (income) expense, net (1.7) (0.5) Total Other (income) expense, net $ (1.4) $ 1.2 Interest expense, net Three Months Ended March 31, 2022 vs. 2021 Three Months Ended March 31, In millions 2022 2021 Finance lease obligations 1.8 1.8 Revolving credit and term loan facilities (1) 1.9 2.2 Senior notes (1) 9.2 9.2 Other interest (income) expense, net (2.2) (0.8) Total Interest expense, net $ 10.7 $ 12.4 _______________ (1) See Note 9 within the Condensed Consolidated Financial Statements for more information. Provision (benefit) for income taxes Three Months Ended March 31, 2022 vs. 2021 For the three months ended March 31, 2022 and 2021, our effective tax rate was 21.6 percent and 21.2 percent, respectively. Excluding discrete items, the effective rate was 20.7 percent compared to 21.4 percent in the three months ended March 31, 2022 and 2021, respectively. An explanation of the change in the effective tax rate is presented in Note 13 to the Condensed Consolidated Financial Statements. 27 Segment Operating Results In addition to the information discussed above, the following sections discuss the results of operations for both of Ingevity's segments. Our segments are (i) Performance Materials and (ii) Performance Chemicals. Segment Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") is the primary measure used by the Company's chief operating decision maker to evaluate the performance of and allocate resources among our operating segments. Segment EBITDA is defined as segment revenue less segment operating expenses (segment operating expenses consist of costs of sales, selling, general and administrative expenses, other (income) expense, net, excluding depreciation and amortization). We have excluded the following items from segment EBITDA: interest expense, net associated with corporate debt facilities, income taxes, depreciation, amortization, restructuring and other (income) charges, net, acquisition and other-related costs, litigation verdict charges, and pension and postretirement settlement and curtailment (income) charges. In general, the accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in the Annual Consolidated Financial Statements included in our 2021 Annual Report. Performance Materials In millions Three Months Ended March 31, 2022 2021 Total Performance Materials - Net sales $ 148.4 $ 140.7 Segment EBITDA $ 77.9 $ 73.7 Net Sales Comparison of Three Months Ended March 31, 2022 and March 31, 2021: Change vs. prior year Performance Materials (In millions) Prior year Net sales Volume Price/Mix Currency effect Current year Net sales Three months ended March 31, 2022 vs. 2021 $ 140.7 3.7 4.0 — $ 148.4 Three Months Ended March 31, 2022 vs. 2021 Segment net sales increase of $7.7 million in 2022 was driven by favorable pricing of $4.0 million (three percent) and volume growth of $3.7 million (three percent). Volume growth was driven by increased sales of our process purification products. Favorable pricing recognized in the first quarter was driven by process purification product sales as well as continued strong demand for our automotive gasoline vapor emission control products. Automotive volumes were however muted by lower vehicle production globally, driven by ongoing supply chain challenges and the global microchip shortage. North American sales of automotive gasoline vapor emission control products offset lower volumes in Asia-Pacific due to COVID-related customer shutdowns. Brazil's implementation of their new new emissions regulation standard, Proconve L-7, began in the first quarter of 2022 driving volume growth in South America automotive gasoline vapor emission control products. Segment EBITDA increased $4.2 million due to decreased SG&A and research and technical expenses of $2.5 million, favorable pricing of $2.1 million, favorable volume of $1.2 million and favorable foreign currency exchange of $0.7 million, offset by higher manufacturing costs of $2.3 million. 28 Performance Chemicals Three Months Ended March 31, In millions 2022 2021 Net Sales Pavement Technologies product line $ 27.9 $ 21.4 Industrial Specialties product line 144.7 112.1 Engineered Polymers product line 61.8 46.1 Total Performance Chemicals - Net sales $ 234.4 $ 179.6 Segment EBITDA $ 41.1 $ 31.7 Net Sales Comparison of Three Months Ended March 31, 2022 and March 31, 2021: Change vs. prior year Performance Chemicals (In millions) Prior year Net sales Volume Price/Mix Currency effect Current year Net Sales Three months ended March 31, 2022 vs. 2021 $ 179.6 2.9 54.7 (2.8) $ 234.4 Three Months Ended March 31, 2022 vs. 2021 Segment net sales increase of $54.8 million was driven by favorable pricing and product mix of $54.7 million (30 percent), driven by increases in industrial specialties ($39.7 million), engineered polymers ($14.9 million), and pavement technologies ($0.1 million). Also driving the segment net sales increase was favorable volume of $2.9 million (two percent), consisting of volume increases in pavement technologies ($6.6 million) and engineered polymers ($3.0 million), offset partially by volume decreases in industrial specialties ($6.7 million). Unfavorable foreign currency exchange impacted Net sales by $2.8 million (two percent). Our Performance Chemicals segment saw strong revenue growth versus the prior year’s quarter on solid end-market demand and continued price improvement. These price increases were necessary to keep pace with the dramatic increases we are experiencing related to energy, raw material, and shipping costs. Our Engineered Polymers business grew 34.1 percent as the business increased pricing to offset inflationary costs for raw materials, logistics, and energy that spiked in the fourth quarter of 2021 and has remained at elevated levels. From a regional perspective, sales in Asia for our products were robust in the quarter due to demand in automotive and UV coatings applications. This was offset by a decline in the Americas where some polyurethane customers experienced availability issues with key raw materials. Industrial Specialties sales increased 29.1 percent versus the prior-year quarter with strong performance across all markets, particularly in oilfield and adhesives primary end-use markets. The sales improvements were supplemented by an improved mix shift to higher-value derivative products as growth in higher-end additives to oilfield and adhesives primary end-use markets outpaced growth in industrial intermediate’s merchant tall oil fatty acid sales. Pavement Technologies sales increased 30.4 percent versus the prior-year quarter. While price increases contributed to the sales improvement, most of this growth was driven by improved volumes, primarily in the Americas and Europe. Segment EBITDA increased by $9.4 million due to favorable pricing and product mix of $56.2 million, an increase in volume of $1.5 million, and favorable foreign currency exchange of $0.8 million, offset by higher manufacturing costs of $45.2 million, and higher SG&A expenses of $3.9 million. Use of Non-GAAP Financial Measure - Adjusted EBITDA Ingevity has presented the financial measure, Adjusted EBITDA, defined below, which has not been prepared in accordance with GAAP and has provided a reconciliation to net income, the most directly comparable financial measure calculated in accordance with GAAP. Adjusted EBITDA is not meant to be considered in isolation nor as a substitute for the 29 most directly comparable financial measure calculated in accordance with GAAP. Adjusted EBITDA is utilized by management as a measure of profitability. We believe this non-GAAP financial measure provides management as well as investors, potential investors, securities analysts and others with useful information to evaluate the performance of the business, because such measure, when viewed together with our financial results computed in accordance with GAAP, provides a more complete understanding of the factors and trends affecting our historical financial performance and projected future results. We believe Adjusted EBITDA is a useful measure because it excludes the effects of financing and investment activities as well as non-operating activities. Adjusted EBITDA is defined as net income (loss) plus provision (benefit) for income taxes, interest expense, net, depreciation, amortization, restructuring and other (income) charges, net, acquisition and other-related costs, litigation verdict charges, and pension and postretirement settlement and curtailment (income) charges, net. This non-GAAP measure is not intended to replace the presentation of financial results in accordance with GAAP and investors should consider the limitations associated with these non-GAAP measures, including the potential lack of comparability of these measures from one company to another. A reconciliation of Adjusted EBITDA to net income is set forth within this section. Reconciliation of Net Income (Loss) to Adjusted EBITDA Three Months Ended March 31, In millions 2022 2021 Net income (loss) (GAAP) $ 60.8 $ 48.7 Interest expense, net 10.7 12.4 Provision (benefit) for income taxes 16.8 13.1 Depreciation and amortization - Performance Materials 9.0 9.1 Depreciation and amortization - Performance Chemicals 18.1 17.9 Restructuring and other (income) charges, net 3.6 3.9 Acquisition and other-related costs — 0.3 Adjusted EBITDA (Non-GAAP) $ 119.0 $ 105.4 Adjusted EBITDA Three Months Ended March 31, 2022 vs. 2021 The factors that impacted adjusted EBITDA period to period are the same factors that affected earnings discussed in the Results of Operations and Segment Operating Results sections included within this MD&A. 30 Current Company Outlook In millions 2022 Guidance Net sales $1,525 - $1,650 Adjusted EBITDA $430 - $470 Operating Cash Flow $305 - $325 Capital Expenditures $155 - $175 Free Cash Flow* ~$150 *Calculated as Operating Cash Flow less Capital Expenditures Ingevity raised the top end of its 2022 guidance to sales between $1.525 billion to $1.65 billion and adjusted EBITDA between $430 million to $470 million. For revenue, we expect to capture volume growth in our Performance Chemical segment specifically within our Engineered Polymers’ business. We also anticipate continued growth in our adhesives and oilfield products within Industrial Specialties. Pavement technologies will benefit from the U.S. infrastructure bill and continued Evotherm® warm mix technology adoption. This expected demand will result in favorable pricing conditions. Performance Materials will see moderate growth as process purification volumes and price increases will partially offset muted improvement in automotive due to the continued constrained semiconductor shortage and the absence of any novel gasoline vapor emission control regulations. Adjusted EBITDA is expected to grow versus 2021 mainly driven by our Performance Chemicals segment, where continued profitable growth in all businesses is expected to be partially offset by inflationary costs of energy, logistics and primary raw materials. The Performance Materials segment anticipates results similar to 2021 as U.S., Chinese, Canadian, and European vehicle production continues to be negatively impacted by global chip supply and general cost inflation. We expect to deliver fiscal year 2022 Adjusted EBITDA of $430 million to $470 million. These estimates assume that 2022 will continue to be impacted by global logistical headwinds, geopolitical uncertainty, significant cost inflation, and the microchip shortage which is disrupting the global automotive supply chain. A reconciliation of net income to adjusted EBITDA as projected for 2022 is not provided. Ingevity does not forecast net income as it cannot, without unreasonable effort, estimate or predict with certainty various components of net income. These components, net of tax, include further restructuring and other income (charges), net; additional acquisition and other-related costs; litigation verdict charges; additional pension and postretirement settlement and curtailment (income) charges; and revisions due to legislative tax rate changes. Additionally, discrete tax items could drive variability in our projected effective tax rate. All of these components could significantly impact such financial measures. Further, in the future, other items with similar characteristics to those currently included in adjusted EBITDA, that have a similar impact on comparability of periods, and which are not known at this time, may exist and impact adjusted EBITDA. 31 Liquidity and Capital Resources The primary source of liquidity for our business is the cash flow provided by operating activities. We expect our cash flow provided by operations combined with cash on hand and available capacity under our revolving credit facility to be sufficient to fund our planned operations and meet our interest and other contractual obligations for at least the next twelve months. As of March 31, 2022, our undrawn capacity under our revolving credit facility was $497.5 million. Over the next twelve months, we expect to fund the following: redemption of our 4.50% Senior Notes due in 2026 (see Note 17 within the Condensed Consolidated Financial Statements for more information), interest payments, capital expenditures, expenditures related to our business transformation initiative, debt principal repayments, purchases pursuant to our stock repurchase program, income tax payments, and to incur additional spending associated with our Performance Materials' intellectual property litigation. In addition, we may also evaluate and consider strategic acquisitions, joint ventures, or other transactions to create stockholder value and enhance financial performance. In connection with such transactions, or to fund other anticipated uses of cash, we may modify our existing revolving credit and term loan facility, redeem all or part of our outstanding senior notes, seek additional debt financing, issue equity securities, or some combination thereof. Cash and cash equivalents totaled $222.6 million at March 31, 2022. We continuously monitor deposit concentrations and the credit quality of the financial institutions that hold our cash and cash equivalents, as well as the credit quality of our insurance providers, customers, and key suppliers. Due to the global nature of our operations, a portion of our cash is held outside the U.S. The cash and cash equivalents balance at March 31, 2022, included $95.8 million held by our foreign subsidiaries. Cash and earnings of our foreign subsidiaries are generally used to finance our foreign operations and their capital expenditures. We believe that our foreign holdings of cash will not have a material adverse impact on our U.S. liquidity. If these earnings were distributed, such amounts would be subject to U.S. federal income tax at the statutory rate less the available foreign tax credits, if any, and would potentially be subject to withholding taxes in the various jurisdictions. The potential tax implications of the repatriation of unremitted earnings are driven by facts at the time of distribution, therefore, it is not practicable to estimate the income tax liabilities that might be incurred if such cash and earnings were repatriated to the U.S. Management does not currently expect to repatriate cash earnings from our foreign operations in order to fund U.S. operations. Other Potential Liquidity Needs Share Repurchases On March 2, 2020, our Board of Directors authorized the repurchase of up to $500 million of our common stock and rescinded the prior two outstanding repurchase authorizations. 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, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. During the three months ended March 31, 2022 and March 31, 2021, we repurchased $40.4 million and $39.4 million in common stock, representing 610,447 and 527,550 shares of our common stock at a weighted average cost per share of $66.26 and $74.64, respectively. At March 31, 2022 and March 31, 2021, $262.2 million and $372.6 million remained unused under our Board-authorized repurchase programs, respectively. Capital Expenditures Projected 2022 capital expenditures are $155 - $175 million. We have no material commitments associated with these projected capital expenditures as of March 31, 2022 . 32 Cash flow comparison of the Three Months Ended March 31, 2022 and 2021 Three Months Ended March 31, In millions 2022 2021 Net cash provided by (used in) operating activities $ 24.3 $ 51.1 Net cash provided by (used in) investing activities (30.2) (17.3) Net cash provided by (used in) financing activities (46.3) (52.1) Cash flows provided by (used in) operating activities During the first three months of 2022, cash flow provided by operations decreased due to increased accounts receivable related to the increase in net sales and a larger inventory build compared to 2021. Below provides a description of the changes to working capital during the first three months of 2022 (i.e. current assets and current liabilities). Current Assets and Liabilities In millions March 31, 2022 December 31, 2021 Cash and cash equivalents $ 222.6 $ 275.4 Accounts receivable, net 206.9 161.7 Inventories, net 260.2 241.2 Prepaid and other current assets 43.1 46.6 Total current assets $ 732.8 $ 724.9 Current assets as of March 31, 2022, increased $7.9 million compared to December 31, 2021, primarily due to increases in Accounts receivable, net and Inventories, net. Accounts receivable, net as of March 31, 2022, increased $45.2 million due to increased sales during the quarter ended March 31, 2022. Inventories increased by $19.0 million due to the build of inventory for forecasted sales. These increases were offset by a decrease in Cash and cash equivalents of $52.8 million and a decrease in Prepaid and other current assets of $3.5 million compared to the balances at December 31, 2021. In millions March 31, 2022 December 31, 2021 Accounts payable $ 128.9 $ 125.8 Accrued expenses 53.8 51.7 Accrued payroll and employee benefits 22.4 48.2 Current operating lease liabilities 17.2 17.4 Notes payable and current maturities of long-term debt 319.6 19.6 Income taxes payable 9.8 6.2 Total current liabilities $ 551.7 $ 268.9 Current liabilities as of March 31, 2022, increased by $282.8 million compared to December 31, 2021, driven primarily by an increase in Notes payable and current maturities of long-term debt of $300.0 million due to the redemption of our 4.5% Senior Notes due in 2026 (see Note 17 within the Condensed Consolidated Financial Statements for more information), Income taxes payable of $3.6 million, Accounts payable of $3.1 million, and Accrued expenses of $2.1 million. This increase was offset partially by decreases in Accrued payroll and employee benefits of $25.8 million, and Current operating lease liabilities of $0.2 million. 33 Cash flows provided by (used in) investing activities Cash used by investing activities in the three months ended March 31, 2022 was $30.2 million and was primarily driven by capital expenditures. In the three months ended March 31, 2022 and 2021, capital spending included the base maintenance capital supporting ongoing operations and growth and cost improvement spending primarily related to our business transformation initiative (see Note 12 within the Condensed Consolidated Financial Statements for more information). Capital expenditure categories Three Months Ended March 31, In millions 2022 2021 Maintenance $ 12.4 $ 7.6 Safety, health and environment 3.6 1.8 Growth and cost improvement 11.6 7.6 Total capital expenditures $ 27.6 $ 17.0 Cash flows provided by (used in) financing activities Cash used in financing activities in the three months ended March 31, 2022, was $46.3 million and was primarily driven by the repurchase of common stock of $40.4 million, payments on long-term borrowings of $4.7 million, and tax payments related to withholdings on restricted stock unit vestings of $1.8 million. Cash used in financing activities in the three months ended March 31, 2021 was $52.1 million and was primarily driven by the repurchase of common stock of $39.4 million, payments on long-term borrowings of $9.4 million, and tax payments related to withholdings on restricted stock unit vestings of $2.3 million. New Accounting Guidance Refer to Note 2 to the Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on our Condensed Consolidated Financial Statements. Critical Accounting Policies and Estimates Our Condensed Consolidated Financial Statements are prepared in conformity with GAAP. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have described our accounting policies in Note 2 to our consolidated financial statements included in our 2021 Annual Report. We have reviewed these accounting policies, identifying those that we believe to be critical to the preparation and understanding of our financial statements. Critical accounting policies are central to our presentation of results of operations and financial condition and require management to make estimates and judgments on certain matters. We base our estimates and judgments on historical experience, current conditions and other reasonable factors. For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our 2021 Annual Report. Our critical accounting policies have not substantially changed from those described in the 2021 Annual Report. 34