INGEVITY CORPORATION Introduction
Management's discussion and analysis ofIngevity's 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, 2020 filed onFebruary 19, 2021 with theSecurities and Exchange Commission ("SEC") as part of the Company's Annual Reporting on Form 10-K ("2020 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 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 2020 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," "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 of our 2020 Annual Report and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2021 , 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 economic and financial conditions beyond our control; •we are exposed to risks related to our international sales and operations; •our reported results could be adversely affected by currency exchange rates and currency devaluation could impair our competitiveness; •our operations require us to comply with a number ofU.S. and foreign regulations, violations of which could have a material adverse effect on our financial condition and results of operations; •we may be adversely affected by changes in trade policy, including the imposition of tariffs and the resulting consequences; •adverse conditions in the global automotive market or adoption of alternative and new technologies may adversely affect demand for our automotive carbon products; •we face competition from producers of alternative products and new technologies, and new or emerging competitors; 29 -------------------------------------------------------------------------------- •we face competition from infringing intellectual property activity; •if increasingly 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 engineered polymers products; •our printing inks business serves customers in a market that is facing declining volumes and downward pricing; •our Performance Chemicals segment is highly dependent on crude tall oil ("CTO") which is limited in supply; •a prolonged period of low energy prices may materially impact our results of operations; •our engineered polymers product line may be adversely affected by theUnited Kingdom's ("UK") withdrawal from theEuropean Union ; •the acquisition (the "Caprolactone Acquisition") ofPerstorp Holding AB's caprolactone division (the "Caprolactone Business") may expose us to unknown or understated liabilities; •we are dependent upon third parties for the provision of certain critical operating services at several of our facilities; •we may be adversely affected by disruptions in our supply chain; •the occurrence of natural disasters, such as hurricanes, winter or tropical storms, earthquakes, tornadoes, floods, fires 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; •from time to time, we are called upon to protect our intellectual property rights and proprietary information through litigation and other means; •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; •changes in 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. OverviewIngevity 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. 30
-------------------------------------------------------------------------------- Recent DevelopmentsStrategic Investment During the three months endedJune 30, 2021 , our Performance Materials segment acquired a strategic equity investment in a privately-held company for$16.5 million . Our strategic equity investment is accounted for under the equity method of accounting, which requires us to record our initial investment at cost. Subsequently, we will recognize, through the condensed consolidated statements of operations (Other (income) expense, net) and as an adjustment to the investment balance (Other assets), our proportionate share of undistributed earnings or loss and the amortization of basis differences. At each reporting period, we will evaluate our investment to determine whether events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable. The carrying value of our strategic equity investment was$16.5 million atJune 30, 2021 and zero atDecember 31, 2020 . There were no adjustments to the carrying value of our strategic equity investment for impairment or observable price changes during the three months endedJune 30, 2021 . Results of Operations Three Months Ended June 30, Six Months Ended June 30, In millions 2021 2020 2021 2020 Net sales$ 358.4 $ 270.6 $ 678.7 $ 558.8 Cost of sales 218.6 186.7 412.7 360.3 Gross profit 139.8 83.9 266.0 198.5 Selling, general, and administrative expenses 47.5 34.5 87.5 73.0 Research and technical expenses 5.9 5.4 12.5 11.6 Restructuring and other (income) charges, net 4.3 7.3 8.2 7.8 Acquisition-related costs 0.4 0.4 0.7 1.7 Other (income) expense, net (4.2) 0.9 (3.0) 2.9 Interest expense, net 12.2 10.0 24.6 20.9 Income (loss) before income taxes 73.7 25.4 135.5 80.6 Provision (benefit) for income taxes 29.4 5.2 42.5 15.1 Net income (loss) $ 44.3$ 20.2 $ 93.0 $ 65.5 Net sales and Gross profit The table below shows the 2021 Net sales and percentage variances from 2020: Percentage change vs. prior year Currency In millions, except percentages Net sales Total change effect Price/Mix Volume Three months ended June 30, 2021$ 358.4 32% 1% 4% 27% Six months ended June 30, 2021$ 678.7 21% 1% 3% 17% Three Months EndedJune 30, 2021 vs. 2020 Net sales increase of$87.8 million in 2021 was primarily driven by favorable volume growth in both of our segments for a combined impact of$73.1 million and favorable pricing and product mix of$12.0 million . Additionally, favorable foreign currency exchange impacted Net sales by$2.7 million , primarily related to euro and Chinese renminbi denominated sales. 31 -------------------------------------------------------------------------------- Gross profit increase of$55.9 million was driven by favorable sales volume of$38.9 million and favorable pricing and product mix of$10.1 million . Also contributing to the increase was lower manufacturing costs of$6.0 million , driven by higher plant throughput, offset slightly by increased freight and warehousing costs, as a result of increased volume demand, and favorable foreign currency exchange of$0.9 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 EndedJune 30, 2021 vs. 2020 Net sales increase of$119.9 million in 2021 was primarily driven by favorable volume growth in both of our segments for a combined impact of$98.7 million and favorable pricing and product mix of$15.3 million . Additionally, favorable foreign currency exchange impacted Net sales by$5.9 million , primarily related to euro and Chinese renminbi denominated sales. Gross profit increase of$67.5 million was driven by favorable sales volume of$52.4 million , favorable pricing and product mix of$14.9 million , and favorable foreign currency exchange of$1.7 million . These positive impacts were slightly offset by higher net manufacturing costs of$1.5 million driven by freight, raw material price inflation, energy costs, and depreciation expenses, partially offset by higher plant throughput as a result of increased volume demand. 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 EndedJune 30, 2021 vs. 2020 Selling, general and administrative expenses ("SG&A") increased$13.0 million in 2021 compared to the significantly COVID-19 impacted prior year. The change in SG&A was driven by higher employee-related costs of$10.5 million , increased amortization expense of$1.3 million , and higher travel and other miscellaneous expense of$1.2 million . SG&A expenses as a percentage of Net sales increased slightly to 13.3 percent for the three months endedJune 30, 2021 from 12.7 percent in 2020, driven by lower employee-related and travel costs in 2020 due to the impact of COVID-19. Six Months EndedJune 30, 2021 vs. 2020 SG&A increased$14.5 million in 2021 compared to 2020. The change in SG&A was driven by higher employee-related costs of$16.1 million , of which$4.2 million related to a one-time benefit recorded in 2020, and increased amortization expense of$1.6 million . The higher employee-related costs and amortization expense were partially offset by reduced legal, travel and other miscellaneous costs of$3.2 million . SG&A expenses as a percentage of Net sales decreased slightly to 12.9 percent for the six months endedJune 30, 2021 from 13.1 percent in 2020, driven by the lower spending in 2020 due to COVID-19 and higher sales in 2021. Research and technical expenses Three Months EndedJune 30, 2021 vs. 2020 Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, decreasing to 1.6 percent from 2.0 percent for the three months endedJune 30, 2021 and 2020, respectively. Six Months EndedJune 30, 2021 vs. 2020 Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, decreasing to 1.8 percent from 2.1 percent for the six months endedJune 30, 2021 and 2020, respectively. 32 -------------------------------------------------------------------------------- Restructuring and other (income) charges, net Three and Six Months EndedJune 30, 2021 vs. 2020 Restructuring and other (income) charges, net were$4.3 million and$8.2 million for the three and six months endedJune 30, 2021 , respectively, and$7.3 million and$7.8 million for the three and six months endedJune 30, 2020 , respectively. See Note 12 within the condensed consolidated financial statements for more information. Acquisition-related costs Three and Six Months EndedJune 30, 2021 vs. 2020 Acquisition-related costs were$0.4 million and$0.7 million for the three and six months endedJune 30, 2021 , respectively, and$0.4 million and$1.7 million for the three and six months endedJune 30, 2020 , 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 of the Perstorp Capa business into our Performance Chemicals segment, respectively. For the three and six months endedJune 30, 2020 , all charges relate to the integration of the Perstorp Capa business into our Performance Chemicals segment. Other (income) expense, net Three and Six Months EndedJune 30, 2021 vs. 2020 Three Months Ended June 30, Six Months Ended June 30, In millions 2021 2020 2021 2020 Foreign currency exchange (income) loss $ 0.2$ (0.1) $ 1.9$ 0.6 Impairment of equity investment (1) - 0.1 - 1.4 Other (income) expense, net (4.4) 0.9 (4.9) 0.9 Total Other (income) expense, net $ (4.2)$ 0.9 $ (3.0)$ 2.9
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(1) Represents an impairment charge recorded during the three months ended
33-------------------------------------------------------------------------------- Interest expense, net Three and Six Months EndedJune 30, 2021 vs. 2020 Three Months Ended June 30, Six Months Ended June 30, In millions 2021 2020 2021 2020 Interest expense on finance lease obligations $ 1.9$ 1.6 3.7 3.1 Interest expense on revolving credit and term loan facilities(1) 2.0 6.3 4.2 14.0 Interest expense on senior notes(1) 9.2 3.4 18.4 6.9 Interest income associated with our Restricted investment (0.5) (0.5) (1.0) (1.0) Capitalized interest - (0.1) (0.2) (0.4) Fixed-to-fixed cross-currency interest rate swap(2) (0.1) (0.5) (0.2) (1.3) Other interest (income) expense, net (0.3) (0.2) (0.3) (0.4) Total Interest expense, net $ 12.2$ 10.0 $ 24.6$ 20.9 _______________ (1) See Note 9 within the condensed consolidated financial statements for more information. (2) See Note 8 within the condensed consolidated financial statements for more information. Provision (benefit) for income taxes Three and Six Months EndedJune 30, 2021 vs. 2020 For the three months endedJune 30, 2021 and 2020, our effective tax rate was 39.9 percent and 20.5 percent, respectively. Excluding discrete items, the effective rate was 20.1 percent compared to 20.8 percent in the three months endedJune 30, 2021 and 2020, respectively. For the six months endedJune 30, 2021 and 2020, our effective tax rate was 31.4 percent and 18.7 percent, respectively. Excluding discrete items, the effective rate was 20.6 percent compared to 20.5 percent in the six months endedJune 30, 2021 and 2020, respectively. An explanation of the change in the effective tax rate is presented in Note 13 to the condensed consolidated financial statements. 34 -------------------------------------------------------------------------------- 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, 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, 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 2020 Annual Report. Performance Materials Three Months Ended June 30, Six Months Ended June 30, In millions 2021 2020 2021 2020
Total Performance Materials - Net sales(1)
$ 266.7 $ 205.5 Segment EBITDA$ 61.3 $ 23.3 $ 135.0 $ 84.5 ______________
(1) Beginning in Q1 2021, we updated disaggregated revenue disclosures, combining certain product groups to reflect categories that depict how the nature, amount, and uncertainty of revenue and cash flows are affected by economic factors. As a result, Automotive Technologies and Process Purification product lines have been combined within the Performance Materials segment.
The table below shows the 2021 Net sales and percentage variances from 2020:
Percentage change vs. prior year
Performance Materials (In millions, except Currency
percentages) Net sales Total change effect Price/Mix Volume
Three months ended June 30, 2021 $ 126.0 49 % 3 % 3 % 43 %
Six months ended June 30, 2021 $ 266.7 30 % 2 % 3 % 25 %
Three Months Ended June 30, 2021 vs. 2020
Segment net sales increase of $41.6 million in 2021 was driven by $36.4 million
in volume growth, primarily in automotive products, favorable pricing and
product mix of $2.4 million , and favorable foreign currency exchange of $2.8
million .
Segment EBITDA increased $38.0 million primarily due to favorable volume of
$23.8 million , favorable pricing and product mix of $2.4 million , and lower
manufacturing costs of $12.4 million due to increased plant throughput. These
increases were partially offset by increased SG&A and research and technical
expenses of $5.5 million . Favorable foreign currency exchange and increased
other miscellaneous income positively impacted Segment EBITDA by $4.9 million .
Six Months Ended June 30, 2021 vs. 2020
Segment net sales increase of $61.2 million in 2021 was driven by $50.9 million
in volume growth, primarily in automotive products, favorable pricing and
product mix of $5.3 million , and favorable foreign currency exchange of $5.0
million .
35
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Segment EBITDA increased $50.5 million primarily due to favorable volume of
$35.2 million , favorable pricing and product mix of $5.8 million , and lower
manufacturing costs of $8.2 million due to increased plant throughput. These
increases were partially offset by increased SG&A and research and technical
expenses of $6.0 million . Favorable foreign currency exchange and increased
other miscellaneous income positively impacted Segment EBITDA by $7.3 million .
Performance Chemicals
Three Months Ended June 30, Six Months Ended June 30,
In millions 2021 2020 2021 2020
Net Sales
Pavement Technologies product line 67.7 63.9 89.1 84.6
Industrial Specialties product line(1) 120.1 90.7 232.2 200.8
Engineered Polymers product line 44.6 31.6 90.7 67.9
Total Performance Chemicals - Net sales $ 232.4 $ 186.2 $ 412.0 $ 353.3
Segment EBITDA $ 56.4 $ 43.9 $ 88.1 $ 74.9
______________(1) Beginning in Q1 2021, we updated disaggregated revenue disclosures, combining certain product groups to reflect categories that depict how the nature, amount, and uncertainty of revenue and cash flows are affected by economic factors. As a result, Oilfield Technologies product line has been combined with the Industrial Specialties product line within the Performance Chemicals segment.
The table below shows the 2021 Net sales and percentage variances from 2020:
Percentage change vs. prior year
Performance Chemicals (In millions, except Currency
percentages) Net sales Total change effect Price/Mix Volume
Three months ended June 30, 2021 $ 232.4 25 % - % 5 % 20 %
Six months ended June 30, 2021 $ 412.0 17 % - % 3 % 14 %
Three Months Ended June 30, 2021 vs. 2020
Segment net sales increase of $46.2 million was driven mainly by favorable
volume of $36.7 million , consisting of volume increases in industrial
specialties products ($25.2 million ), engineered polymers products ($10.2
million ), and pavement technologies products ($1.3 million ). Segment net sales
were also impacted by favorable pricing implemented during the quarter in
response to raw material inflation as well as product sales mix for a net impact
of $9.6 million . The net price/mix impact was driven by increases in engineered
polymers ($4.4 million ), industrial specialties ($3.3 million ), and pavement
technologies ($1.9 million ). Additionally, unfavorable foreign currency exchange
impacted Net sales by $0.1 million .
Segment EBITDA increased by $12.5 million primarily due to an increase in volume
of $15.1 million , favorable pricing and product mix of $7.7 million , and
increased other miscellaneous income of $1.8 million . These favorable operating
results were offset slightly by higher manufacturing costs of $4.4 million due
to higher energy and freight costs, higher SG&A expenses of $6.4 million , and
unfavorable foreign currency exchange of $1.3 million .
36
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Six Months Ended June 30, 2021 vs. 2020
Segment net sales increase of $58.7 million was driven mainly by favorable
volume of $47.8 million , consisting of volume increases in industrial
specialties products ($28.5 million ), engineered polymers products ($18.6
million ), and pavement technologies products ($0.7 million ). Segment net sales
were also impacted by favorable pricing implemented during the first half of
2021 in response to raw material inflation as well as product sales mix for a
net impact of $10.0 million . The net price/mix impact was driven by increases in
engineered polymers ($5.6 million ), pavement technologies ($3.1 million ), and
industrial specialties ($1.3 million ). Additionally, favorable foreign currency
exchange impacted Net sales by $0.9 million .
Segment EBITDA increased by $13.2 million primarily due to an increase in volume
of $17.2 million and favorable pricing and product mix of $9.1 million . These
favorable operating results were offset slightly by higher manufacturing costs
of $5.7 million due to higher energy and freight costs, higher SG&A expenses of
$6.7 million , and unfavorable foreign currency exchange of $0.7 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 (loss), the most directly comparable financial
measure calculated in accordance with GAAP. Adjusted EBITDA is not meant to be
considered in isolation or as a substitute for Net income (loss), 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
investment activities as well as non-operating activities.
Adjusted EBITDA is defined as net income (loss) plus interest expense, net,
provision (benefit) for income taxes, depreciation, amortization, restructuring
and other (income) charges, net, acquisition and other-related costs, 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 below.
Reconciliation of Net Income (Loss) to Adjusted EBITDA
Three Months Ended June 30, Six Months Ended June 30,
In millions 2021 2020 2021 2020
Net income (loss) (GAAP) $ 44.3 $ 20.2 $ 93.0 $ 65.5
Interest expense, net 12.2 10.0 24.6 20.9
Provision (benefit) for income taxes 29.4 5.2 42.5 15.1
Depreciation and amortization - Performance
Materials 8.8 7.3 17.9 14.5
Depreciation and amortization - Performance
Chemicals 18.3 16.8 36.2 33.9
Restructuring and other (income) charges, net 4.3 7.3 8.2 7.8
Acquisition and other-related costs 0.4 0.4 0.7 1.7
Adjusted EBITDA (Non-GAAP) $ 117.7 $ 67.2 $ 223.1 $ 159.4
37-------------------------------------------------------------------------------- Adjusted EBITDA Three and Six Months EndedJune 30, 2021 vs. 2020 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. Current Company Outlook In millions 2021 Guidance Net sales$1,320 -$1,360 Adjusted EBITDA$425 -$440 Operating Cash Flow$300 -$320 Capital Expenditures$100 - 120 Free Cash Flow*~$200 *Calculated as Operating Cash Flow less Capital Expenditures Based on our solid performance in the second quarter and first half of the year and the continued robust demand for our products, we are increasing our fiscal year 2021 guidance for sales to be between$1.32 and$1.36 billion and adjusted EBITDA to between$425 and$440 million . We expect issues related to the availability and rising costs of logistics, raw materials inflation and automotive sector input disruptions to be ongoing headwinds throughout the rest of the year. We are paying close attention to supply and demand in the market and will pass through costs to ensure we extract the optimal value for our products. Despite these macro headwinds, we see reason for optimism. We believe Performance Materials will benefit in 2022 and beyond from the expected rebound in automotive production as a result of pent-up vehicle demand. We also expect continued robust demand for our Performance Chemicals products and will pursue further improved pricing to offset higher raw materials costs. A reconciliation of net income to adjusted EBITDA as projected for 2021 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; 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. 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 to fund our planned operations and meet our interest and other contractual obligations for at least the next twelve months. As ofJune 30, 2021 , our undrawn capacity under our revolving credit facility was$497.3 million . Over the next twelve months, we expect to make interest payments, capital expenditures, expenditures related to our business transformation initiative, 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 38 -------------------------------------------------------------------------------- existing revolving credit and term loan facilities, seek additional debt financing, issue equity securities, or some combination thereof. Cash and cash equivalents totaled$233.3 million atJune 30, 2021 . 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 theU.S. The cash and cash equivalents balance atJune 30, 2021 included$86.0 million held by our foreign subsidiaries. Cash and earnings of our foreign subsidiaries are generally used to finance our foreign operations and 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 potentially 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 OnFebruary 28, 2020 , our Board of Directors authorized the repurchase of up to$500.0 million of our common stock and rescinded the prior two outstanding authorizations. Our repurchase program does not include a specific timetable or price targets and may be suspended or terminated at any time. Shares may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of market prevailing conditions and other factors. During the three and six months endedJune 30, 2021 , we repurchased$28.7 million and$68.1 million in common stock, representing 356,116 and 883,666 shares of our common stock at a weighted average cost per share of$80.50 and$77.00 , respectively. AtJune 30, 2021 ,$344.0 million remained unused under our Board-authorized repurchase program. Capital Expenditures Projected 2021 capital expenditures are$100 -$120 million . We have no material commitments associated with these projected capital expenditures as ofJune 30, 2021 . Cash flow comparison of Six Months EndedJune 30, 2021 and 2020 Six Months Ended June 30, In millions 2021 2020 Net cash provided by (used in) operating activities$ 116.9 $ 109.1 Net cash provided by (used in) investing activities (57.2) (37.4) Net cash provided by (used in) financing activities (83.6) 45.9 Cash flows provided by (used in) operating activities During the first six months of 2021, cash flow provided by operations increased primarily due to higher earnings driven by the increase in net sales. The increase in net sales also drove higher accounts receivable and corresponding plant production that resulted in higher inventory levels, which negatively impacted the cash flow provided by operations compared to 2020. Below provides a description of the changes to working capital during the first six months of 2021 (i.e. current assets and current liabilities). 39 -------------------------------------------------------------------------------- Current Assets and Liabilities In millions June 30, 2021 December 31, 2020 Cash and cash equivalents$ 233.3 $ 257.7 Accounts receivable, net 177.3 148.0 Inventories, net 214.5 189.0 Prepaid and other current assets 44.5 34.0 Total current assets$ 669.6 $ 628.7 Current assets as ofJune 30, 2021 increased$40.9 million compared toDecember 31, 2020 , primarily due to increases in Accounts receivable, net and Inventories, net. Accounts receivable, net as ofJune 30, 2021 , increased$29.3 million due to increased sales during the quarter endedJune 30, 2021 compared to the quarter endedDecember 31, 2020 . Inventories increased by$25.5 million mainly due to the build of inventory to support forecasted sales. These increases were offset by a decrease in Cash and cash equivalents of$24.4 million compared to the balance atDecember 31, 2020 . Additionally, Prepaid and other current assets increased by$10.5 million , primarily related to prepaid insurance and services. In millions June 30, 2021 December 31, 2020 Accounts payable$ 115.6 $ 104.2 Accrued expenses 44.0 46.6 Accrued payroll and employee benefits 29.2 25.1 Current operating lease liabilities 15.7 16.2 Notes payable and current maturities of long-term debt 19.5 26.0 Income taxes payable 8.8 5.3 Total current liabilities$ 232.8 $ 223.4 Current liabilities as ofJune 30, 2021 , increased by$9.4 million compared toDecember 31, 2020 , primarily driven by an increase in Accounts payable and Accrued payroll and employee benefits. This increase was offset partially by decreases in Current operating lease liabilities, Notes payable and current maturities of long-term debt, and Accrued expenses. Cash flows provided by (used in) investing activities Cash used by investing activities in the six months endedJune 30, 2021 was$57.2 million and was primarily driven by capital expenditures. In the six months endedJune 30, 2021 and 2020, 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). Also, during six months endedJune 30, 2021 , we acquired a strategic equity investment in a privately-held company for$16.5 million . Capital expenditure categories Six Months Ended June 30, In millions 2021 2020 Maintenance $ 17.6$ 22.2 Safety, health and environment 5.4 6.1 Growth and cost improvement 17.9 6.2 Total capital expenditures $ 40.9$ 34.5 40
-------------------------------------------------------------------------------- Cash flows provided by (used in) financing activities Cash used in financing activities in the six months endedJune 30, 2021 was$83.6 million and was driven by the repurchase of common stock of$68.1 million , payments on long-term borrowings of$14.1 million , and tax payments related to withholdings on restricted stock unit vestings of$2.3 million . Cash provided by financing activities in the six months endedJune 30, 2020 was$45.9 million and was primarily driven by net borrowings of$88.8 million from our revolving credit facility, offset by payments on long-term borrowings of$9.4 million , tax payments related to withholdings on restricted stock unit vestings of$3.0 million , and the repurchase of common stock of$32.4 million . Off-Balance Sheet Arrangements We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations or cash flows. Contractual Obligations Information related to our contractual commitments atDecember 31, 2020 can be found in a table included within Part II, Item 7 of our 2020 Annual Report. Except as described above, there have been no material changes to our contractual commitments during the six months endedJune 30, 2021 . New Accounting Guidance Refer to the 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 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 3 to our 2020 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. Our critical accounting policies have not substantially changed from those described in the 2020 Annual Report. 41
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