INGEVITY CORPORATION Introduction
Management's discussion and analysis ofIngevity 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 withIngevity's consolidated financial statements as of and for the year endedDecember 31, 2021 filed onFebruary 24, 2022 with theSecurities 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 inthe 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 theSEC . 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 inUkraine ; •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 automotivecarbon 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; 28 -------------------------------------------------------------------------------- •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 activatedcarbon 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 War inUkraine We are monitoring the ongoing war betweenRussia andUkraine , including the related sanctions imposed onRussia andBelarus by theU.S. and other countries. We have not seen and do not foresee any direct material adverse effects on our business. However, as a result of the geopolitical disruption, we have experienced volatility in energy prices, specifically natural gas, but the impact has not been and is not expected to be material to our results.
Financing Activities
OnApril 27, 2022 , we redeemed the$300.0 million outstanding aggregate principal balance of our 4.50% Senior Notes due in 2026 prior to maturity. OnJune 23, 2022 , we repaid our outstanding Term Loan in an aggregate principal amount of$323.0 million and we amended and restated our revolving credit facility. Refer to Note 9 to the Condensed Consolidated Financial Statements included within Part I. Item 1 of this Form 10-Q for more information. 29 -------------------------------------------------------------------------------- Results of Operations Three Months Ended June 30, Six Months Ended June 30, In millions 2022 2021 2022 2021 Net sales$ 419.9 $ 358.4 $ 802.7 $ 678.7 Cost of sales 269.3 218.6 514.3 412.7 Gross profit 150.6 139.8 288.4 266.0 Selling, general, and administrative expenses 48.7 47.5 88.7 87.5 Research and technical expenses 8.2 5.9 15.5 12.5 Restructuring and other (income) charges, net 3.7 4.3 7.3 8.2 Acquisition-related costs - 0.4 - 0.7 Other (income) expense, net (1.6) (4.2) (3.0) (3.0) Interest expense, net 15.1 12.2 25.8 24.6 Income (loss) before income taxes 76.5 73.7 154.1 135.5 Provision (benefit) for income taxes 16.7 29.4 33.5 42.5 Net income (loss) $ 59.8$ 44.3 $ 120.6 $ 93.0 Net sales
The table below shows the 2022 Net sales and variances from 2021:
Change vs. prior year
Prior year Current year
In millions Net sales Volume Price/Mix Currency effect Net Sales
Three months ended June 30, 2022 vs. 2021 $ 358.4 (12.6) 81.7 (7.6) $ 419.9
Six months ended June 30, 2022 vs. 2021 $ 678.7 (6.0) 140.2 (10.2) $ 802.7 Three Months Ended
The sales increase of$61.5 million in 2022 was driven by favorable pricing of$81.7 million (23 percent), partially offset by unfavorable volume decline in both of our segments for a combined impact of$12.6 million (four percent) and unfavorable foreign currency exchange of$7.6 million (two percent). Gross profit increase of$10.8 million was driven by favorable pricing improvement of$80.1 million , partially offset by increased manufacturing costs of$61.9 million due to raw material and energy cost inflationary pressures, unfavorable sales volume of$5.6 million and unfavorable foreign currency exchange of$1.8 million . Refer to the Segment Operating Results section included within this MD&A for more information on the drivers to the changes in gross profit period over period for both segments.
Six Months Ended
The sales increase of$124.0 million in 2022 was driven by favorable pricing of$140.2 million (21 percent), partially offset by unfavorable foreign currency exchange of$10.2 million (two percent) and unfavorable volume decline in both of our segments for a combined impact of$6.0 million (one percent). Gross profit increase of$22.4 million was driven by favorable pricing improvement of$138.4 million , partially offset by increased manufacturing costs of$109.7 million due to raw material and energy cost inflationary pressures, unfavorable foreign currency exchange of$3.3 million and unfavorable sales volume of$3.0 million . Refer to the Segment Operating Results section included within this MD&A for more information on the drivers to the changes in gross profit period over period for both segments. 30 --------------------------------------------------------------------------------
Selling, general and administrative expenses
Three Months Ended
Selling, general and administrative expenses ("SG&A") were $48.7 million (11.6
percent of Net sales) and $47.5 million (13.3 percent of Net sales) for the
three months ended June 30, 2022 and 2021, respectively. The decrease in SG&A as
a percentage of Net sales was driven by higher sales and decreased legal costs
of $1.7 million . The positive impact was partially offset by increased travel
and other miscellaneous costs of $2.7 million and higher employee-related costs
of $0.2 million .
Six Months Ended
SG&A was$88.7 million (11.1 percent of Net sales) and$87.5 million (12.9 percent of Net sales) for the six months endedJune 30, 2022 and 2021, respectively. The decrease in SG&A as a percentage of Net sales was driven by higher sales, reduced employee-related costs of$1.2 million and reduced legal costs of$3.5 million . The positive impact was partially offset by increased travel and other miscellaneous costs of$5.9 million .
Research and technical expenses
Three Months Ended
Research and technical expenses as a percentage of Net sales increased to 2.0
percent from 1.6 percent for the three months ended
Six Months Ended
Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, increasing to 1.9 percent from 1.8 percent for the six months endedJune 30, 2022 and 2021, respectively.
Restructuring and other (income) charges, net
Three and Six Months Ended
Restructuring and other (income) charges, net were$3.7 million and$7.3 million for the three and six months endedJune 30, 2022 , respectively, and$4.3 million and$8.2 million for the three and six months endedJune 30, 2021 , respectively. See Note 12 to the Condensed Consolidated Financial Statements included within Part I. Item 1 of this Form 10-Q for more information.
Acquisition-related costs
Three and Six Months Ended
Acquisition-related costs were zero for the three and six months endedJune 30, 2022 , respectively, and$0.4 million and$0.7 million for the three and six months endedJune 30 2021 , respectively. For the three and six months endedJune 30, 2021 , charges of$0.2 million and$0.2 million relate to the acquisition of a strategic investment in the Performance Materials segment, respectively, and charges of$0.2 million and$0.5 million relate to the integration ofPerstorp Holding AB's caprolactone business into our Performance Chemicals segment, respectively. 31 --------------------------------------------------------------------------------
Other (income) expense, net
Three and Six Months Ended
Three Months Ended June 30, Six Months Ended June 30,
In millions 2022 2021 2022 2021
Foreign currency exchange (income) loss $ 0.1 $
0.2 $ 0.4
Other (income) expense, net (1.7) (4.4) (3.4) (4.9)
Total Other (income) expense, net $ (1.6)
Interest expense, net
Three and Six Months Ended
Three Months Ended June 30, Six Months Ended June 30,
In millions 2022 2021 2022 2021
Finance lease obligations $ 1.9 $ 1.9 $ 3.7 $ 3.7
Revolving credit and term loan facilities
(1) 4.2 2.0 6.1 4.2
Senior note (1) 12.7 9.2 21.9 18.4
Other interest (income) expense, net (3.7) (0.9) (5.9) (1.7)
Total Interest expense, net $ 15.1 $ 12.2 $ 25.8 $ 24.6
_______________(1) See Note 9 within the Condensed Consolidated Financial Statements for more information.
Provision (benefit) for income taxes
Three and Six Months Ended
For the three months endedJune 30, 2022 and 2021, our effective tax rate was 21.8 percent and 39.9 percent, respectively. Excluding discrete items, the effective tax rate was 21.7 percent and 20.1 percent, respectively. An explanation of the change in the effective tax rate is presented in Note 13 to the Condensed Consolidated Financial Statements included within Part I. Item 1 of this Form 10-Q. For the six months endedJune 30, 2022 and 2021, our effective tax rate was 21.7 percent and 31.4 percent, respectively. Excluding discrete items, the effective rate was 21.2 percent and 20.6 percent, respectively. An explanation of the change in the effective tax rate is presented in Note 13 to the Condensed Consolidated Financial Statements included within Part I. Item 1 of this Form 10-Q. 32
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Segment Operating Results
In addition to the information discussed above, the following sections discuss the results of operations for both ofIngevity'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, research and technical 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
Three Months Ended June 30, Six Months Ended June 30,
In millions 2022 2021 2022 2021
Total Performance Materials - Net sales $ 122.4 $ 126.0 $ 270.8 $ 266.7
Segment EBITDA $ 55.6 $ 61.3 $ 133.5 $ 135.0
Net Sales Comparison of Three and Six Months Ended June 30, 2022 and June 30,
2021 :
Change vs. prior year
Prior year Net Current year
Performance Materials (In millions) sales Volume Price/Mix Currency effect Net sales
Three months ended June 30, 2022 vs. 2021 $ 126.0 (4.7) 3.4 (2.3) $ 122.4
Six months ended June 30, 2022 vs. 2021 $ 266.7 (1.0) 7.2 (2.1) $ 270.8 Three Months Ended
Segment net sales decrease of$3.6 million in 2022 was driven by volume decline of$4.7 million (four percent) and unfavorable foreign currency exchange of$2.3 million (two percent), partially offset by favorable pricing of$3.4 million (three percent). Our Performance Materials segment experienced volume decline fromChina COVID-related shutdowns, offsetting favorable growth of automotive products inNorth America . Favorable pricing recognized in the second quarter was driven primarily by base automotivecarbon price increases. Process purification sales were higher as volume increased and we were able to increase prices to capture more of the value of our highly differentiatedcarbon . Segment EBITDA decreased$5.7 million due to higher manufacturing costs of$5.0 million , unfavorable volume of$3.4 million , and unfavorable foreign currency exchange of$2.2 million , partially offset by decreased SG&A and research and technical expenses of$1.1 million , and favorable pricing of$3.8 million .
Six Months Ended
Segment net sales increase of$4.1 million in 2022 was driven by favorable pricing of$7.2 million (three percent), partially offset by volume decline of$1.0 million (zero percent) and unfavorable foreign currency exchange of$2.1 million (one percent). Segment EBITDA decreased$1.5 million due to higher manufacturing costs of$7.3 million , unfavorable volume of$2.2 million , and unfavorable foreign currency exchange of$1.5 million , partially offset by decreased SG&A and research and technical expenses of$3.6 million , and favorable pricing of$5.9 million . 33 --------------------------------------------------------------------------------
Performance Chemicals
Three Months Ended June 30, Six Months Ended June 30,
In millions 2022 2021 2022 2021
Net Sales
Pavement Technologies product line $ 77.8 $ 67.7 $ 105.7 $ 89.1
Industrial Specialties product line 165.9 120.1 310.6 232.2
Engineered Polymers product line 53.8 44.6 115.6 90.7
Total Performance Chemicals - Net sales $ 297.5 $ 232.4 $ 531.9 $ 412.0
Segment EBITDA $ 65.5 $ 56.4 $ 106.6 $ 88.1
Net Sales Comparison of Three and Six Months Ended June 30, 2022 and June 30,
2021 :
Change vs. prior year
Prior year Net Current year
Performance Chemicals (In millions) sales Volume Price/Mix Currency effect Net Sales
Three months ended June 30, 2022 vs. 2021 $ 232.4 (7.9) 78.3 (5.3) $ 297.5
Six months ended June 30, 2022 vs. 2021 $ 412.0 (5.0) 133.0 (8.1) $ 531.9 Three Months Ended
Segment net sales increase of$65.1 million reflects favorable pricing and product mix of$78.3 million (34 percent), driven by increases in industrial specialties ($55.1 million ), engineered polymers ($15.2 million ), and pavement technologies ($8.0 million ). Unfavorable volume impacted Net sales by$7.9 million (three percent), consisting of volume in decreases in industrial specialties ($8.1 million ) and engineered polymers ($2.5 million ), partially offset by increases in pavement technologies ($2.7 million ). Unfavorable foreign currency exchange impacted Net sales by$5.3 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 logistic costs. Our Engineered Polymers business grew 20.6 percent as the business increased pricing to offset inflationary costs for raw materials, logistics, and particularly energy which spiked in the fourth quarter of 2021 and has remained at elevated levels. Volumes were impacted by temporary supplier extended outages and operational challenges. From a regional perspective, sales inEurope ,Middle East , andAfrica ("EMEA") for our products were robust in the quarter due to demand in polyurethane and polymer additives. This was offset by a decline in theAmericas where some polyurethane customers experienced availability issues with key raw materials.
Industrial Specialties sales increased 38.1 percent with strong performance across all markets, particularly in oilfield and adhesives primary end-use markets and lubricants metalworking applications. Price improvements were supplemented by a favorable mix shift to higher-value derivative products as volumes were impacted by raw material availability.
Pavement Technologies sales increased 14.9 percent due primarily to improved
volumes, primarily in the
Segment EBITDA increased by$9.1 million due to favorable pricing and product mix of$76.3 million , partially offset by higher manufacturing costs of$57.4 million , higher SG&A expenses of$6.5 million , a decrease in volume of$2.2 million , and unfavorable foreign currency exchange of$1.1 million .
Six Months Ended
Segment net sales increase of$119.9 million was driven by favorable pricing and product mix of$133.0 million (32 percent), driven by increases in industrial specialties ($94.8 million ), engineered polymers ($30.1 million ), and pavement technologies ($8.1 million ). Unfavorable volume impacted Net sales by$5.0 million (one percent), consisting of decreases in industrial specialties ($14.9 million ), offset partially by increases in pavement technologies ($9.3 million ) and engineered polymers ($0.6 million ). Unfavorable foreign currency exchange impacted Net sales by$8.1 million (two percent). 34 -------------------------------------------------------------------------------- Segment EBITDA increased by$18.5 million due to favorable pricing and product mix of$132.5 million , partially offset by higher manufacturing costs of$102.5 million , higher SG&A of$10.4 million , a decrease in volume of$0.8 million , and unfavorable foreign currency exchange of$0.3 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 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 June 30, Six Months Ended June 30,
In millions 2022 2021 2022 2021
Net income (loss) (GAAP) $ 59.8 $ 44.3 $ 120.6 $ 93.0
Interest expense, net 15.1 12.2 25.8 24.6
Provision (benefit) for income taxes 16.7 29.4 33.5 42.5
Depreciation and amortization - Performance
Materials 8.8 8.8 17.8 17.9
Depreciation and amortization - Performance
Chemicals 17.0 18.3 35.1 36.2
Restructuring and other (income) charges, net 3.7 4.3 7.3 8.2
Acquisition and other-related costs - 0.4 - 0.7
Adjusted EBITDA (Non-GAAP) $ 121.1 $ 117.7 $ 240.1 $ 223.1
Adjusted EBITDA
Three and Six Months Ended
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.
35
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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 is holding its 2022 guidance of sales between $1.525 billion to $1.65
billion and adjusted EBITDA between $430 million to $470 million . For
Performance Chemicals revenue, we expect to recognize favorable price
improvements across the segment as we work to offset inflation in energy, raw
material, and logistic costs. We expect continued volume growth in the Pavement
Technologies and Engineered Polymers' business. Performance Materials will see
moderate growth as we expect to benefit from some recovery of auto production.
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. Additionally, we expect our Performance Materials segment
results to be similar to 2021 as U.S. , Chinese, Canadian, and European vehicle
production continues to be negatively impacted by global supply chain
disruption. 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 supply chain disruptions.
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.
36
--------------------------------------------------------------------------------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 ofJune 30, 2022 , our undrawn capacity under our revolving credit facility was$466.2 million . Over the next twelve months, we expect to fund the following: 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, redeem all or part of our outstanding senior note, seek additional debt financing, issue equity securities, or some combination thereof.
Cash and cash equivalents totaled
Due to the global nature of our operations, a portion of our cash is held outside theU.S. The cash and cash equivalents balance atJune 30, 2022 , included$87.4 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 ourU.S. liquidity. If these earnings were distributed, such amounts would be subject toU.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 theU.S. Management does not currently expect to repatriate cash earnings from our foreign operations in order to fundU.S. operations.
Other Potential Liquidity Needs
Share Repurchases
OnMarch 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 (the "2020 Authorization"). Under the 2020 Authorization, shares were permitted to 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 and six months endedJune 30, 2022 , we repurchased$49.5 million and$89.9 million in common stock, representing 719,236 and 1,329,683 shares of our common stock at a weighted average cost per share of$68.72 and$67.59 , respectively. AtJune 30, 2022 ,$212.7 million remained unused under our 2020 Authorization. As described in Note 17 (Subsequent Events) to the Condensed Consolidated Financial Statements included within Part I. Item 1 of this Form 10-Q, the 2020 Authorization was rescinded by our Board of Directors onJuly 25, 2022 and replaced by a new share repurchase authorization of up to$500 million of our common stock.
During the three and six months ended
Capital Expenditures Projected 2022 capital expenditures are$155 -$175 million . We have no material commitments associated with these projected capital expenditures as ofJune 30, 2022 . 37
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Cash flow comparison of the Six Months Ended
Six Months Ended June 30,
In millions 2022 2021
Net cash provided by (used in) operating activities $ 114.8 $ 116.9
Net cash provided by (used in) investing activities (58.6) (57.2)
Net cash provided by (used in) financing activities (193.3) (83.6)
Cash flows provided by (used in) operating activities
During the first six months of 2022, cash flow provided by operations decreased due to increased accounts receivable related to the increase in net sales and an increase in inventory driven by price compared to 2021. Below provides a description of the changes to working capital during the first six months of 2022 (i.e. current assets and current liabilities). Current Assets and Liabilities In millions June 30, 2022 December 31, 2021 Cash and cash equivalents$ 131.3 $ 275.4 Accounts receivable, net 221.4 161.7 Inventories, net 277.0 241.2 Prepaid and other current assets 48.0 46.6 Total current assets$ 677.7 $ 724.9 Current assets as ofJune 30, 2022 , decreased$47.2 million compared toDecember 31, 2021 , primarily due to decreases in Cash and cash equivalents. Cash and cash equivalents decreased$144.1 million compared toDecember 31, 2021 , primarily due to share repurchases and our debt refinancing activities that occurred during the quarter endedJune 30, 2022 . These decreases were partially offset by increases in Accounts receivable, net of$59.7 million due to increased sales during the quarter endedJune 30, 2022 , increases in Inventories, net of$35.8 million driven by inflation, and increases in Prepaid and other current assets of$1.4 million . In millions June 30, 2022 December 31, 2021 Accounts payable$ 168.3 $ 125.8 Accrued expenses 44.8 51.7 Accrued payroll and employee benefits 30.6 48.2 Current operating lease liabilities 17.0 17.4 Notes payable and current maturities of long-term debt 0.9 19.6 Income taxes payable 5.6 6.2 Total current liabilities$ 267.2 $ 268.9 Current liabilities as ofJune 30, 2022 , decreased by$1.7 million compared toDecember 31, 2021 , primarily due to decreases in Notes payable and current maturities of long-term debt of$18.7 million , Accrued payroll and employee benefits of$17.6 million , Accrued expenses of$6.9 million , Income taxes payable of$0.6 million , and Current operating lease liabilities of$0.4 million . This was partially offset by an increase in Accounts payable of$42.5 million .
Cash flows provided by (used in) investing activities
Cash used by investing activities in the six months endedJune 30, 2022 andJune 30, 2021 was$58.6 million and$57.2 million , primarily driven by capital expenditures. In the six months endedJune 30, 2022 and 2021, we acquired strategic investments in privately-held companies for$2.0 million and$16.5 million , respectively. 38 -------------------------------------------------------------------------------- Capital expenditure categories Six Months Ended June 30, In millions 2022 2021 Maintenance $ 27.5$ 17.6 Safety, health and environment 7.0 5.4 Growth and cost improvement 22.7 17.9 Total capital expenditures $ 57.2$ 40.9
Cash flows provided by (used in) financing activities
Cash used in financing activities in the six months endedJune 30, 2022 , was$193.3 million and was primarily driven by payments on long-term borrowings of$628.1 million , payments on revolving credit facility of$256.0 million , the repurchase of common stock of$89.9 million , debt repayment costs of$3.8 million , debt issuance costs of$3.0 million and tax payments related to withholdings on restricted stock unit vestings of$2.0 million , offset partially by proceeds from revolving credit facility borrowing of$788.0 million . Cash used in financing activities in the six months endedJune 30, 2021 was$83.6 million and was primarily driven by the repurchase of common stock of$68.1 million , payments on long-term borrowings of$14.1 million .
New Accounting Guidance
Refer to Note 2 to the Condensed Consolidated Financial Statements included within Part I. Item 1 of this Form 10-Q 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.
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