Ingevity Corp

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Note 15: Restructuring and Other (Income) Charges, net

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

Restructuring Charges

(1) Primarily represents costs associated with contract terminations, plant and equipment decommissioning charges and other miscellaneous exit costs.

(2) Primarily represents property, plant and equipment and finite-lived intangible asset write-downs, accelerated depreciation and amortization, and impairment charges on certain assets, which were or are to be disposed of or abandoned. Also included, to the extent incurred, the acceleration effect of re-estimating settlement dates and revised cost estimates associated with asset retirement obligations related to asset disposal charges that are included within restructuring charges.

(3) During 2023, we incurred severance and asset charges associated with targeted workforce reduction initiatives.

Throughout 2023 we initiated several measures across the organization to pursue greater cost efficiency which included a reorganization to streamline certain functions and reduce ongoing costs. On November 1, 2023 we announced a number of strategic actions designed to further reposition our Performance Chemicals reportable segment to improve the profitability and reduce the cyclicality of the Company as a whole. These actions increase our focus on growing our most profitable Performance Chemicals' product lines such as road technologies and accelerate our transition to non-crude tall oil ("CTO") based fatty acids. This initiative will result in the reduction, and in some cases exit, of certain historical end-use markets of our industrial specialties product line such as adhesives, publication inks, and oilfield, representing approximately $300.0 million of net sales. The announced actions include the permanent closure of our Performance Chemicals' CTO refinery and the closure of our manufacturing plant located in DeRidder, Louisiana (the “DeRidder Plant”), including the polyol production assets associated with the Advance Polymer Technologies reportable segment, as well as additional corporate and business cost reduction actions. We expect to close the DeRidder Plant by the end of the first half of 2024. These actions are referred to as Performance Chemicals' repositioning.

The Performance Chemicals' repositioning, when combined with earlier targeted workforce reduction initiatives, during 2023 resulted in the reduction of Ingevity's global workforce by almost 20 percent,25 percent of these reductions being employees directly associated with commercial sales activities of the soon-to-be exited and/or reduced end-use markets of our industrial specialties product line. Specific to Performance Chemicals, the reduction represented approximately 30 percent of the reportable segment's workforce. The collective actions of workforce, operational, and regional business exits, we believe, will hinder our ability to dispose of the associated inventory on hand, as of December 31, 2023. As a result, we have recorded $19.7 million of non-cash, lower of cost or market, inventory charges to adjust the carrying value of the impacted inventory to what we will realize upon disposal, less disposal costs. These inventory charges are recorded to Cost of sales on the consolidated statement of operations. Since these inventory charges are directly attributable to the Performance Chemicals’

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repositioning, that is, they do not represent normal, recurring expenses necessary to operate our business, we have combined these charges with the restructuring charges, noted above, and have excluded such impact from the financial results of our Performance Chemicals reportable segment, refer to Note 19 for more information.

We expect to incur aggregate charges of approximately $280.0 million associated with the Performance Chemicals' repositioning, consisting of approximately $180.0 million in asset-related charges, approximately $15.0 million in severance and other employee-related costs, and approximately $85.0 million in other restructuring costs including decommissioning, dismantling and removal charges, and contract termination costs. We expect approximately $180.0 million of the total charges to be non-cash. The majority of non-cash charges and 50-60 percent of cash charges are expected to be recognized in 2024. Due to the DeRidder Plant closure and the corresponding reduced CTO refining capacity, we may be obligated, under an existing CTO supply contract, to purchase CTO volumes through 2025 at amounts in excess of required CTO volumes. We intend to manage our CTO volumes by reselling excess volumes (herein referred to as "CTO resales") in the open market. Excluded from the estimated $280.0 million of estimated aggregate charges are potential costs we may incur associated with the CTO resales which, based on what we believe to be market rates today, may result in $30.0 million to $80.0 million of incremental losses in 2024. Refer to Note 2, under the section: Non-operating income and expense, for more information.

During the year ended December 31, 2023, we incurred $5.1 million in cash charges and $127.7 million in non-cash charges related to the strategic actions initiated during the fourth quarter of 2023.

The charges we currently expect to incur in connection with these actions are subject to a number of assumptions and risks, and actual results may differ materially. We may also incur other material charges not currently contemplated due to events that may occur as a result of, or in connection with, these actions.

Other (income) charges, net

Alternative feedstock transition

In April 2023, we implemented the feedstock transition of our Crossett, Arkansas manufacturing plant (“Crossett”). This transition converted Crossett from a CTO-based feedstock production facility to produce fatty acids from alternative plant-based feedstocks. During the year ended December 31, 2023, we incurred $22.1 million in costs, including $8.8 million in asset disposal costs.

North Charleston plant transition

Our North Charleston, South Carolina Performance Chemicals manufacturing plant has historically been co-located with a WestRock Company (“WestRock”) paper mill. In May 2023, WestRock announced that it would permanently cease operating its North Charleston paper mill by August 31, 2023 and notified us that it was terminating the shared services in accordance with our operating agreement. WestRock ceased production at their North Charleston paper mill in June 2023. During 2023, we executed a transition plan to separate certain critical operating services WestRock had historically provided to us such as steam, water and wastewater treatment. During the year ended December 31, 2023, we incurred $14.8 million of expense, including $4.3 million in asset disposal costs. We expect to incur an additional $3-5 million of costs as we complete this transition in the first half of 2024.

Business transformation costs

We embarked upon a business transformation initiative that included the implementation of an upgraded enterprise resource planning ("ERP") system. The implementation of our new ERP system occurred in multiple phases beginning with our pilot deployment in the first quarter of 2022 and concluded with our final deployment in the first quarter of 2023. This business transformation initiative concluded in the fourth quarter of 2023. Costs incurred, during the years ended December 31, 2023, 2022, and 2021, of $7.7 million, $13.8 million, and $16.1 million, respectively, represent costs directly associated with the business transformation initiative that, in accordance with GAAP, could not be capitalized.

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Restructuring and Other (Income) Charges, net Reserves

The following table (in millions) shows a roll forward of restructuring reserves that will result in cash spending.

(1) Included in "Accrued expenses" and "Other liabilities" on the consolidated balance sheet.

(2) Includes severance and other employee-related costs, exited leases, contract terminations and other miscellaneous exit costs. Any asset write-downs including accelerated depreciation and impairment charges are not included in the above table.

(3) Primarily foreign currency translation adjustments.