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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________ 
FORM 10-Q
_______________________________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-37586
__________________________________________________________________________
ngvt-20200930_g1.jpg
INGEVITY CORPORATION
(Exact name of registrant as specified in its charter)
__________________________________________________________________________ 
Delaware47-4027764
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4920 O'Hear Avenue Suite 400North CharlestonSouth Carolina29405
(Address of principal executive offices) (Zip code)

843-740-2300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock ($0.01 par value)NGVTNew York Stock Exchange

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x No  o
    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit such files).  Yes  x No  o
    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company

    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes   No  x

The registrant had 41,279,494 shares of common stock, $0.01 par value, outstanding at October 27, 2020.



Ingevity Corporation
INDEX

Page No.

2


PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INGEVITY CORPORATION
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
In millions, except per share data2020201920202019
Net sales$331.7 $359.9 $890.5 $989.5 
Cost of sales192.1 220.4 552.4 618.5 
Gross profit139.6 139.5 338.1 371.0 
Selling, general and administrative expenses34.9 40.7 107.9 122.3 
Research and technical expenses5.2 4.9 16.8 15.0 
Restructuring and other (income) charges, net5.5 1.7 13.3 2.0 
Acquisition-related costs 1.3 1.7 24.9 
Other (income) expense, net(3.0)1.4 (0.1)(2.3)
Interest expense, net8.9 12.1 29.8 36.3 
Income (loss) before income taxes88.1 77.4 168.7 172.8 
Provision (benefit) for income taxes18.2 17.5 33.3 33.4 
Net income (loss)$69.9 $59.9 $135.4 $139.4 
Per share data
Basic earnings (loss) per share $1.69 $1.42 $3.27 $3.33 
Diluted earnings (loss) per share 1.69 1.41 3.26 3.30 

The accompanying notes are an integral part of these financial statements.
3


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

Three Months Ended September 30,Nine Months Ended September 30,
In millions2020201920202019
Net income (loss)$69.9 $59.9 $135.4 $139.4 
Other comprehensive income (loss), net of tax:
Foreign currency adjustments:
Foreign currency translation adjustment 27.6 (22.9)(14.2)(29.0)
Unrealized gain (loss) on net investment hedges, net of tax provision (benefit) of $(1.9), $1.6, $(0.8), and $1.5
(6.2)5.3 (2.7)5.1 
Total foreign currency adjustments, net of tax provision (benefit) of $(1.9), $1.6, $(0.8), and $1.5
21.4 (17.6)(16.9)(23.9)
Derivative instruments:
Unrealized gain (loss), net of tax provision (benefit) of $0.2, $(0.2), $(1.4), and $(1.3)
0.7 (0.9)(4.5)(4.4)
Reclassifications of deferred derivative instruments (gain) loss, included in net income (loss), net of tax (provision) benefit of $0.1, zero, $0.2, and $(0.1)
0.4  0.7 (0.5)
Total derivative instruments, net of tax provision (benefit) of $0.3, $(0.2), $(1.2), and $(1.4)
1.1 (0.9)(3.8)(4.9)
Pension & other postretirement benefits:
Unrealized actuarial gains (losses) and prior service (costs) credits, net of tax of zero for all periods
    
Reclassifications of net actuarial and other (gain) loss and amortization of prior service cost, included in net income, net of tax of zero for all periods
0.1  0.1  
Total pension and other postretirement benefits, net of tax of zero for all periods
0.1  0.1  
Other comprehensive income (loss), net of tax provision (benefit) of $(1.6), $1.4, $(2.0), and $0.1
22.6 (18.5)(20.6)(28.8)
Comprehensive income (loss)$92.5 $41.4 $114.8 $110.6 

The accompanying notes are an integral part of these financial statements.
4


INGEVITY CORPORATION
Condensed Consolidated Balance Sheets
In millions, except share and par value dataSeptember 30, 2020December 31, 2019
Assets(Unaudited)
Cash and cash equivalents$198.2 $56.5 
Accounts receivable, net of allowance for credit losses of $1.8 million - 2020 and $0.5 million - 2019
154.3 150.0 
Inventories, net204.0 212.5 
Prepaid and other current assets44.5 44.2 
Current assets601.0 463.2 
Property, plant and equipment, net685.3 664.7 
Operating lease assets, net52.1 53.4 
Goodwill427.8 436.4 
Other intangibles, net366.5 396.2 
Deferred income taxes6.2 5.0 
Restricted investment, net of allowance for credit losses of $1.1 million - 2020
73.0 72.6 
Other assets46.3 50.2 
Total Assets$2,258.2 $2,141.7 
Liabilities
Accounts payable$84.8 $99.1 
Accrued expenses36.0 33.3 
Accrued payroll and employee benefits16.0 28.2 
Current operating lease liabilities16.6 17.1 
Notes payable and current maturities of long-term debt22.4 22.5 
Income taxes payable3.1 15.3 
Current liabilities178.9 215.5 
Long-term debt including finance lease obligations1,277.0 1,228.4 
Noncurrent operating lease liabilities37.5 36.7 
Deferred income taxes109.5 100.3 
Other liabilities38.3 30.0 
Total Liabilities1,641.2 1,610.9 
Commitments and contingencies (Note 16)
Equity
Preferred stock (par value $0.01 per share; 50,000,000 shares authorized; zero issued and outstanding - 2020 and 2019)
  
Common stock (par value $0.01 per share; 300,000,000 shares authorized; issued: 42,895,386 - 2020 and 42,675,171 - 2019; outstanding: 41,277,888 - 2020 and 41,826,136 - 2019)
0.4 0.4 
Additional paid-in capital116.8 112.8 
Retained earnings632.0 497.2 
Accumulated other comprehensive income (loss)(25.6)(5.0)
Treasury stock, common stock, at cost (1,617,498 shares - 2020; 849,035 shares - 2019)
(106.6)(74.6)
Total Equity617.0 530.8 
Total Liabilities and Equity$2,258.2 $2,141.7 
The accompanying notes are an integral part of these financial statements.
5



INGEVITY CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
In millions20202019
Cash provided by (used in) operating activities:
Net income (loss)$135.4 $139.4 
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization73.5 61.4 
Non cash operating lease costs13.6 15.1 
Deferred income taxes11.3 26.7 
Restructuring and other (income) charges, net1.7  
Share-based compensation4.3 11.0 
Other non-cash items13.2 9.7 
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net(5.6)(34.5)
Inventories, net9.0 0.4 
Prepaid and other current assets1.5 (2.8)
Current liabilities(17.3)(22.4)
Income taxes(19.2)(5.1)
Operating leases(13.8)(14.9)
Changes in other operating assets and liabilities, net(8.5)6.2 
Net cash provided by (used in) operating activities$199.1 $190.2 
Cash provided by (used in) investing activities:
Capital expenditures$(51.0)$(79.8)
Payments for acquired businesses, net of cash acquired (537.9)
Finance lease expenditures(23.8) 
Other investing activities, net(3.6)(4.7)
Net cash provided by (used in) investing activities$(78.4)$(622.4)
Cash provided by (used in) financing activities:
Proceeds from revolving credit facility$346.1 $789.0 
Proceeds from long-term borrowings 375.0 
Payments on revolving credit facility(307.3)(596.0)
Payments on long-term borrowings(14.1)(117.8)
Debt issuance costs (1.8)
Finance lease obligations, net23.3  
Borrowings (repayments) of notes payable and other short-term borrowings, net(0.9)2.2 
Tax payments related to withholdings on vested equity awards(3.0)(14.3)
Proceeds and withholdings from share-based compensation plans, net3.1 3.7 
Repurchases of common stock under publicly announced plan(32.4)(6.4)
Net cash provided by (used in) financing activities$14.8 $433.6 
Increase (decrease) in cash, cash equivalents, and restricted cash135.5 1.4 
Effect of exchange rate changes on cash0.3 (2.3)
Change in cash, cash equivalents, and restricted cash(1)
135.8 (0.9)
Cash, cash equivalents, and restricted cash at beginning of period64.6 77.5 
Cash, cash equivalents, and restricted cash at end of period(1)
$200.4 $76.6 
(1)
Includes restricted cash of $2.2 million and $1.0 million and cash and cash equivalents of $198.2 million and $75.6 million at September 30, 2020 and 2019, respectively. Restricted cash is included within "Prepaid and other current assets" within the condensed consolidated balance sheets.
Supplemental cash flow information:
Cash paid for interest, net of capitalized interest$37.7 $40.1 
Cash paid for income taxes, net of refunds41.4 12.6 
Purchases of property, plant and equipment in accounts payable1.9 8.3 
Leased assets obtained in exchange for new finance lease liabilities23.8  
Leased assets obtained in exchange for new operating lease liabilities24.5 3.2 
The accompanying notes are an integral part of these financial statements.
6


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)


Note 1: Description of Business and Basis of Presentation
Description of Business
Ingevity Corporation ("Ingevity," "the Company," "we," "us," or "our") is a leading global manufacturer of specialty chemicals and high performance activated carbon materials. We provide innovative solutions to meet our customers’ unique and demanding requirements through proprietary formulated products. We report in two business segments, Performance Materials and Performance Chemicals.
    Our Performance Materials segment consists of our automotive technologies and process purification product lines. Performance Materials manufactures products in the form of powder, granular, extruded pellets, extruded honeycombs, and activated carbon sheets. Automotive technologies products are sold into gasoline vapor emission control applications within the automotive industry, while process purification products are sold into the food, water, beverage, and chemical purification industries.
Our Performance Chemicals segment consists of our pavement technologies, oilfield technologies, industrial specialties, and engineered polymers product lines. Performance Chemicals manufactures products derived from crude tall oil ("CTO") and lignin extracted from the kraft paper making process as well as caprolactone monomers and derivatives derived from cyclohexanone and hydrogen peroxide. Performance Chemicals products serve as critical inputs used in a variety of high performance applications, including pavement preservation, pavement adhesion promotion, and warm mix paving (pavement technologies product line), oil well service additives, oil production, and downstream application chemicals (oilfield technologies product line), printing inks, adhesives, agrochemicals, lubricants, and industrial intermediates (industrial specialties product line), coatings, resins, elastomers, adhesives, and bio-plastics (engineered polymers product line).

Basis of Presentation
These unaudited condensed consolidated financial statements reflect the consolidated operations of the Company and have been prepared in accordance with United States Securities and Exchange Commission ("SEC") interim reporting requirements. Accordingly, the accompanying condensed consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP") for full financial statements and should be read in conjunction with the Annual Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017, collectively referred to as the “Annual Consolidated Financial Statements” included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Annual Report").
In the opinion of management, the condensed consolidated financial statements contain all adjustments, which include only normal recurring adjustments, necessary to fairly state the condensed consolidated results for the interim periods presented. The consolidated results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. During the three and nine months ended September 30, 2020 and subsequent to this date, there have been significant changes to the global economic situation and to public securities markets as a consequence of the novel strain of coronavirus ("COVID-19") pandemic. It is reasonably possible that this could cause changes to estimates as a result of the financial circumstances of the markets in which we operate, the price of our publicly traded equity in comparison to the carrying value, and the health of the global economy. Such changes to estimates could potentially result in impacts that would be material to the condensed consolidated financial statements. While there was not a material impact to our condensed consolidated financial statements as of and for the three and nine ended September 30, 2020, our future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.
Certain prior year amounts have been reclassified to conform with the current year's presentation.
7


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)

Note 2: Coronavirus Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. COVID-19 has led to adverse impacts on the U.S. and global economies, and created uncertainty regarding potential impacts to our supply chain, operations, and customer demand. We have been classified as an essential business in the jurisdictions that have made this determination to date, allowing us to continue operations. However, our facilities - as well as the operations of our suppliers, customers, third-party sales representatives, and distributors - have been, and will continue to be, disrupted by governmental and private sector responses to COVID-19. This includes business shutdowns, work-from-home orders and social distancing protocols, travel or health-related restrictions, as well as quarantines, self-isolations, and disruptions to transportation channels.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. We estimate the payment of approximately $5.3 million of employer payroll taxes otherwise due in 2020 will be delayed with 50 percent due by December 31, 2021 and the remaining 50 percent by December 31, 2022. The CARES Act is not expected to have a material impact on our condensed consolidated financial statements.
In order to strengthen our short-term liquidity and to ensure financial flexibility, in March 2020, we drew down $250 million from our revolving credit facility as a precautionary measure and also suspended our share repurchase program. During the three and nine months ended September 30, 2020, we paid back $50 million and $205 million, respectively, of this drawn down amount. We also implemented work-from-home policies and protocols for the majority of our global salaried workforce, as well as social distancing practices to ensure the safety of our employees at our manufacturing facilities. During the second quarter, we decreased production at some of our U.S. and China based manufacturing plants due to COVID-19 customer demand impacts and implemented a cost reduction initiative further described in Note 14. During the third quarter, we resumed normal production at all manufacturing plants as customer demand improved.
While the disruptions caused by the pandemic are currently expected to be temporary, there is uncertainty regarding the virus's duration and severity. COVID-19 has impacted, and will continue to impact, our results of operations, financial position, and liquidity.
Note 3: New Accounting Guidance
    The Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" or "Codification") is the sole source of authoritative GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standards Update ("ASU") to communicate changes to the Codification. We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements.
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15 "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract." This ASU requires companies to defer specific implementation costs incurred in a Cloud Computing Arrangement ("CCA") that are often expensed as incurred under current GAAP, and recognize the expense over the noncancellable term of the CCA. We adopted this standard on a prospective basis on January 1, 2020. As a result of the adoption, we anticipate capitalizing certain implementation costs that were previously expensed as incurred, which will be recorded to either prepaid and other current assets or other assets on the condensed consolidated balance sheets, depending on the duration of the agreement. The impact of the adoption did not have a material impact on our condensed consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit losses: Measurement of Credit Losses on Financial Instruments." In 2019 and 2020, the FASB issued several ASUs to amend and clarify the credit loss guidance in the original ASU 2016-13 (ASU 2016-13 and its amendments are herein referred to as “ASC 326” or "CECL"). ASC 326 amends FASB's guidance on the impairment of financial instruments, specifically adding an impairment model to GAAP that is based on expected losses, rather than incurred losses, which is intended to result in more timely recognition of such losses. We adopted this standard on January 1, 2020. We have updated our internal controls and operational processes and procedures, to include certain forward-looking considerations in our current process of developing and recognizing credit losses for our
8


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)

accounts receivable and restricted investment accounted for at amortized cost. Generally, the adoption of ASC 326 did not have a material impact on our condensed consolidated balance sheet, results of operations or cash flows. ASC 326 had an immaterial impact to our allowance for credit losses reported in accounts receivable on our condensed consolidated balance sheet upon adoption. Additionally, upon adoption of ASC 326, we estimated an allowance for credit losses for our restricted investment on our condensed consolidated balance sheet. Our restricted investment, which is accounted for as a held-to-maturity investment, consists of highly rated corporate long-term bonds that mature in 2025 and 2026. To calculate our expected credit loss allowance, we utilized a probability-of-default method (“PDM”) for each bond based on each securities term. This process uses historical credit loss experience on similar product types, adjusted for reasonable and supportable forecasts of future default rates. Using a PDM, we calculated an expected credit loss allowance at January 1, 2020 of $0.6 million, which was recorded as an adjustment to the opening balance of retained earnings.
The following table displays changes in our allowance for credit losses as of September 30, 2020, including the transition impact of adopting the CECL standard.

(in millions)
Balance at
December 31, 2019 (1)
Impact from Adoption of ASC 326Balance at January 1, 2020Current Period Provision
Balance at
September 30, 2020 (2)
Allowance for credit losses$0.5 0.6 1.1 1.8 $2.9 
______________
(1)    The allowance for credit losses at December 31, 2019 of $0.5 million was included in "Accounts receivable, net" on the condensed consolidated balance sheets.
(2)    The allowance for credit losses at September 30, 2020 of $1.8 million and $1.1 million was included "Accounts receivable, net" and "Restricted investment" on the condensed consolidated balance sheets, respectively.

Our expected credit losses can vary from period to period based on several factors, such as changes in bond ratings, actual observed bond defaults, and overall economic environment. The primary factor that contributed to our provision for expected credit losses in the nine months ended September 30, 2020 was a pessimistic outlook of the macroeconomic environment due to the COVID-19 pandemic, and related effects on the financial performance of U.S.-based corporations. The increase in the allowance for credit losses of $1.8 million in the nine months ended September 30, 2020 is attributed to $0.5 million for Level 1 securities and $1.3 million for accounts receivable expected credit losses.
Recently Issued Accounting Pronouncements
    In August 2018, the FASB issued ASU 2018-14 "Compensation — Retirement Benefits — Defined Benefit Plans — General (Topic 715-20): Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans." This ASU amends ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The new standard is effective for fiscal years beginning after December 15, 2020. Although we are still evaluating the impact of this new standard, we do not believe that the adoption will materially impact our condensed consolidated financial statements and related disclosures.
    In December 2019, the FASB issued ASU 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This ASU amends ASC 740 to add, remove, and clarify disclosure requirements related to income taxes. The new standard is effective for fiscal years beginning after December 15, 2020. Although we are still evaluating the impact of this new standard, we do not believe that the adoption of this new standard will materially impact our condensed consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04 "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The ASU is intended to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance became effective beginning on March 12, 2020, and we may elect to apply the amendments prospectively until December 31, 2022. As of September 30, 2020, we have not yet elected any optional expedients provided in the standard. We will apply the accounting relief, if necessary, as relevant contract and hedge accounting relationship modifications are made during the reference rate reform transition period. We do not expect this new standard to have a material impact on our consolidated financial statements.
9


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)


Note 4: Acquisitions
Perstorp Holding AB's Caprolactone Business
    On February 13, 2019, we completed the acquisition of 100% of the equity of Perstorp UK Ltd with Perstorp Holding AB ("Seller"), including the Seller's entire caprolactone business ("Caprolactone Business"), herein referred to as the "Caprolactone Acquisition." The Caprolactone Acquisition was completed for an aggregate purchase price of €578.9 million ($652.5 million), less assumed debt of €100.4 million ($113.1 million). At closing, the assumed debt was settled with an affiliate of the Seller.
The Caprolactone Acquisition has been integrated into our Performance Chemicals segment and represented as our engineered polymers product line. As a result, we are not able to separate operating performance of the Caprolactone Acquisition from our existing Performance Chemicals' operating results. The Caprolactone Acquisition contributed Net sales of $93.2 million and $90.9 million for the nine months ended September 30, 2020 and 2019, respectively, to our consolidated operating results.
    Purchase Price Allocation
    The following table summarizes the consideration paid for the Caprolactone Business, the assets acquired, and liabilities assumed, which was finalized in Q4 2019:

10


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)

Purchase Price Allocation
In millionsWeighted Average Amortization PeriodFair Value
Cash and cash equivalents$0.7 
Accounts receivable15.7 
Inventories (1)
21.7 
Prepaid and other current assets1.9 
Property, plant and equipment86.3 
Operating lease assets, net 1.8 
Intangible assets (2)
Customer relationships17 years159.0 
Developed technology12 years64.8 
Brands17 years67.0 
Non-compete agreement3 years0.5 
Goodwill 295.1 
Other assets1.3 
Total fair value of assets acquired$715.8 
Accounts payable13.6 
Accrued expenses 2.3 
Long-term debt113.1 
Operating lease liabilities1.7 
Deferred income taxes 45.7 
Total fair value of liabilities assumed$176.4 
Less: Cash and restricted cash acquired (3)
(1.5)
Payments for acquired businesses, net of cash acquired$537.9 
______________
(1)    Fair value of finished goods inventories acquired included a step-up in the value of approximately $8.4 million, all of which was expensed in the three months ended March 31, 2019. The expense is included in "Cost of sales" on the condensed consolidated statement of operations. Inventories are accounted for on a first-in, first-out basis of accounting.
(2)    The aggregate amortization expense was $4.8 million and $3.7 million for the three months ended September 30, 2020 and 2019, respectively, and the aggregate amortization expense was $14.3 million and $9.5 million for the nine months ended September 30, 2020 and 2019, respectively. Estimated amortization expense is as follows: 2020 - $19.1 million, 2021 - $19.1 million, 2022 - $19.0 million, 2023 - $18.9 million, and 2024 - $18.9 million. The estimated pre-tax amortization expense may fluctuate due to changes in foreign currency.
(3)    Cash and cash equivalents and restricted cash were $0.7 million and $0.8 million, respectively, at closing. Restricted cash is included in "Prepaid and other current assets" in the above purchase price allocation.

Unaudited Pro Forma Financial Information
    The following unaudited pro forma results of operations assume that the Caprolactone Acquisition occurred at the beginning of the periods presented. These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations would have been if the acquisition occurred at the beginning of the periods presented, nor are they indicative of future results of operations. The pro forma results include additional interest expense on the debt issued to finance the acquisition, amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and tangible assets, and related tax effects. The pro forma results presented below are adjusted for the removal of Acquisition and other-related costs for the nine months ended September 30, 2019 of $33.3 million.
11


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)

In millions, except per share dataNine Months Ended September 30, 2019
Net sales$1,007.2 
Income (loss) before income taxes205.7 
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 millions2020201920202019
Legal and professional service fees $ $1.3 $1.7 $12.2 
Loss on hedging purchase price   12.7 
Acquisition-related costs$ $1.3 $1.7 $24.9 
Inventory fair value step-up amortization (1)
   8.4 
Acquisition and other-related costs$ $1.3 $1.7 $33.3 
______________
(1)    Included within "Cost of sales" on the condensed consolidated statement of operations.
Note 5: Revenues
    Ingevity's operating segments are (i) Performance Materials and (ii) Performance Chemicals. A description of both operating segments is included in Note 1.
    
Disaggregation of Revenue
    The following table presents our Net sales disaggregated by product line.
 Three Months Ended September 30,Nine Months Ended September 30,
In millions2020201920202019
Automotive Technologies product line$136.9 $120.5 $324.5 $334.1 
Process Purification product line6.9 9.7 24.8 28.3 
Performance Materials segment$143.8 $130.2 $349.3 $362.4 
Oilfield Technologies product line14.0 27.6 58.4 86.5 
Pavement Technologies product line72.5 69.8 157.1 152.9 
Industrial Specialties product line76.1 99.9 232.5 296.8 
Engineered Polymers product line(1)
25.3 32.4 93.2 90.9 
Performance Chemicals segment$187.9 $229.7 $541.2 $627.1 
Net sales$331.7 $359.9 $890.5 $989.5 
______________
(1)    Engineered Polymers product line was acquired on February 13, 2019; see Note 4 for more information.
    
The following table presents our Net sales disaggregated by geography, based on the delivery address of our customer.
12


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
In millions2020201920202019
North America$191.9 $224.9 $510.3 $623.8 
Asia Pacific89.9 76.8 240.4 193.7 
Europe, Middle East and Africa45.5 51.6 126.0 155.4 
South America4.4 6.6 13.8 16.6 
Net sales$331.7 $359.9 $890.5 $989.5 

Contract Balances

    The following table provides information about contract assets and contract liabilities from contracts with customers. The contract assets primarily relate to our rights to consideration for products produced but not billed at the reporting date. The contract assets are recognized as accounts receivables when the rights become unconditional and the customer has been billed. Contract liabilities represent obligations to transfer goods to a customer for which we have received consideration from our customer. For all periods presented we had no contract liabilities.
Contract Asset(1)
September 30,
In millions20202019
Beginning balance$6.2 $5.1 
Contract asset additions13.5 11.8 
Reclassification to accounts receivable, billed to customers(12.9)(10.0)
Ending balance$6.8 $6.9 
______________
(1)    Included within "Prepaid and other current assets" on the condensed consolidated balance sheets.
Note 6: Fair Value Measurements
Fair Value Measurements
    We have categorized our assets and liabilities that are recorded at fair value, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets and liabilities fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. The carrying value of our financial instruments: cash and cash equivalents, other receivables, other payables and accrued liabilities, approximate their fair values due to the short-term nature of these financial instruments. See Note 10 for more information regarding our fair value measurements of our financial instruments and risk management activities.
Recurring Fair Value Measurements
    The following information is presented for assets and liabilities that are recorded in the condensed consolidated balance sheets at fair value measured at each reporting date (i.e. on a recurring basis). There were no transfers of assets and liabilities that were recorded at fair value between Level 1 and Level 2 during the periods reported.
13


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)

In millions
Level 1(1)
Level 2(2)
Level 3(3)
Total
September 30, 2020
Assets:
Equity securities (4)
$0.1 $ $ $0.1 
Deferred compensation plan investments (5)
2.3   2.3 
Total assets$2.4 $ $ $2.4 
Liabilities:
Deferred compensation arrangement (5)
$10.4 $ $ $10.4 
Contingent consideration (7)
  1.1 1.1 
Total liabilities$10.4 $ $1.1 $11.5 
December 31, 2019
Assets:
Equity securities (4)
$0.4 $ $ $0.4 
Deferred compensation plan investments (5)
1.4   1.4 
Total assets$1.8 $ $ $1.8 
Liabilities:
Deferred compensation arrangement (5)
$10.0 $ $ $10.0 
Separation-related reimbursement awards (6)
0.1   0.1 
Total liabilities$10.1 $ $ $10.1 
______________
(1)    Quoted prices in active markets for identical assets.
(2)    Quoted prices for similar assets and liabilities in active markets.
(3)    Significant unobservable inputs.
(4)    Included within "Prepaid and other current assets" on the condensed consolidated balance sheets.
(5)    Consists of a deferred compensation arrangement, through which we hold various investment securities. Both the asset and liability are recorded at fair value, and are included within "Other assets" and "Other liabilities" on the condensed consolidated balance sheets, respectively. In addition to the investment securities, we also have company-owned life insurance ("COLI") deferred compensation arrangement. COLI is recorded at cash surrender value and included in "Other assets" on the condensed consolidated balance sheets in the amount of $9.0 million and $8.4 million at September 30, 2020 and December 31, 2019, respectively.
(6)    Included within "Accrued expenses" on the condensed consolidated balance sheets.
(7)    Included within "Other liabilities" on the condensed consolidated balance sheets.

Nonrecurring Fair Value Measurements
The following table presents our fair value hierarchy for those assets measured at fair value on a non-recurring basis in the condensed consolidated balance sheets during the nine months ended September 30, 2020. There were no nonrecurring fair value measurements in the condensed consolidated balance sheets during the year ended December 31, 2019.
14


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)


In millionsSeptember 30, 2020Quoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)Total Gains (Losses) (Period Ended September 30, 2020)
Assets:
Impairment of operating lease assets, net (1)
$ $ $ $ $(1.7)
Total assets$ $ $ $ $(1.7)
______________
(1)    During the period ended September 30, 2020 we exited certain leased assets previously used in our daily operations. These leased assets have remaining lease obligations through 2023. This impairment charge was recorded adjust their fair value on our condensed consolidated balance sheet to zero.

Equity Securities
    The aggregate carrying value of investments in equity securities where fair value is not readily determinable totaled zero and $1.5 million as of September 30, 2020 and December 31, 2019, respectively, and is included in "Other assets" on the condensed consolidated balance sheets. During the three and nine months ended September 30, 2020, we recorded an impairment charge of zero and $1.5 million, respectively, to an equity security where fair value is not readily determinable held within our Performance Materials segment. The impairment charge represented the difference between liquidation value of the investment and our book value at the time our investment was liquidated.
Restricted Investment
Our restricted investment is a trust managed in order to secure repayment of the finance lease obligation, associated with Performance Materials' Wickliffe, Kentucky manufacturing site, at maturity. The trust, presented as restricted investment on our condensed consolidated balance sheets, purchased long-term bonds that mature in 2025 and 2026. The principal received at maturity of the bonds along with interest income that is reinvested in the trust are expected to be equal to or more than the $80.0 million finance lease obligation that is due in 2027. Because the provisions of the trust provide us the ability, and it is our intent, to hold the investments to maturity, the investments held by the trust are accounted for as held to maturity ("HTM"); therefore, they are held at their amortized cost. The investments held by the trust earn interest at the stated coupon rate of the invested bonds. Interest earned on the investments held by the trust is recognized as interest income and presented within interest income on our condensed consolidated statement of operations.
At September 30, 2020, the book value of our restricted investment, which is accounted for as HTM and therefore held at amortized costs, was $73.0 million, net of an allowance for credit losses of $1.1 million and included cash of $1.9 million. The fair value at September 30, 2020 was $79.9 million, based on Level 1 inputs.
The following table shows the total amortized cost of our HTM debt securities by credit rating, excluding the allowance for credit losses and cash. The primary factor in our expected credit loss calculation is the composite bond rating. As the rating decreases, the risk present in holding the bond is inherently increased, leading to an increase in expected credit losses.
September 30, 2020
In millionsAA+AAAA-BBB+Total
HTM debt securities$13.5 10.7 24.2 13.4 10.4 $72.2 

Debt Obligations
At September 30, 2020, the book value of finance lease obligations was $103.3 million and the fair value was $128.4 million. The fair value of our finance lease obligations is based quoted market prices for the obligations, using Level 2 inputs.
15


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)

The carrying amount, excluding debt issuance fees, of our variable interest rate long-term debt was $901.8 million as of September 30, 2020. The carrying value is a reasonable estimate of the fair value of the outstanding debt based on the variable interest rate of the debt.
At September 30, 2020, the book value of our fixed rate debt was $300.0 million, and the fair value was $304.1 million, based on Level 2 inputs.
Contingent Consideration
In connection with the acquisition of certain assets in May 2020, we are contingently obligated to make an additional payment for such assets of up to an aggregate amount of $7.0 million. The contingent consideration is payable if certain sales volume targets are achieved prior to the expiration on December 31, 2024, therein referred to as "Revenue Earn-out."

The fair value of the five-year Revenue Earn-out consideration was $1.1 million at September 30, 2020. Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a selling, general and administrative expense.

The following table summarizes the activity for financial liabilities utilizing Level 3 fair value measurements:
Contingent Consideration
In millionsSeptember 30, 2020
Beginning balance$ 
Newly issued1.1 
Change in revaluation of contingent consideration included in earnings 
Exercises/settlements 
Ending balance (1)
$1.1 
______________
(1)    Included within "Other liabilities" on the condensed consolidated balance sheets.

Note 7: Inventories, net
In millionsSeptember 30, 2020December 31, 2019
Raw materials$46.5 $42.6 
Production materials, stores and supplies24.5 22.3 
Finished and in-process goods146.5 158.0 
Subtotal217.5 222.9 
Less: adjustment of inventories to LIFO basis(13.5)(10.4)
Inventories, net$204.0 $212.5 

16


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)

Note 8: Property, Plant and Equipment, net
In millionsSeptember 30, 2020December 31, 2019
Machinery and equipment$1,008.8 $964.3 
Buildings and leasehold improvements159.8 116.9 
Land and land improvements19.5 19.0 
Construction in progress83.8 119.1 
Total cost1,271.9 1,219.3 
Less: accumulated depreciation(586.6)(554.6)
Property, plant and equipment, net (1)
$685.3 $664.7 


Note 9: Goodwill and Other Intangible Assets, net
Goodwill
Reporting Units
In millionsPerformance ChemicalsPerformance MaterialsTotal
December 31, 2019$432.1 $4.3 $436.4 
Foreign currency translation(8.6) (8.6)
September 30, 2020$423.5 $4.3 $427.8 

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

Other Intangible Assets
September 30, 2020December 31, 2019
In millionsGrossAccumulated amortizationNetGrossAccumulated amortizationNet
Intangible assets subject to amortization
Customer contracts and relationships$310.2 $67.3 $242.9 $314.5 $51.6 $262.9 
Brands (1)
78.5 14.4 64.1 80.3 11.1 69.2 
Developed technology69.2 10.2 59.0 68.6 5.7 62.9 
Other2.7 2.2 0.5 2.7 1.5 1.2 
Total Other intangibles, net$460.6 $94.1 $366.5 $466.1 $69.9 $396.2 
_______________
(1)    Represents trademarks, trade names and know-how.

17


Ingevity Corporation
Notes to the Condensed Consolidated Financial Statements
September 30, 2020
(Unaudited)

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