EX-99.1 2 t1601049_ex99-1.htm EXHIBIT 99.1 t1601049_ex99-1 - block - 7.2827282s
Exhibit 99.1​
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[•], 2016​
Dear WestRock Stockholder:
We are pleased to inform you of the separation of the specialty chemicals business from WestRock Company into a newly formed public company named Ingevity Corporation.
We expect that the separation of our specialty chemicals business from WestRock will result in two even stronger companies, each with compelling strategies and opportunities for profitable growth. WestRock aspires to be the premier partner and unrivaled provider of packaging solutions in consumer and corrugated markets, while Ingevity will be a leading global manufacturer of specialty chemicals and high-performance carbon materials. This action reinforces our strong commitment to creating value for our stockholders.
The separation will be completed by way of a pro rata distribution of Ingevity common stock to our stockholders of record as of the close of business, Eastern time, on May 4, 2016, the record date. Each WestRock stockholder will receive one share of Ingevity common stock for every six shares of WestRock common stock held on the record date.
We expect your receipt of shares of Ingevity common stock in the distribution to be tax-free for U.S. federal income tax purposes, except for cash received in lieu of fractional shares. You should consult your own tax advisor as to the particular tax consequences of the distribution to you, including potential tax consequences under state, local and non-U.S. tax laws.
The distribution does not require WestRock stockholder approval, nor do you need to take any action to receive your shares of Ingevity common stock. Immediately following the separation, you will own common stock in WestRock and Ingevity. Ingevity’s common stock will be listed on the New York Stock Exchange under the symbol “NGVT,” while WestRock’s common stock will continue to trade on the New York Stock Exchange under “WRK.”
The enclosed information statement, which is being made available to all WestRock stockholders as of the record date for the distribution, describes the separation and distribution in detail and contains important information about Ingevity, including its business, financial condition and operations. We urge you to carefully read this information statement in its entirety.
Yours sincerely,
Steve Voorhees
Chief Executive Officer
WestRock Company

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[•], 2016​
Dear Future Ingevity Stockholder:
It is our pleasure to welcome you as a stockholder of Ingevity Corporation, formerly the specialty chemicals business of WestRock Company. Ingevity is a leading global manufacturer of specialty chemicals and high performance carbon materials. With a history of innovation spanning over 100 years, we provide innovative solutions to meet our customers’ unique and demanding requirements through specifically formulated products. Through our deep technical expertise, flexible manufacturing, distinctive chemistry and global reach we provide our customers with proprietary products that enable them to enhance their products and competitive position in the markets they serve.
Ingevity’s specialty chemicals products serve as essential inputs used in a variety of demanding applications, including asphalt paving, oil exploration and production, agrochemicals, adhesives, lubricants and printing inks. The company is also the leading global manufacturer of activated carbon used in gasoline vapor emission control systems in cars, trucks, motorcycles and boats, with over 750 million units installed globally.
Although newly independent, Ingevity, whose common stock will be listed on the New York Stock Exchange under the symbol “NGVT,” is an established, market-leading business which we have substantially grown over the last five years to approximately $1 billion in revenue.
Ingevity has delivered strong and sustained performance by focusing on specialty applications aligned with global trends in energy, infrastructure and the environment. As an independent company with a strong capital structure, we believe we can accelerate our growth while maintaining strong profitability.
We invite you to learn more about Ingevity by reviewing the enclosed information statement. We look forward to our future as an independent, publicly traded company and to your support as a holder of Ingevity common stock.
Best regards,
D. Michael Wilson
President and Chief Executive Officer
Ingevity Corporation

Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
Preliminary Information Statement
(Subject to Completion, Dated April 22, 2016)
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Information Statement
Distribution of Common Stock of
Ingevity CORPORATION
This information statement is being furnished in connection with the distribution by WestRock Company (“WestRock”) to its stockholders of all of the outstanding shares of common stock of Ingevity Corporation (“Ingevity”), a wholly owned subsidiary of WestRock that will hold directly or indirectly the assets and liabilities associated with WestRock’s specialty chemicals business. To implement the distribution, WestRock will distribute all of the shares of Ingevity common stock on a pro rata basis to WestRock stockholders in a manner that is intended to be tax-free for U.S. federal income tax purposes.
You will receive one share of Ingevity common stock for every six shares of WestRock common stock that you hold on May 4, 2016 the record date for the distribution. You will receive cash in lieu of any fractional shares of Ingevity common stock that you would have received after application of the above ratio. As discussed under “The Separation and Distribution — Trading Between the Record Date and Distribution Date,” if you sell your WestRock common shares in the “regular-way” market after the record date and before the distribution, you also will be selling your right to receive shares of Ingevity common stock in connection with the separation. Ingevity expects the shares of Ingevity common stock to be distributed by WestRock to you on May 15, 2016. We refer to the date of the distribution of the Ingevity common stock as the “distribution date.”
No vote or further action of WestRock stockholders is required in connection with the separation. We are not asking you for a proxy. WestRock stockholders will not be required to pay any consideration for the shares of Ingevity common stock they receive in the distribution, and they will not be required to surrender or exchange shares of their WestRock common stock or take any other action in connection with the distribution.
There is no current trading market for Ingevity common stock, although Ingevity expects that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution, and Ingevity expects “regular-way” trading of Ingevity common stock to begin on the first trading day following the completion of the distribution. Ingevity has applied to have its common stock authorized for listing on the New York Stock Exchange under the symbol “NGVT.”
In reviewing this information statement, you should carefully consider the matters described in the section entitled “Risk Factors” beginning on page 19 of this information statement.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of any of the securities of Ingevity or determined whether this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
The date of this information statement is [•], 2016.
This information statement was first made available to WestRock stockholders on or about [•], 2016.

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SUMMARY
This summary highlights selected information from this information statement relating to Ingevity, Ingevity’s separation from WestRock and the distribution of Ingevity common stock by WestRock to its stockholders. For a more complete understanding of our businesses and the separation and distribution, you should read this information statement carefully.
Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about Ingevity assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “Ingevity,” “we, “our,” “us” or the “company” refer to Ingevity Corporation, a Delaware corporation, and its combined subsidiaries. References to Ingevity’s historical business and operations refer to the business and operations of the specialty chemicals business of WestRock Company, or prior to the merger of MeadWestvaco Corporation and Rock-Tenn Company, which was completed on July 1, 2015, MeadWestvaco Corporation, that have been or will be transferred to Ingevity in connection with the separation and distribution.
Ingevity
Ingevity is a leading global manufacturer of specialty chemicals and high performance carbon materials. We provide innovative solutions to meet our customers’ unique and demanding requirements through proprietary formulated products. Our deep technical expertise and experience, flexible manufacturing, distinctive chemistry, global reach and focus on innovation and application development provide our customers with the ability to enhance their own products and competitive position in the markets they serve.
We participate in attractive, higher growth sectors of the global specialty chemicals industry. The broadly defined specialty chemicals industry is expected to experience a 3.6% compound annual growth rate (“CAGR”) from 2014 through 2019, according to IHS, Inc., a leading provider and analyst of industry information for, among other things, the chemicals industry (“IHS”). Ingevity seeks to target markets within that space that historically have outpaced the broader specialty chemicals market growth rate. Participation in these industry sectors require specialist knowledge and customization, resulting in more targeted, higher-margin products relative to more commoditized chemicals and basic materials.
The company’s specialty chemicals products serve as critical inputs used in a variety of high performance applications, including asphalt paving, oil exploration and production, agrochemicals, adhesives, lubricants and printing inks. The company is also the leading global manufacturer of activated carbon used in gasoline vapor emission control systems in cars, trucks, motorcycles and boats, with over 750 million units installed globally over the 30-year history of the business. Our products meet highly specialized, complex customer needs in the industries in which they are used. As customer applications become more demanding, Ingevity’s products become increasingly specialized and represent a critical component of our customers’ products, typically at a modest input cost relative to the customer’s overall product cost. This value creation — significant performance impact versus relatively low input cost — provides some measure of stability as customers may be reluctant to face the performance risk potentially associated with switching over to competitors’ offerings. Additionally, the quality and diversity of our product portfolio, and the flexibility of our manufacturing assets, gives us the capability to direct our resources towards their most profitable and attractive uses and geographies in response to changing markets.
We report in two business segments, Performance Chemicals and Performance Materials. Our Performance Chemicals segment primarily addresses applications in three product families: pavement technologies, oilfield technologies and industrial specialties. Our Performance Materials segment consists of our carbon technologies business which primarily produces automotive carbon products used in gasoline vapor emission control systems.
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The chart below illustrates our revenue by segment, product family, end use and sales by geography in 2015.
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Based on location of customer
Performance Chemicals
Ingevity’s Performance Chemicals segment develops, manufactures and sells a wide range of specialty chemicals primarily derived from co-products of the kraft pulping process. Products include performance chemicals derived from pine chemicals used in asphalt paving, adhesives, agrochemical dispersants, printing inks, lubricants, petroleum and other diverse industrial uses. The primary raw material used in our Performance Chemicals segment is crude tall oil, or “CTO”, a co-product of the kraft pulping process, where pine is used as the source of the pulp. The CTO is separated by distillation into tall oil rosin (“TOR”), tall oil fatty acid (“TOFA”) and other biofractions. As such products are further refined or chemically modified, higher value derivative products are created, making their way into a wide variety of industrial and consumer goods.
The company’s Performance Chemicals business serves customers globally from two manufacturing locations in the United States and a third in Brazil.
In 2015, our Performance Chemicals segment delivered sales of  $711 million and Segment EBITDA of $111 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Ingevity” for a reconciliation of Segment EBITDA to segment profit under U.S. generally accepted accounting principles (“GAAP”).
Performance Materials
We engineer, manufacture and sell wood-based, chemically activated carbon products, produced through a highly technical and proprietary process, primarily for use in gasoline vapor emission control
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systems in cars, trucks, motorcycles and boats. We have produced and sold activated carbon for over 100 years, including over 30 years for our automotive applications. We are the global leader in this automotive category, with over 750 million units installed globally since we entered this business. We also produce a number of other activated carbon products for the food, water, beverage and chemical purification industries, which maximizes the productivity of our manufacturing assets.
Our automotive carbon products capture gasoline vapor emissions that would otherwise be released into the atmosphere as volatile organic compounds (“VOCs”) which contain hazardous air pollutants and can photochemically react to form ozone and secondary organic aerosols which themselves lead to the formation of haze and particulate pollution. These gasoline vapor emissions (which are distinct from tailpipe emissions) are released primarily (i) during refueling, (ii) when a vehicle is parked during the daytime, as a result of the expansion of the fuel vapors in warmer daytime temperatures and (iii) as “running loss,” as a result of the expansion of vapors in the fuel tank from increased temperatures as a result of operation of the vehicle. The captured gasoline vapors are largely purged from the carbon and directed to the engine where they are used as supplemental power for the vehicle. In this way, the company’s automotive carbon products are part of a system that is both an environmental control and energy recovery application. We estimate that for 2015, the company’s products collectively prevented over 10,000 metric tons of VOC emissions each day and returned the equivalent of 3.7 million gallons of gasoline each day to supplementally power vehicles which would have otherwise been lost to the atmosphere.
We sell our automotive carbon products to over 60 customers around the globe. We are the trusted source of these products for many of the world’s largest automotive parts manufacturers, including Aisan Industry, Delphi Automotive, MAHLE, and many other large and small components manufacturers throughout the global supply chain. Our relationship with many of our customers and their customers — the vehicle manufacturers themselves (including every one of the top 15 global automotive manufacturers) — have been in place for most of our history in this application.
The company’s automotive carbon products are not a part of the automotive emissions systems that are the subject of the recent announcement by Volkswagen AG concerning the failure of certain of its diesel engine vehicles to meet certain clean air standards. The company’s carbon products capture the emission of fuel vapors from gasoline tanks, and have been in service reliably for decades. See “Core Strengths —  Unique Decades-Long Track Record of Automotive Carbon Products Meeting Emission Compliance Standards.” The Volkswagen emission systems at issue involve tailpipe emissions from their diesel vehicles, and are not at all related to capturing gasoline vapor emissions from fuel tanks.
In 2015, our Performance Materials segment provided sales of  $257 million and Segment EBITDA of $92 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Ingevity” for a reconciliation of Segment EBITDA to segment profit under U.S. GAAP.
Our Core Strengths
Ingevity is committed to continued value creation for its customers and stockholders by focusing on its core strengths:
Leading Global Market Positions
We are a leader in the global pine chemicals industry, further distinguished by our focus on target markets that offer the potential for profitable growth, supported by long-term secular growth trends in infrastructure preservation and development, growth in unconventional oil exploration and production and increasing global food production demands. Our products serve as critical inputs used in a variety of high performance applications, including asphalt paving, oil exploration and production, agrochemicals, lubricants and printing ink. The quality and diversity of our product portfolio, and the flexibility of our manufacturing assets, gives us the capability to direct our differentiated products towards their most profitable and attractive uses and geographies.
Ingevity is the leading global manufacturer of activated carbon used in gasoline vapor emission control systems in cars, trucks, motorcycles and boats, with over 750 million units installed globally over the 30-year history of our automotive carbon business. This business is expected to benefit from increasingly stringent
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vehicle emission standards worldwide that the company’s products are uniquely designed and qualified to meet. The annual global sales of light duty vehicles (i.e. passenger and light commercial vehicles) that are powered with gasoline are forecast to grow from approximately 71 million to approximately 91 million vehicles (+28%) from 2014 to 2025. Most of this growth is expected to occur outside of the United States and Canada in countries and regions where gasoline vapor emission standards significantly lag the modern, highly effective standards of the United States and Canada. This provides significant upside potential in addition to the already favorable macroeconomic growth trends of the global automotive industry.
Flexible Manufacturing Capabilities Optimize Asset Utilization
The quality and diversity of our product portfolio, and the flexibility of our manufacturing assets, gives us the capability to direct our resources to their most profitable uses and geographies.
The company’s Performance Chemical assets include multipurpose chemical reactors that are capable of manufacturing products of varying chemistries that can serve multiple markets. For example, in its South Carolina facility, the newest reactor that was brought into service in 2015 is capable of producing products for asphalt, oilfield and adhesives applications, while our Louisiana assets can be redirected with relative ease among various applications including asphalt, oilfield, adhesives and inks.
The company’s carbon facilities, which primarily produce automotive carbon, are also capable of producing a number of other activated carbon products for the food, water, beverage and chemical purification industries, maximizing the productivity of these assets.
Deep Technical Expertise and Product Innovation Capability and Experience
We have deep technical expertise and market knowledge and insights, derived from customer relationships and research and development capabilities, that enable our innovation capacity. Innovation efforts are led and supported by our teams of technical experts and industry veterans, many of whom are considered the foremost experts in their fields, spread throughout our organization in key positions from product development to manufacturing and sales. Each of our business units has its own development and application laboratories that work in partnership with our customers to refine existing products and develop new innovations that will drive value for Ingevity and our customers.
With our technical expertise and product innovation capability and experience, and by working closely with our customers, our technical experts can quickly offer application solutions that address our customers’ most difficult challenges. For example, when our road contractor customers vary the aggregate and/or asphalt to be used in a particular job mix, they call on our expertise to quickly reformulate the Ingevity additive chemistry needed for the revised mix, so that they can meet the original job specifications on time, regardless of the change. Our ability to swiftly understand and address our customers’ performance needs allows Ingevity to maintain and grow its relationships with its customer base.
Unique Decades-Long Track Record of Automotive Carbon Products Meeting Emission Compliance Standards
Current U.S. federal and California regulatory standards require that gasoline vapor control devices remain effective for the entire life of the vehicles on which installed. Ingevity has a substantial, decades-long track record of providing life-of-vehicle product performance in a properly designed gasoline vapor control system. Our unique capability to engineer a very specific nanoscale porosity into the carbons on a large commercial scale allows the system designers to minimize the system’s size based on our carbons’ ability to remain highly effective over the vehicle’s lifetime. Given the imperative for automotive manufacturers to produce vehicles capable of meeting these long-term requirements, or potentially face expensive recalls and unfavorable publicity, there is an increased risk to use other producers who do not have a comparable, proven history and technical capability, particularly given the significant costs associated with non-compliance should a competitor’s offering fail to maintain effectiveness over vehicle lifetimes.
Global Manufacturing and Supply Chain Reach
We have a global reach which allows us to effectively service multinational customers through a combination of our manufacturing facilities located in the United States, China and Brazil, and local talent
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strategically placed around the globe. In addition, our technology centers located in the United States, China, Europe and India give us the ability to service our customers throughout these regions, and provide us with market insights that allow us to develop customized solutions for local and regional markets. We serve customers in approximately 65 countries, with our global engineering, technical, sales and application knowledge teams. Our global reach enables us to more effectively serve — and be the business partner of choice to — multinational companies that look to partners who can meet their needs on a consistent basis wherever they do business.
This capability also allows us to take advantage of market trends. For example, our oilfield technology business has in the past been primarily focused on the North American market. Our global reach will allow us to pursue growth opportunities outside of the United States, particularly in the Middle East, which has not undergone as significant an output decline during the recent global slowdown in the oil and gas exploration industry.
Collaborative Customer and End User Relationships Drive Profitable Growth Opportunities
We take a partnership approach with our customers, investing resources to deeply understand their customers’ markets so that we can provide technologically advanced, tailored solutions that allow our customers to maintain a competitive advantage in the markets they serve. Our knowledge of our customers’ end markets provides us with insights that enable us to develop solutions that address opportunities or challenges and create value for our customers. For example, through our relationships with several automobile manufacturers (“OEMs”) (often, our customers’ customer), we learned that certain vehicles were having trouble passing emissions certification tests based on a small amount of VOCs migrating from the engine via the vehicles’ air intake systems. To address this issue, we developed several generations of activated carbon-based solutions (activated carbon honeycombs and engineered carbon sheets) that manage these emissions while minimizing pressure drop in the air intake system — a key performance advantage to the OEMs. This drove demand for our product by addressing the needs of our customers’ customer. We believe this approach — driving demand for our products by developing solutions for our customers’ end markets — has been and will continue to be a significant driver of profitable growth.
Education of Government and Regulatory Bodies on Scientifically Based Policies and Specifications
Many of our customers’ markets are subject to increasing regulatory standards and mandates, for example more stringent air quality standards in the case of automotive emissions or the use of recycled materials in the case of pavement technologies. With our technical expertise and experience, our teams are a valued resource and work directly with government and regulatory bodies, in support of our customers, as experts in their field to educate regulators about existing and innovative technologies that support their objectives or solve specific challenges. As the trend continues in mature and emerging markets towards more advanced solutions, we believe the ability to leverage our expertise to educate, advocate and promote sensible regulatory solutions will benefit our customers while driving incremental value within those markets. For example, Ingevity has globally recognized expertise in the highly specialized field of automotive gasoline vapor emissions. While tailpipe emissions on vehicles are well recognized, understood and regulated, gasoline vapor emissions from vehicles have been lightly regulated in many countries outside the United States and Canada. Our experts have educated authorities in other countries to help them understand and quantify the magnitude of these emissions and evaluate the highly effective solutions currently in use in the United States and Canada that can reduce these gasoline vapor emissions to “near zero” levels at a relatively low cost per vehicle.
Our work with regulators allows us then to work with our customers in order to help them respond and adapt to evolving and varying regulatory standards. For example, because of the stringent and differing regulatory compliance standards applicable to the global oilfield industry, our oilfield customers often turn to us over smaller, less sophisticated vendors in order to help them manage the complexities of compliance risk throughout the world.
Highly Engaged, Performance and Safety-driven Culture
We have assembled a highly talented, collaborative, committed and creative team which drives the success of our business. We believe in empowerment and accountability and encourage our employees to
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think boldly. Our collective ambition is keenly focused on creating value for today and tomorrow. Further, we are committed to protecting human health and the environment while using resources in a responsible and sustainable manner: as a long-standing member of the American Chemistry Council (ACC), we subscribe to the Guiding Principles of the American Chemistry Council’s Responsible Care® program — a global chemical industry performance initiative that is implemented in the United States through the ACC. Our ISO 9001, ISO/TS 16949 and Responsible Care® Certifications are internationally recognized measures of consistent superior performance and responsibility to health, safety, security and the environment. We believe this track record is something that differentiates us from our competitors in the eyes of many of our customers.
Long-term Secured Raw Material Supply
At the time of the separation, we intend to enter into a long-term supply agreement with WestRock pursuant to which we will purchase all of the CTO output from WestRock’s existing kraft mills, subject to certain exceptions. Beginning in 2025, either party may provide a notice to the other party terminating the agreement five years from the date of such notice. Beginning one year after such notice, the quantity of products provided by WestRock under the agreement will be gradually reduced over a four-year period based on the schedule set forth in the agreement. See “Certain Relationships and Related Person Transactions — Crude Tall Oil and Black Liquor Soap Skimmings Agreement.” This agreement will include pricing terms based upon market prices. Under this agreement, based on WestRock’s current output, we expect to initially source approximately 45% to 55% of our CTO requirements for the maximum operating rates of our North American facilities. The relationship with WestRock will be strategically important to our Performance Chemicals business due to the limited supply of CTO globally, of which we believe a significant portion is already under long-term supply agreements with other consumers of CTO. We believe this increment of supply, in conjunction with other contracted sources of CTO, will allow us to serve customer demand. See also “Risk Factors — Our Performance Chemicals segment is highly dependent on CTO which is limited in supply; lack of access to sufficient CTO would impact our ability to produce CTO-based products.”
Our Plans for Additional Growth
We have a demonstrated history of profitable growth. As an independent company, we believe we can accelerate our growth while maintaining our profitability. We intend to take the following steps as a newly independent public company:
Expand Sales to Existing Customers and into New Geographies
We believe we are well positioned to organically expand our sales through a combination of continued global sales growth, leveraging our significant application knowledge to apply our existing products to new applications and capitalizing on the investments we have made in our global sales, technical centers and distribution network. Our global reach allows us to effectively compete in new geographies, delivering proven innovative solutions where opportunities to apply our technologies exist. We continue to leverage our significant application knowledge and intimate customer relationships to target opportunities where we know our products perform, creating demand for our products by driving value for our customers.
We intend to continue to strengthen our position in emerging markets such as China, India and Brazil where we believe there are significant opportunities for growth. Opportunities include the expansion of sales of our asphalt products into areas increasingly in need of newly paved roads and increased sales of carbon technology solutions driven by anticipated regulatory expansion in the global automotive vapor emissions control market. As a result, we completed the construction of a new facility in China for the global automotive emissions control market during the fourth quarter of 2015 and have continued to invest in our Brazilian performance chemicals refinery. The total project spending on the global automotive facility in China was roughly $100 million.
Increase our Offering of Specialized, Higher Margin Products
We employ a world-class team of engineering, technical, sales and application specialists, along with experienced industry professionals, which provide us with deep technical knowledge and the ability to be a
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leading provider of specialty products in the markets we serve. We have the experience and capability to further develop and expand upon the products we currently produce, further differentiating them into higher value, increasingly specialized products, or developing new applications and end uses.
We have a history of success in such product development and differentiation. For example, our oilfield technologies business transitioned from providing basic TOFA to our customers to the development and marketing of specialized tall oil emulsifiers and corrosion inhibitors. We also grew our pavement technologies from asphalt chemicals into specialized additives used in ultra-thin paving technologies.
We believe that there is significant upside in further developing and expanding upon products produced from TOFA, displacing some of our lower margin business where we sell TOFA directly to certain customers. This will have the added benefit of improved insulation from the cyclical nature of the direct natural fats and oils market of which TOFA is a part. Over the next few years, our goal is to meaningfully increase the portion of our sales of specialized, higher value products derived from TOFA, including addressing new markets or opportunities to upgrade TOFA into product categories where we might not participate today.
Additionally, we search to supply the right chemistry for the applications within our market segments regardless of the raw materials required. Applying our unique insights into our end use applications, our team will search to find novel solutions outside of our current CTO-based materials to problems and work to create the supply chain needed to provide those products to our customers. As an example, we have developed, manufacture and sell product solutions in our asphalt business that are hydrocarbon based.
Innovate to Enable Our Customers to Adapt to Increasingly Stringent Regulatory Standards
We are a valued resource with government and regulatory agencies around the world, from California to China, including national, regional and local environmental regulatory bodies. We work directly with such bodies, in support of our customers, to help them develop sensible standards based on the availability of technological solutions that make such standards commercially achievable. As standards are adopted and become increasingly demanding, the products that can be used to achieve compliance with such standards become increasingly technologically complex to design and manufacture on a commercial level. The company’s ability to meet these complexities provides the company with a distinctive commercial edge — as our customers in many applications depend on us to help them meet their compliance standards. For example, when paving contractors were having difficulty meeting the Florida Department of Transportation’s initiative to use more recycled tire rubber, the pavement technologies group developed an innovative delivery system, and educated contractors on how to use it to achieve the desired environmental and performance benefits. We also work closely with automotive companies and their suppliers to ensure that they understand and can meet increasingly stringent vehicle emission standards.
Invest Organically and Selectively Pursue Acquisitions that Further Strengthen Our Product Portfolio
We plan to continue to invest capital organically in attractive cost reduction projects and in capacity expansions as necessary to meet demand growth.
In addition, we intend to pursue value-creating acquisitions that represent attractive opportunities in our target markets as well as in high-value niche applications which complement our current product portfolio and capabilities. Following the separation, we will continue seeking to add product lines and portfolios, as well as marketing and manufacturing alliances, that will play an important role in strengthening our leadership positions. We intend to pursue acquisitions both domestically and globally.
The Separation
Prior to the separation, we will operate as a reporting segment of WestRock, which was formed upon the combination (the “Merger”) of MeadWestvaco Corporation (“MWV”) and Rock-Tenn Company (“Rock-Tenn”). The Merger was completed on July 1, 2015.
Prior to the Merger, we operated as a reporting segment of MWV, which announced on January 8, 2015, that it intended to separate its specialty chemicals business through a pro rata distribution of common stock to its stockholders. Upon the completion of the Merger, WestRock announced its continued plans to complete the separation.
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On April 21, 2016, the WestRock board of directors approved the distribution of the issued and outstanding shares of Ingevity common stock on the basis of one share of Ingevity common stock for every six shares of WestRock held as of the close of business on the record date of May 4, 2016.
Reasons for the Separation
The WestRock board of directors believes that the separation of WestRock’s specialty chemicals business would be in the best interests of WestRock and its stockholders for a number of reasons, including the following:

Enhanced strategic and management focus.   The separation will allow Ingevity and WestRock to each more effectively pursue their distinct operating priorities and strategies and enable management of both companies to better focus on unique opportunities for long-term growth and profitability.

More efficient allocation of capital.   The separation will permit Ingevity and WestRock to each concentrate financial resources on its own operations, providing greater flexibility to invest capital in its businesses in a time and manner appropriate for its strategy and business needs and facilitate a more efficient allocation of capital.

Direct access to capital markets.   The separation will create an independent equity structure that will afford Ingevity direct access to the capital markets and will facilitate Ingevity’s ability to effect future acquisitions utilizing Ingevity’s common stock. As a result, each company will have more flexibility to capitalize on its unique growth opportunities and objectives.

Alignment of incentives with performance objectives.   The separation will facilitate incentive compensation arrangements for employees more directly tied to the performance of each of Ingevity’s and WestRock’s respective businesses, and enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.
Neither Ingevity nor WestRock can assure you that, following the separation, any of the benefits described above or otherwise will be realized to the extent anticipated or at all.
Risks Associated with Ingevity and the Separation
An investment in Ingevity common stock is subject to a number of risks, including risks related to Ingevity’s business, the separation and Ingevity common stock. Set forth below is a summary of some, but not all, of these risks. Please read the information in the section captioned “Risk Factors” for a more thorough description of these and other risks.
General Business and Economic Risks

We may be adversely affected by general global economic and financial conditions beyond our control.

We are exposed to risks inherent in 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 outside the United States require us to comply with a number of U.S. and foreign regulations, violations of which could have a material adverse effect on our financial condition and results of operations.
Risks Related to Ingevity’s Business

We are dependent on attracting and retaining key personnel.

Adverse conditions in the automotive market may adversely affect demand for our automotive carbon products.
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If increasingly more stringent air quality standards worldwide are not adopted, our growth could be impacted.

The company’s printing inks business serves customers in a market that is facing declining volumes.

The company’s pavement technologies business is heavily dependent on government infrastructure spending.

The company’s oilfield technologies business is significantly affected by trends in oil and natural gas prices that affect the level of exploration, development and production activity.

If we are unable to adequately protect our intellectual property, we may lose significant competitive advantages.

Our Performance Chemicals segment is highly dependent on CTO which is limited in supply; lack of access to sufficient CTO would impact our ability to produce CTO-based products.

A prolonged period of low energy prices may materially impact our results of operations.

We face competition from producers of substitute products.

We are dependent upon third parties for the provision of certain critical operating services at several of our facilities.
Risks Related to the Separation

The combined post-separation value of WestRock and Ingevity shares may not equal or exceed the pre-separation value of WestRock common shares.

Ingevity has no history of operating as an independent company, and Ingevity’s historical and pro forma financial information is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results.

There could be significant liability if the distribution is determined to be a taxable transaction.

Ingevity may not be able to engage in certain corporate actions after the separation.

Until the separation occurs, the terms of the separation and distribution agreement and other transaction agreements may be changed in ways which may be unfavorable to Ingevity.

Ingevity may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect Ingevity’s business.

Ingevity will be dependent upon WestRock for the performance of obligations under various critical agreements that will be executed as part of the separation.

Challenges in the commercial and credit environments may materially adversely affect Ingevity’s ability to complete the separation and Ingevity’s future access to capital.

Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the distribution.
Risks Related to Ingevity’s Common Stock

Ingevity cannot be certain that an active trading market for its common stock will develop or be sustained after the separation, and following the separation, Ingevity’s stock price may fluctuate significantly.

We cannot guarantee the timing, amount or payment of any dividend on our common stock in the future.

Your percentage of ownership in Ingevity may be diluted in the future.
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Certain provisions in Ingevity’s amended and restated certificate of incorporation and amended and restated bylaws, and of Delaware law, may prevent or delay an acquisition of Ingevity, which could decrease the trading price of Ingevity’s common stock.
Corporate Information
Ingevity’s business originated as part of the operations of its initial parent company, Westvaco Corporation, a paper and packaging company, using co-products of the kraft pulping process, primarily CTO and lignin, as well as hardwood sawdust. Ingevity has operated as a division of Westvaco Corporation and its corporate successors, including MeadWestvaco Corporation and WestRock Company, since 1964.
Ingevity Corporation was incorporated in Delaware on March 27, 2015. The address of Ingevity’s principal executive offices is 5255 Virginia Avenue, North Charleston, South Carolina 29406. Ingevity’s telephone number after the distribution will be (843) 740-2300. Ingevity maintains an Internet site at www.ingevity.com. Ingevity’s website and the information contained in or connected to the website will not be deemed to be incorporated in this document, and you should not rely on any such information in making an investment decision.
This information statement is being furnished solely to provide information to stockholders of WestRock who will receive shares of Ingevity common stock in the distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of Ingevity’s securities. The information contained in this information statement is believed by Ingevity to be accurate as of the date set forth on the cover of this information statement. Changes may occur after that date, and neither WestRock nor Ingevity will update the information except in the normal course of their respective disclosure obligations and practices, or as required by applicable law.
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QUESTIONS AND ANSWERS ABOUT THE SEPARATION
What is the separation?
WestRock will complete the separation by distributing to its stockholders all of the shares of Ingevity common stock. Following the distribution, Ingevity will be a separate company from WestRock and WestRock will not retain any ownership interest in Ingevity.
What is Ingevity?
Ingevity is a wholly-owned direct subsidiary of WestRock whose shares will be distributed to WestRock stockholders if we complete the separation. After the distribution, Ingevity will be a separate, independent public company and will continue as a leading global manufacturer of specialty chemicals and high-performance carbon materials.
What will I receive in the distribution?
As a holder of WestRock common stock, you will retain your shares of WestRock common stock and will receive one share of Ingevity common stock for every six shares of WestRock common stock you own as of the record date. The number of shares of WestRock common stock you own and your proportionate interest in WestRock will not change as a result of the separation. For a more detailed description, see “The Separation.”
Will Ingevity issue fractional shares of its common stock in the distribution?
No. Ingevity will not issue fractional shares of its common stock in the distribution. Fractional shares that WestRock stockholders would otherwise have been entitled to receive will be aggregated and sold in the public market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise be entitled to receive) to those stockholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.
How will the separation affect equity awards held by WestRock employees?
Each WestRock equity-based incentive award held by Ingevity employees will remain a WestRock equity incentive award following the separation, with adjustments made to the number of shares covered and (if applicable) the per share exercise price of the award to maintain its intrinsic value. Unvested WestRock equity-based incentive awards held by our employees will vest to the extent provided in the employee matters agreement between WestRock and Ingevity. We are responsible for reimbursing WestRock for the cost of WestRock equity-based incentive awards held by our employees.
When is the record date for the distribution?
The record date for the distribution is May 4, 2016.
   
   
When will the distribution occur?
We expect the distribution of our common stock to occur on May 15, 2016, to holders of record of WestRock common stock at the close of business on the record date.
What are the reasons for and the benefits of separating Ingevity from WestRock?
WestRock believes that a separation will provide various benefits to both WestRock and Ingevity, including by (1) allowing Ingevity and WestRock to each more effectively pursue their distinct operating priorities and strategies and enable management of both companies to better focus on unique opportunities for
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long-term growth and profitability; (2) permitting Ingevity and WestRock to each concentrate financial resources on its own operations, providing greater flexibility to invest capital in its businesses in a time and manner appropriate for its strategy and business needs and facilitate a more efficient allocation of capital; (3) creating an independent equity structure that will afford Ingevity direct access to the capital markets and will facilitate Ingevity’s ability to effect future acquisitions utilizing Ingevity’s common stock; and (4) facilitating incentive compensation arrangements for employees more directly tied to the performance of each of Ingevity’s and WestRock’s respective businesses, and enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.
For a more detailed discussion of the reasons for the separation, see “The Separation — Reasons for the Separation” beginning on page 36.
What are the risks associated with the separation?
There are a number of risks associated with the separation and ownership of Ingevity common stock. The risks are discussed under “Risk Factors” beginning on page 19.
What do stockholders need to do to participate in the distribution?
WestRock stockholders of record on the record date will not be required to take any action to receive Ingevity common stock in the distribution, but you are nevertheless urged to read this entire information statement carefully. No stockholder approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of WestRock common stock or take any other action to receive your Ingevity common stock. Please do not send in your WestRock common stock certificates. The distribution will not affect the number of outstanding shares of WestRock common stock or any rights of WestRock stockholders, although it will affect the market value of each outstanding share of WestRock common stock.
How will shares of Ingevity common stock be issued?
You will receive shares of Ingevity common stock through the same channels that you currently use to hold or trade shares of WestRock common stock, whether through a brokerage account, 401(k) plan or other channel. Receipt of Ingevity common stock will be documented for you in the same manner that you typically receive stockholder updates, such as monthly broker statements and 401(k) statements.
If you own shares of WestRock common stock as of the close of business on May 4, 2016, the record date for the distribution, including any shares owned in certificate form, WestRock, with the assistance of Wells Fargo Shareowner Services (“WFSS”), the distribution agent, will electronically distribute shares of Ingevity common stock to you or your brokerage firm on your behalf in book-entry form. WFSS will mail you a book-entry account statement that reflects your shares of Ingevity common stock, or your bank or brokerage firm will credit your account for the shares.
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What are the conditions to the distribution?
The distribution is subject to the satisfaction (or waiver by WestRock in its sole discretion) of the following conditions:

the transfer of assets and liabilities from WestRock to Ingevity shall have been completed in accordance with the separation and distribution agreement;

(i) the private letter ruling that WestRock received from the Internal Revenue Service (“IRS”) regarding certain U.S. federal income tax matters relating to the separation, distribution and certain related transactions, shall not have been modified or revoked; and (ii) WestRock shall have received opinions from its outside tax advisors to the effect that the distribution, together with certain related transactions, will be generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code (the “Code”);

the SEC shall have declared effective Ingevity’s registration statement on Form 10, of which this information statement forms a part, and this information statement in its final form shall have been made available to the WestRock stockholders;

all actions and filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities laws shall have been taken and, where applicable, have become effective or been accepted by the applicable governmental authority;

the transaction agreements relating to the separation shall have been duly executed and delivered by the parties;

no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, distribution or any of the related transactions shall be in effect; and

the shares of Ingevity common stock to be distributed shall have been accepted for listing on the New York Stock Exchange (“NYSE”) subject to official notice of distribution.
WestRock and Ingevity cannot assure you that any or all of these conditions will be met. In addition, WestRock can decline at any time to go forward with the separation. For a further discussion of the conditions to the distribution, see “The Separation — Conditions to the Distribution.”
Can WestRock decide to cancel the distribution of Ingevity common stock even if all the conditions have been met?
Yes. Until the distribution has occurred, WestRock has the right to terminate the distribution, even if all of the conditions are satisfied.
   
   
What if I want to sell my WestRock common stock or my Ingevity common stock?
You should consult with your financial advisors, such as your stockbroker, bank and/or tax advisor. The distribution will not result in any additional restrictions on either WestRock stock or, following the distribution and upon the commencement of trading, Ingevity stock.
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What is “regular-way” and “ex-distribution” trading of WestRock stock?
Beginning on or shortly before the record date and continuing up to and through the distribution date, it is expected that there will be two markets in WestRock common stock: a “regular-way” market and an “ex-distribution” market. Shares of WestRock common stock that trade in the “regular-way” market will trade with an entitlement to shares of Ingevity common stock distributed pursuant to the distribution. Shares that trade in the “ex-distribution” market will trade without an entitlement to shares of Ingevity common stock distributed pursuant to the distribution.
If you decide to sell any WestRock common stock before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your WestRock common stock with or without your entitlement to Ingevity common stock pursuant to the distribution.
Where will I be able to trade shares of Ingevity common stock?
Ingevity has applied to list its common stock on the NYSE under the symbol “NGVT.” Ingevity anticipates that trading in shares of its common stock will begin on a “when-issued” basis on or shortly before the record date and will continue up to and through the distribution date and that “regular-way” trading in Ingevity common stock will begin on the first trading day following the completion of the distribution. If trading begins on a “when-issued” basis, you may purchase or sell Ingevity common stock up to and through the distribution date, but your transaction will not settle until after the distribution date. Ingevity cannot predict the trading prices for its common stock before, on or after the distribution date.
What will happen to the listing of WestRock common shares?
Shares of WestRock common stock will continue to trade on the NYSE after the distribution, and the separation will have no effect on such listing.
Will the number of shares of WestRock common stock that I own change as a result of the distribution?
No. The number of shares of WestRock common stock that you own will not change as a result of the distribution.
   
   
   
Will the distribution affect the market price of my WestRock common stock?
Yes. As a result of the distribution, WestRock expects the trading price of WestRock common stock immediately following the distribution to be lower than the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the specialty chemicals business. WestRock believes that over time following the separation, assuming the same market conditions and the realization of the expected benefits of the separation, WestRock common stock and Ingevity common stock should have a higher aggregate market value as compared to what the market value of WestRock common stock would be if the separation did not occur. There can be no assurance, however, that such a higher aggregate market value will be achieved. This means, for example, that the combined trading prices of one share of WestRock
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common stock and one-sixth share of Ingevity common stock after the distribution may be equal to, greater than or less than the trading price of one share of WestRock common stock before the distribution.
What are the material U.S. federal income tax consequences of the separation?
Conditions to the completion of the separation include that (i) the private letter ruling that WestRock received from the IRS regarding certain U.S. federal income tax matters relating to the separation, distribution and related transactions, shall not have been modified or revoked, and (ii) WestRock shall have received opinions from its tax advisors regarding treatment of the distribution, together with certain related transactions, under Sections 355 and 368(a)(1)(D) of the Code. Assuming that the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free under Sections 355 and 368(a)(1)(D) of the Code, then for U.S. federal income tax purposes, (i) you will not recognize any gain or loss, and no amount will be included in your income, upon your receipt of shares of Ingevity common stock pursuant to the distribution, and (ii) immediately after the distribution, the aggregate tax basis of your WestRock common stock and the Ingevity common stock that you will receive in the distribution (including fractional shares for which cash is received) will equal the aggregate basis of your WestRock common stock immediately before the distribution, allocated between the WestRock common stock and the Ingevity common stock (including fractional shares for which cash is received) in proportion to the relative fair market value of each on the distribution date. You will recognize gain or loss (if any) for U.S. federal income tax purposes with respect to cash received in lieu of fractional shares.
You should consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local tax laws, as well as foreign tax laws, which may result in the distribution being taxable to you. For more information regarding the tax opinion and certain U.S. federal income tax consequences of the separation, see the section entitled “Certain Material U.S. Federal Income Tax Consequences of the Distribution.”
What will Ingevity’s relationship be with WestRock following the separation?
Ingevity will enter into a separation and distribution agreement with WestRock to effect the separation and provide a framework for Ingevity’s relationship with WestRock after the separation and will enter into certain other agreements, such as a transition services agreement, intellectual property agreement, a tax matters agreement and an employee matters agreement. These agreements will provide for the separation between Ingevity and WestRock of the assets, employees, liabilities and obligations (including investments, property and employee benefits and tax-related assets and liabilities) of WestRock and its subsidiaries attributable to periods prior to, at and after Ingevity’s separation from WestRock and will govern the relationship between Ingevity and WestRock subsequent to the completion of the separation. We also intend to enter into (1) a long-term supply agreement with WestRock for the purchase and sale of CTO, (2) a long-term lease agreement pursuant to which Ingevity will lease the ground
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underlying the Covington carbon facility from WestRock on an arm’s-length basis and (3) a separate agreement coordinating facility services at the Covington carbon facility. For additional information regarding these agreements, see the sections entitled “Risk Factors — Risks Related to the Separation” and “Certain Relationships and Related Person Transactions.”
Who will manage Ingevity after the separation?
Ingevity’s management team will include a new Chief Executive Officer and Chief Financial Officer, as well as experienced former members of WestRock’s specialty chemicals division management team who have a detailed understanding of Ingevity’s industry, assets and customers. For more information regarding Ingevity’s management, see “Management.”
Are there risks associated with owning Ingevity common stock?
Yes. Ownership of Ingevity common stock is subject to both general and specific risks related to Ingevity’s business, the industry in which it operates, its ongoing contractual relationships with WestRock and its status as a separate, publicly traded company. Ownership of Ingevity common stock is also subject to risks related to the separation. These risks are described in the “Risk Factors” section of this information statement beginning on page 19.
Who will be the distribution agent, transfer agent and registrar for the Ingevity common stock?
The distribution agent, transfer agent and registrar for Ingevity common stock will be Wells Fargo Shareowner Services. For questions relating to the transfer or mechanics of the distribution, you should contact:
Wells Fargo Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
800-468-9716
651-450-4064 (Outside the United States)
www.shareowneronline.com
Where can I find more information about WestRock and Ingevity?
Before the distribution, WestRock stockholders who have questions relating to WestRock should contact:
WestRock
Investor Relations
504 Thrasher Street
Norcross, Georgia 30071
Tel: (678) 291-7901
www.WestRock.com/investor
After the distribution, Ingevity stockholders who have questions relating to Ingevity should contact:
Ingevity
Investor Relations
5255 Virginia Avenue
North Charleston, South Carolina 29406
Tel: (843) 740-2126
http://www.ingevity.com/investor
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary sets forth certain historical financial information of the specialty chemicals business of WestRock. The summary financial information as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013 is derived from the audited combined financial statements that begin on page F-1 in this information statement.
The combined financial statements as of December 31, 2015, 2014 and 2013 and for the years ended 2015, 2014 and 2013 were audited by an independent registered public accounting firm. The historical financial information below should be read in conjunction with the combined financial statements and related notes that are included in this information statement on pages noted above. The historical results do not necessarily indicate the results expected for any future period.
The unaudited pro forma combined statements of operations for the fiscal year ended December 31, 2015 give effect to the distribution as if it had occurred on January 1, the first day of fiscal year 2015. The unaudited pro forma combined balance sheet as of December 31, 2015 gives effect to the distribution as if it had occurred on December 31, 2015. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information and Ingevity believes such assumptions are reasonable under the circumstances.
The unaudited pro forma condensed combined financial statements are not necessarily indicative of Ingevity’s results of operations or financial condition had the distribution and its anticipated post-separation capital structure been completed on the dates assumed. Also, they may not reflect the results of operations or financial condition that would have resulted had Ingevity been operating as an independent, publicly traded company during such periods. In addition, they are not necessarily indicative of its future results of operations or financial condition.
You should read this summary financial data together with “Unaudited Pro Forma Combined Financial Statements,” “Capitalization,” “Selected Historical Combined Financial Information of Ingevity,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical combined financial statements and accompanying notes included in this information statement.
Years ended December 31,
In millions
Pro Forma
2015
2015
2014
2013
Statement of Operations Data:
Net sales
$ 968 $ 968 $ 1,041 $ 980
Cost of sales
690 687 718 685
Gross profit
278 281 323 295
Selling, general, and administrative expenses
121 114 112 103
Research and development(a)
7 7 8 11
Income before income taxes
147 138 203 184
Net income
94 85 133 118
Net income attributable to the company
89 80 129 119
Earnings per share:
Basic
$ 2.68
Diluted
$ 2.67
Balance Sheet Data (at period end):
Cash and cash equivalents
$ 15 $ 32 $ 20 $ 12
Property, plant and equipment, net
438 438 410 326
Total assets
850 782 718 593
Long-term debt due after one year
581 80 86 86
Total equity
63 522 420 328
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Years ended December 31,
In millions
2015
2014
2013
Cash Flow Data:
Cash provided by operating activities
73 143 137
Cash used in investing activities
(90) (102) (64)
Other Data:
Capital expenditures
102 101 63
Depreciation and amortization expense
35 33 33
Combined Adjusted EBITDA(b)
203 247 227
(a)
Research and development expenses are included within selling, general, and administrative expenses.
(b)
Non-GAAP Financial Measures:
Ingevity has presented certain financial measures, defined below, which have not been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and has provided a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable financial measure calculated in accordance with GAAP. The company believes these non-GAAP measures provide investors, potential investors, securities analysts and others with useful information to evaluate the performance of the business, because such measures, when viewed together with our financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance and projected future results.
Ingevity uses the following non-GAAP measure: Combined Adjusted EBITDA. Combined Adjusted EBITDA is defined as net income plus provision for income taxes, interest expense, depreciation and amortization, separation costs and restructuring and other (income) charges. 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 this non-GAAP measure, including the potential lack of comparability of this measure from one company to another.
Below is a reconciliation of Combined Adjusted EBITDA to net income:
Year Ended December 31,
In millions
2015
2014
2013
Net income
$ 85 $ 133 $ 118
Income tax provision
53 70 66
Interest expense
21 16 13
Depreciation and amortization
35 33 33
Separation costs
$ 17 $ $
Restructuring and other (income) charges, net
(8) (5) (3)
Combined Adjusted EBITDA
$ 203 $ 247 $ 227
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RISK FACTORS
You should carefully consider each of the following risk factors and all of the other information set forth in this information statement. The risk factors generally have been separated into four groups: (1) general business and economic risks, (2) risks relating to our business, (3) risks relating to the separation and (4) risks relating to our common stock. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting our company in each of these categories of risks. However, the risks and uncertainties our company faces are not limited to those set forth in the risk factors described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. In addition, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
If any of the following risks and uncertainties develops into actual events, these events could have a material adverse effect on our business, financial condition or results of operations. In such case, the trading price of our common stock could decline.
General Business and Economic Risks
We may be adversely affected by general global economic and financial conditions beyond our control.
Our businesses may be affected by a number of factors that are beyond our control such as general economic and business conditions, changes in tax laws or tax rates and conditions in the financial services markets including counterparty risk, insurance carrier risk, rising interest rates, inflation, deflation, fluctuations in the value of local currency versus the U.S. dollar or the impact of a stronger U.S. dollar may negatively impact our ability to compete. Macro-economic challenges, including conditions in financial and capital markets and levels of unemployment, and the ability of the United States and other countries to deal with their rising debt levels may continue to put pressure on the economy or lead to changes in tax laws or tax rates. There can be no assurance that changes in tax laws or tax rates will not have a material impact on our future cash taxes, effective tax rate or deferred tax assets and liabilities. Adverse developments in global or regional economies could drive an increase or decrease in the demand for our products that could increase or decrease our revenues, increase or decrease our manufacturing costs and ultimately increase or decrease our results of operations, financial condition and cash flows. As a result of negative changes in the economy, customers, vendors or counterparties may experience significant cash flow problems or cause consumers of our products to postpone or refrain from spending in response to adverse economic events or conditions. If customers are not successful in generating sufficient revenue or cash flows or are precluded from securing financing, they may not be able to pay or may delay payment of accounts receivable that are owed to us or we may experience lower sales volumes. Our financial condition and results of operations could be materially and adversely affected by any of the foregoing.
We are exposed to the risks inherent in international sales and operations.
In 2015, export sales from the United States made up approximately one third of our total sales, and we sell our products to customers in approximately 65 countries. We have exposure to risks of operating in many foreign countries, including:

fluctuations in foreign currency exchange rates, including the Euro, Japanese Yen, Chinese Renminbi and Brazilian Real;

restrictions on, or difficulties and costs associated with, the repatriation of cash from foreign countries to the United States;

difficulties and costs associated with complying with a wide variety of complex laws, treaties and regulations;

unexpected changes in political or regulatory environments;

earnings and cash flows that may be subject to tax withholding requirements or the imposition of tariffs, exchange controls or other restrictions;
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political and economic instability;

import and export restrictions and other trade barriers;

difficulties in maintaining overseas subsidiaries and international operations;

difficulties in obtaining approval for significant transactions;

government limitations on foreign ownership;

government takeover or nationalization of business; and

government mandated price controls.
Any one or more of the above factors could adversely affect our international operations and could significantly affect our financial condition and results of operations. We have also expanded our participation in certain markets, including China and Brazil. As our international operations and activities expand, we inevitably have greater exposure to the risks of operating in many foreign countries.
Our reported results could be adversely affected by currency exchange rates and currency devaluation could impair our competitiveness.
Due to our international operations, we transact in many foreign currencies, including but not limited to the Euro, Japanese Yen, Chinese Renminbi and Brazilian Real. As a result, we are subject to the effects of changes in foreign currency exchange rates. During times of a strengthening U.S. dollar, our reported net revenues and operating income will be reduced because the local currency will be translated into fewer U.S. dollars. During periods of local economic crisis, local currencies may be devalued significantly against the U.S. dollar, potentially reducing our margin. For example, during the year ended December 31, 2015, unfavorable foreign exchange rate movements impacted net sales, translated into U.S. dollars, by $31 million or 3% of sales compared to the year ended December 31, 2014. Ingevity may enter forward exchange contracts and other financial contracts in an attempt to mitigate the impact of currency rate fluctuations. However, there can be no assurance that such actions will eliminate any adverse impact from variation in currency rates. Also, actions to recover margins may result in lower volume and a weaker competitive position, which may have an adverse effect on our profitability.
Our operations outside the United States require us to comply with a number of U.S. and foreign regulations, violations of which could have a material adverse effect on our financial condition and results of operations.
Our operations outside the United States require us to comply with a number of U.S. and international regulations. For example, our operations in countries outside the United States are subject to the United States Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies and their agents and employees from providing anything of value to a foreign official for the purposes of influencing any act or decision of these individuals in their official capacity to help obtain or retain business, direct business to any person or corporate entity, or obtain any unfair advantage. Our activities may create the risk of unauthorized payments or offers of payments by our employees, agents or joint venture partners that could be in violation of anti-corruption laws, even though these parties are not subject to our control. We have internal control policies and procedures and training and compliance programs for our employees and agents with respect to the FCPA. However, we cannot assure that our policies, procedures and programs always will protect us from reckless or criminal acts committed by our employees or agents. Allegations of violations of applicable anti-corruption laws may result in internal, independent or government investigations. Violations of anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our financial condition and results of operations.
In addition, the shipment of goods, services and technology across international borders subjects us to extensive trade laws and regulations. Our import activities are governed by the unique customs laws and regulations in each of the countries where we operate. Moreover, many countries, including the United States, control the export and re-export of certain goods, services and technology and impose related export
20

recordkeeping and reporting obligations. Governments may also impose economic sanctions against certain countries, persons and entities that may restrict or prohibit transactions involving such countries, persons and entities, which may limit or prevent our conduct of business in certain jurisdictions.
The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. These laws and regulations can cause delays in shipments and unscheduled operational downtime. Moreover, any failure to comply with applicable legal and regulatory trading obligations could result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from governmental contracts, seizure of shipments and loss of import and export privileges. In addition, investigations by governmental authorities as well as legal, social, economic and political issues in these countries could have a material adverse effect on our business, results of operations and financial condition. We are also subject to the risks that our employees, joint venture partners and agents outside of the United States may fail to comply with other applicable laws.
Risks Related to Ingevity’s Business
We are dependent on attracting and retaining key personnel.
The company is dependent upon its senior management, as well as upon engineering, technical, sales and application specialists, together with experienced industry professionals. Our success depends, in part, on our ability to attract, retain and motivate these key performers. Our failure to attract and retain those making significant contributions could adversely affect our financial condition and results of operations.
Adverse conditions in the automotive market may adversely affect demand for our automotive carbon products.
Sales of our automotive carbon product are tied to global automobile production levels. Automotive production in the markets we serve can be affected by macro-economic factors such as interest rates, fuel prices, consumer confidence, employment trends, regulatory and legislative oversight requirements and trade agreements. For example, the global economic downturn in 2008/2009 led to drastic reduction in vehicle sales and even greater reduction in vehicle production as OEMs right-sized their inventories to meet the lower sales volumes. Regional disruptions such as caused by the Japan earthquake and resulting tsunami in March 2011 and Hurricane Sandy in October 2012 can also significantly impact vehicles production and therefore demand for our automotive carbon.
In addition, growth in alternative vehicles, such as all-electric vehicles and hydrogen fuel cell vehicles, which lessen the use of gasoline, may also adversely affect the demand for our products.
If increasingly more stringent air quality standards worldwide are not adopted, our growth could be impacted.
Environmental standards drive the implementation of gasoline vapor emission control systems by automotive manufacturers. Given increasing societal concern over global warming and health hazards associated with poor air quality, there is growing pressure on regulators across the globe to take meaningful action. For those countries that have not significantly regulated gasoline vapor emissions, enacting more stringent regulations governing gasoline vapor emissions represents a significant upside to the company’s automotive carbon business. However, regulators may react to a variety of considerations, including economic and political, that may mean that any such more stringent regulations are delayed or shelved entirely, in one or more countries or regions. As the adoption of more stringent regulations governing gasoline vapor emissions is expected to drive significant growth in our automotive carbon business, the failure to enact such regulations will have a significant impact on the growth prospects of that business.
The company’s printing inks business serves customers in a market that is facing declining volumes.
In recent years, the use of inks in which our printing ink resins are used, such as those made for magazines and catalogues, has significantly decreased, as the printing industry has experienced a reduction in demand due to various factors including the great recession of 2008 and 2009, which severely impacted volumes, and competition from alternative sources of communication, including email, the Web, electronic readers, interactive television and electronic retailing. The impacts of these changes have led to continued intense competition and downward pricing pressures on printing inks, and therefore, our ink products.
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The company’s pavement technologies business is heavily dependent on government infrastructure spending.
A significant portion of our customer’s revenues in our pavement technologies business is derived from contracts with various foreign and U.S. governmental agencies, and therefore, when government spending is reduced, our customers’ need for our products is similarly reduced. While we do not do business directly with governmental agencies, our customers provide paving services to, for example, the governments of various jurisdictions within Europe, China, Brazil and India, and we anticipate that revenue either directly or indirectly attributable to such government spending will continue to remain a significant portion of our revenues. Government business is, in general, subject to special risks and challenges, including: delays in funding and uncertainty regarding the allocation of funds to federal, state and local agencies, delays in the expenditures and delays or reductions in other state and local funding dedicated for transportation projects; other government budgetary constraints, cutbacks, delays or reallocation of government funding; long purchase cycles or approval processes; our customers’ competitive bidding and qualification requirements; changes in government policies and political agendas; and international conflicts or other military operations that could cause the temporary or permanent diversion of government funding from transportation or other infrastructure projects.
The company’s oilfield technologies business is significantly affected by trends in oil and natural gas prices that affect the level of exploration, development and production activity.
Demand for our oilfield technologies services and products is particularly sensitive to the level of exploration, development and production activity of, and the corresponding capital spending by, oil and natural gas companies, including national oil companies. The level of exploration, development and production activity is directly affected by trends in oil and natural gas prices, which historically have been volatile. Crude oil prices have declined significantly since 2014, with West Texas Intermediate (WTI) oil spot prices declining from a high of  $108 per barrel in June 2014 to a low of  $27 per barrel in January 2016, a level which has not been experienced since 2003, and pricing is not forecasted to improve significantly during 2016. Any prolonged low pricing environment for oil and natural gas is likely to result in reduced demand for our oilfield technology products, which may have a material adverse effect on our results of operations.
In order to compete successfully, we must develop new products and technologies meeting evolving market and customer needs; disruptive technologies could reduce the demand for the company’s products.
Our industries and the end-use markets into which we sell our products experience periodic technological change and product improvement. Our future growth will depend on our ability to gauge the direction of commercial and technological progress in key end-use markets and on our ability to fund and successfully develop, manufacture and market products in such changing end-use markets. If we fail to keep pace with the evolving technological innovations in our end-use markets on a competitive basis, including with respect to innovation with regard to the development of alternative uses for, or application of, products developed that utilize such end-use products, our financial condition and results of operations could be adversely affected. Similarly, we face competition in our applications. Disruptive technology involving new or superior solutions could reduce the demand for the company’s products.
If we are unable to adequately protect our intellectual property, we may lose significant competitive advantages.
Intellectual property rights, including patents, trade secrets, confidential information, trademarks, trade names and trade dress, are important to our business. We will endeavor to protect our intellectual property rights in key jurisdictions in which our products are produced or used, in jurisdictions into which our products are imported, and in jurisdictions where our competitors have significant manufacturing capabilities. Our success will depend to a significant degree upon our ability to protect and preserve our intellectual property rights. However, we may be unable to obtain or maintain protection for our intellectual property in key jurisdictions. Although we own and have applied for numerous patents and trademarks throughout the world, we may have to rely on judicial enforcement of our patents and other proprietary rights. Our patents and other intellectual property rights may be challenged, invalidated, circumvented and rendered unenforceable or otherwise compromised. A failure to protect, defend or enforce our intellectual property could have an adverse effect on our financial condition and results of operations. Similarly, third
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parties may assert claims against us and our customers and distributors alleging our products infringe upon third party intellectual property rights.
We also rely materially upon unpatented proprietary technology, know-how and other trade secrets to maintain our competitive position. While we maintain policies to enter into confidentiality agreements with our employees and third parties to protect our proprietary expertise and other trade secrets, these agreements may not be enforceable or, even if legally enforceable, we may not have adequate remedies for breaches of such agreements. We also may not be able to readily detect breaches of such agreements. The failure of our patents or confidentiality agreements to protect our proprietary technology, know-how or trade secrets could result in significantly lower revenues, reduced profit margins or loss of market share.
If we must take legal action to protect, defend or enforce our intellectual property rights, any suits or proceedings could result in significant costs and diversion of our resources and our management’s attention, and we may not prevail in any such suits or proceedings. A failure to protect, defend or enforce our intellectual property rights could have an adverse effect on our results of operations.
Our Performance Chemicals segment is highly dependent on CTO which is limited in supply; lack of access to sufficient CTO would impact our ability to produce CTO-based products.
The availability of CTO is essential to the company’s Performance Chemicals segment. Availability of CTO is directly linked to the production output of kraft mills using pine as their source of pulp. As a result, there is a finite global supply of CTO — with global demand for kraft board driving the global supply of CTO, rather than demand for CTO itself. Most of the CTO made available for sale by its producers in North America is covered by long-term supply agreements, further constraining availability.
At the time of the separation, we intend to enter into a long-term supply agreement with WestRock pursuant to which we will purchase all of the CTO output from WestRock’s existing kraft mills, subject to certain exceptions. See “Certain Relationships and Related Person Transactions — Crude Tall Oil and Black Liquor Soap Skimmings Agreement.” This agreement will include pricing terms based on market prices. Under this agreement, based on WestRock’s current output, we expect to initially source approximately 45% to 55% of our CTO requirements for the maximum operating rates of our North American facilities. We also have agreements with other suppliers to satisfy substantially all of the balance of our expected requirements of CTO for 2016, all as described more specifically under “Business — Raw Materials and Energy.”
Pricing for the products in our agreement with WestRock will be based on the prevailing market prices of products at the time of purchase. The pricing formulas are subject to certain pricing floors as set forth in the agreement. Given the take-or-pay requirements of the agreement, in adverse market conditions we could be required to purchase CTO from WestRock at prices where our results of operations could be materially and adversely affected.
If any of our suppliers (including WestRock) fail to meet their respective obligations under our supply agreements or we are otherwise unable to procure an adequate supply of CTO, we would be unable to produce the quantity of products that we have historically produced and our results of operations would be materially and adversely affected.
Beginning in 2025, either party may provide a notice to the other party terminating the agreement five years from the date of such notice. Beginning one year after such notice, the quantity of products provided by WestRock under the agreement will be gradually reduced over a four-year period based on the schedule set forth in the agreement. In addition, from 2022 until 2025, either party may provide a one-year notice to remove a kraft mill as a supply source. The two largest kraft mills under the agreement currently are expected to supply approximately 18.5% to 20% and 16.5% to 17.5%, respectively, of the total amount of products expected to be supplied under our agreement with WestRock. If WestRock exercises its rights to terminate the agreement or remove a kraft mill as a supply source, and we are unable to arrange for a substitute supply of CTO, we would be unable to continue to produce the same quantity of products and our results of operations could be materially and adversely affected.
There are other pressures on the availability of CTO. Some pulp or paper mills may choose to consume their production of CTO to meet their energy needs rather than sell the CTO to third parties. Also, as described below, there are regulatory pressures that may incentivize suppliers of CTO to sell CTO into
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alternative fuel markets rather than to historical end users such as Ingevity. Furthermore, weather conditions have in the past and may in the future affect the availability and quality of pine trees used in the kraft pulping process and therefore the availability of CTO meeting Ingevity’s quality standards. For example, the combined impact of Hurricane Katrina in August 2005 and Hurricane Rita in September 2005 caused significant damage to forests throughout the southern United States. This significantly affected the availability and quality of the supply of CTO during late 2005 and into 2006.
The European Union’s Directive 2009/28 on the promotion of the use of energy from renewable resources (“Renewable Energy Directive” or “RED”) and similar legislation in the United States and elsewhere may incentivize the use of CTO as a feedstock for production of alternative fuels.
In December 2008, the European Union adopted the Renewable Energy Directive, which established a 20% EU-wide target for energy consumed from renewable sources relative to the EU’s gross final consumption of energy, as well as a 10% target for energy consumed from renewable sources in the transport section. In order to reach these targets, the RED established mandatory targets for each Member State and required each Member State to adopt a national renewable energy action plan setting forth measures to achieve its national targets. The RED also established sustainability criteria for biofuels, which must be satisfied in order for the consumption of a fuel to count toward a Member State’s national targets. CTO-based biofuel currently satisfies the RED’s biofuel sustainability criteria.
In spring 2015, the EU adopted amendments to the Renewable Energy Directive. RED now expressly lists CTO as a residue-type feedstock whose use in biofuel would make that biofuel eligible for double counting towards national targets of the Member States, and at least two Member States additionally have or plan fiscal incentives for the domestic marketing of CTO-based and other qualifying biofuels.
In addition to these developments in the European Union, various pieces of legislation regarding the use of alternative fuels have been introduced in the United States.
Because the supply of CTO is inherently constrained by the volume of kraft pulp processing, any diversion of CTO for production of alternative fuels would reduce the available supply of CTO as the principal raw material of the pine chemicals industry. As described above, the company is highly dependent on CTO as an essential raw material, and if the company is unable to procure an adequate supply of CTO due to competing new uses such as for biofuel production, the company’s results of operations would be materially and adversely affected.
Pricing for CTO is subject to particular pricing pressures by reason of limited supply and competing demands for end use, and we may be limited in our ability to pass on increased costs to our customers.
Pricing for CTO (which accounts for approximately 17 percent of all of our cost of sales and 41 percent of our raw materials purchases for 2015) is subject to particular pricing pressures by reasons of the limited supply elasticity of the product and competing demands for its use, all of which drive pressure on price:

CTO is a product of the kraft pulping process, and the global supply of CTO is inherently constrained by the volume of kraft pulping processing (see “Business — Raw Materials and Energy”);

CTO can be burned as alternative fuels, either in support of the originating pulp mill operations, by energy companies or biofuel companies; and

Regulations or other incentives to mandate or encourage the consumption of biofuels as alternatives, including CTO.
We may not have the ability to pass through any increases in our cost of CTO to our customers in the form of price increases or other adjustments, with a resulting material adverse effect on our results of operations. Additionally, we may be placed at a competitive disadvantage relative to our competitors who rely on different primary raw materials or who have more favorable terms with their suppliers.
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We are also dependent on other raw materials, and these are also subject to pricing pressures; lack of access to these raw materials and inability to pass on price increases could adversely affect our financial condition and results of operations.
The company is dependent on other raw materials, including sawdust, phosphoric acid, ethyleneamines and lignin. Raw material costs are a significant operating expense of the company. The cost of raw materials can be volatile and subject to increases as a result of, among other things, changing economic conditions, political or policy considerations, supply and demand levels, instability in energy producing nations, and natural events such as extreme weather events or even insect infestations. Any interruption in the supply of the raw materials on which we depend, and any increases on the cost of raw materials that we are not able to pass on to customers in the form of price increases or other adjustments, may materially impact our financial condition and results of operations.
A prolonged period of low energy prices may materially impact our results of operations.
The price of energy may directly or indirectly impact demand, pricing or the profitability for certain Ingevity products. As petroleum oil prices fall or change rapidly, Ingevity products may be disadvantaged due to the fact that CTO and black liquor soap skimmings (“BLSS”) are thinly traded commodities with pricing commonly established for periods ranging from one quarter to one year periods of time. Due to this, alternative technologies which compete with product offerings provided by Ingevity may be advantaged from time to time in the market place. Protracted periods of high volatility or sustained oversupply of petroleum oil may also translate into increased competition from petroleum-based alternatives which would otherwise be consumed in petroleum transportation fuel blends. In addition, pricing for competing naturally derived oils such as palm or soybean is likely to provide further pressure on pricing of the company’s products during periods of depressed petroleum prices. See also “Risk Factors — Pricing for CTO is subject to particular pricing pressures by reason of limited supply and competing demands for end use, and we may be limited in our ability to pass on increased costs to our customers.”
We face competition from producers of substitute products.
The company faces competition from a number of products that are potential substitutes for our products. In particular, hydrocarbon and gum rosin-based products compete with TOR-based resins in the adhesives and inks markets. The price of gum rosin has a significant impact on the market price for TOR and rosin derivatives and the price of gum rosin is driven by labor rates, land leasing costs and various other factors that are not within our control. Animal and vegetable-based fatty acids compete with TOFA products in lubricant and industrial specialties. The market price for TOFA products is impacted by the prices of other fats and oils and the prices for other fats and oils is driven by actual and expected harvest rates, crude oil prices and the biofuel market.
Disruptions at any of our manufacturing facilities or within our supply chain could negatively impact our production.
An operational disruption in any of our facilities could negatively impact production and our financial results. The occurrence of a natural disaster, such as a hurricane, tropical storm, earthquake, tornado, severe weather, flood, fire or other unanticipated problems such as labor difficulties, equipment failure or unscheduled maintenance could cause operational disruptions of varied duration. These types of disruptions could materially adversely affect our financial condition and results of operations to varying degrees dependent upon the facility, the duration of the disruption, our ability to shift business to another facility or find alternative sources of materials or energy. Any losses due to these events may not be covered by our existing insurance policies or may be subject to certain deductibles.
We could be similarly adversely affected by disruptions within our supply chain and transportation network. Our products are transported by truck, rail, barge or ship by third-party providers. The costs of transporting our products could be negatively affected by factors outside of our control, including rail service interruptions or rate increases, tariffs, rising fuel costs and capacity constraints. Significant delays or increased costs affecting these transportation methods could materially affect our financial condition and results of operations. Disruptions at our suppliers could lead to short term or longer rises in raw material or energy costs and/or reduced availability of materials or energy, potentially affecting financial condition and results of operations.
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We are dependent upon third parties for the provision of certain critical operating services at several of our facilities.
We are dependent upon third parties for the provision of certain critical operating services at our Wickliffe, Kentucky and Covington, Virginia carbon facilities and at our Charleston, South Carolina performance chemicals facility.
We are dependent on the WestRock Covington, Virginia paper mill for the provision of electricity, water, compressed air, steam and wastewater treatment to our Covington carbon facility and we are similarly dependent on the KapStone Paper and Packaging Corporation (“KapStone”) North Charleston, South Carolina paper mill for the provision of water, compressed air, steam and wastewater treatment at our North Charleston performance chemicals facility. We have existing long term contractual arrangements covering these services for our North Charleston facility and will enter into new long term contractual arrangements on arms’ length commercial terms for our Covington facility. The provision of these services would be at risk if any of the counterparties were to idle or permanently shut down the associated mill, or if operations at the associated mill were disrupted due to natural or other disaster, or by reason of strikes or other labor disruptions, or if there were a significant contractual dispute between the parties.
In the event that WestRock or KapStone were to fail to provide the contracted services, we would be required to obtain these services from other third parties at an increased cost or to expend capital to provide these services ourselves. The expenses associated with obtaining or providing these services, as well as any interruption in our operations as a result of the failure of the counterparty to provide these services, may be significant and may adversely affect our financial condition and results of operations.
Furthermore, in the event that the WestRock Covington, Virginia paper mill wastewater treatment operations do not comply with permits or applicable law and WestRock is unable to determine the cause of such compliance, then we will be responsible for between 10% and 50% of the costs and expenses of such noncompliance (increasing in 10% increments per violation during each twelve (12) month period) despite representing less than 3% of the total wastewater volume. These costs and expenses may be significant and may adversely affect our financial condition and results of operations.
Additionally, our Covington carbon facility is located on real property leased from WestRock pursuant to a long-term lease agreement, and is surrounded by the WestRock paper mill, and a portion of our North Charleston performance chemicals facility is located on real property leased from KapStone and is adjacent to the KapStone paper mill. In the event we were to have a dispute with WestRock or KapStone regarding the terms of our lease agreement, or we were otherwise unable to fully access or utilize the leased property, the associated business disruption may be significant and may adversely affect our financial condition and results of operations.
We are also dependent on third parties for the disposal of brine, which results from our own conversion of BLSS into CTO. If these service providers do not perform under their contracts, the costs of disposing of brine ourselves, including, for example, the transportation costs, could be significant.
Work stoppages and other labor relations matters may have an adverse effect on our financial condition and results of operations.
A number of our employees are governed by collective bargaining agreements (“CBAs)”. From time to time the company engages in negotiations to renew CBA’s as those contracts are scheduled to expire. While the company has generally positive relations with its labor unions, there is no guarantee the Company will be able to successfully negotiate new union contracts without work stoppages, labor difficulties or unfavorable terms. If we were to experience any extended interruption of operations at any of our facilities as a result of strikes or other work stoppages, our results of operations and financial condition could be materially and adversely affected. In addition, due to the co-location of our Covington, Virginia and North Charleston, South Carolina facilities within the WestRock and KapStone facilities, a strike or work stoppage at either of those facilities could cause disruptions at our facilities, and our results of operations could be materially and adversely affected.
The collective bargaining agreement with the Covington Papers Union (“CPU”) covering certain employees in the company’s Covington, Virginia facility also covers certain employees of the WestRock Company paper mill. Similarly, the collective bargaining agreement with the International Brotherhood of
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Electrical Workers (“IBEW”) also covers employees at both facilities. The CPU agreement is scheduled to expire in December 2016 and the IBEW agreement is scheduled to expire in January 2017.
Our business involves hazards associated with chemical manufacturing, storage, transportation and disposal.
There are hazards associated with the chemicals we manufacture and the related storage and transportation of our raw materials, including common solvents, such as toluene and methanol, and reactive chemicals, such as acrylic acid, all of which fall under the OSHA Process Safety Management Code. These hazards could lead to an interruption or suspension of operations and have an adverse effect on the productivity and profitability of a particular manufacturing facility or on us as a whole. While we endeavor to provide adequate protection for the safe handling of these materials, issues could be created by various events, including natural disasters, severe weather events, acts of sabotage and performance by third parties, and as a result we could face the following potential hazards: piping and storage tank leaks and ruptures; mechanical failure; employee exposure to hazardous substances; and chemical spills and other discharges or releases of toxic or hazardous substances or gases.
These hazards may cause personal injury and loss of life, damage to property and contamination of the environment, which could lead to government fines, work stoppage injunctions, lawsuits by injured persons, damage to our public reputation and brand and diminished product acceptance. If such actions are determined adversely to us or there is an associated economic impact to our business, we may have inadequate insurance or cash flow to offset any associated costs. Such outcomes could adversely affect our financial condition and results of operations.
Regulation of exposure to certain process chemicals could require expenditures or changes to our product formulations.
Certain regulations applicable to our operations, including the Occupational Safety and Health Act and the Toxic Substances Control Act in the United States and the Registration, Evaluation and Authorization of Chemicals, or REACH, directive in Europe, prescribe limits restricting exposure to a number of chemicals used in our operations, including formaldehyde and nonylphenol, a raw material used in the manufacture of phenolic ink resins. Future studies on the health effects of chemicals used in our operations, including nonylphenol and bisphenol A, which is used in our TOR-based ink resins, may result in additional regulation or new requirements in the United States, Europe and elsewhere, which might further restrict or prohibit the use of, and exposure to, these chemicals. Additional regulation of or requirements for these or other chemicals could require us to change our operations, and these changes could affect the quality or types of products we manufacture and/or materially increase our costs.
The company’s operations are subject to a wide range of general and industry specific environmental laws and regulations.
The company’s operations are subject to a wide range of general and industry-specific environmental laws and regulations, including for example related to bisphenol A, formaldehyde and air emissions. Changes in environmental laws and regulations, or their application, could subject the company to significant additional capital expenditures and operating expenses in future years. However, any such changes are uncertain and, therefore, it is not possible for the company to predict with certainty the amount of additional capital expenditures or operating expenses that could be necessary for compliance with respect to any such changes.
We are subject to cyber-security risks related to our intellectual property and certain other data.
We use information technologies to retain certain of our intellectual property, as well as to securely manage operations and various business functions. Our systems are potentially subject to attempts by third parties to access information or to disrupt our systems. Despite our security design and controls, and those of our third party providers, we could become subject to cyber-attacks which could result in operational disruptions or the misappropriation of sensitive data. There can be no assurance that such disruptions or misappropriations and the resulting repercussions will not be material to our financial condition or results of operations.
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We are dependent on certain customers.
We have certain large customers in particular businesses, the loss of which could have a material adverse effect on the segment’s sales and, depending on the significance of the loss, our results of operations, financial condition or cash flows. Sales to the company’s ten largest customers (across both segments) accounted for 37% of total sales for 2015. One customer, the Flint Group, accounted for more than 10% of total sales for 2015, with no other customer accounting for more than 6% of total sales. With some exceptions, our business with those large customers is based primarily upon individual purchase orders. As such, our customers could cease buying our products from us at any time, for any reason, with little or no recourse. If a major customer or multiple smaller customers elected not to purchase products from us, our business prospects, financial condition and results of operations would be materially adversely affected.
The inability to make or effectively integrate future acquisitions may affect our results.
As part of our growth strategy, we may pursue acquisitions of complementary businesses and product lines or invest in joint ventures. The ability to grow through acquisitions or other investments depends upon our ability to identify, negotiate, complete and integrate suitable acquisitions or joint venture arrangements. If we fail to successfully integrate acquisitions into our existing business, our financial condition and results of operations could be adversely affected.
Risks Related to the Separation
The combined post-separation value of WestRock and Ingevity shares may not equal or exceed the pre-separation value of WestRock common shares.
As a result of the distribution, WestRock expects the trading price of WestRock common shares immediately following the distribution to be lower than the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the full value of the specialty chemicals business. There can be no assurance that the aggregate market value of the WestRock common shares and the Ingevity common stock following the separation will be higher or lower than the market value of WestRock common shares would have been if the separation did not occur.
Ingevity has no history of operating as an independent company, and Ingevity’s historical and pro forma financial information is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results.
The historical information about Ingevity in this information statement refers to Ingevity’s business as operated by and integrated with WestRock. Ingevity’s historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of WestRock. Accordingly, the historical and pro forma financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that Ingevity would have achieved as a separate, publicly traded company during the periods presented or those that Ingevity will achieve in the future, including as a result of the factors described below:

Prior to the separation, Ingevity’s business has been operated by WestRock as part of its broader corporate organization, rather than as an independent company. WestRock or one of its affiliates performed various corporate functions for Ingevity, such as information technology, legal, treasury, accounting, auditing, human resources, public affairs and finance. Ingevity’s historical and pro forma financial results reflect allocations of corporate expenses from WestRock for such functions and could be less than the expenses Ingevity would have incurred had it operated as a separate publicly traded company.

Currently, Ingevity’s business is integrated with the other businesses of WestRock. Historically, Ingevity has shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. Although Ingevity will enter into transition agreements with WestRock, these arrangements may not fully capture the benefits that Ingevity has enjoyed as a result of
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being integrated with WestRock and may result in Ingevity paying higher charges than in the past for these services. This could have an adverse effect on Ingevity’s results of operations and financial condition following the completion of the separation.

Generally, Ingevity’s working capital requirements and capital for its general corporate purposes, including acquisitions and capital expenditures, have historically been satisfied as part of the corporate-wide cash management policies of WestRock. Following the completion of the separation, Ingevity may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, which may or may not be available and may be more costly.

After the completion of the separation, the cost of capital for Ingevity’s business may be higher than WestRock’s cost of capital prior to the separation.

Ingevity’s historical financial information does not reflect the debt that it will incur as part of the separation.
Other significant changes may occur in Ingevity’s cost structure, management, financing and business operations as a result of operating as a company separate from WestRock. For additional information about the past financial performance of Ingevity’s business and the basis of presentation of the historical combined financial statements and the unaudited pro forma combined financial statements of Ingevity’s business, see “Unaudited Pro Forma Combined Financial Statements,” “Selected Historical Combined Financial Information of Ingevity” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Ingevity” and the historical financial statements and accompanying notes included elsewhere in this information statement.
There could be significant liability if the separation, distribution and/or certain related transactions are determined to be taxable.
WestRock received a private letter ruling from the IRS on January 4, 2016, regarding certain U.S. federal income tax matters relating to the separation, distribution and certain related transactions. Conditions to the distribution include that (i) the private letter ruling received from the IRS regarding certain U.S. federal income tax matters relating to the separation, distribution and certain related transactions shall not have been modified or revoked, and (ii) WestRock shall have received opinions from its outside tax advisors regarding the qualification of the distribution, together with certain related transactions, as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. The private letter ruling and opinions will be based on and will rely on, among other things, certain facts, assumptions, representations, statements and undertakings from WestRock and Ingevity regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, statements, representations or undertakings is, or becomes, inaccurate or incomplete, or if WestRock or Ingevity breaches any of its respective covenants in the separation documents, the IRS private letter ruling and/or the opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.
Notwithstanding the IRS private letter ruling and the opinion of counsel, the IRS could determine that the separation should be treated as a taxable transaction if it determines that any of these representations, assumptions or undertakings upon which such IRS private letter ruling or opinion was based are incorrect or have been violated or if it disagrees with the conclusions in the opinion of counsel. The IRS private letter ruling does not address all of the issues that are relevant to determining whether the separation, distribution and certain related transactions will be generally tax-free for U.S. federal income tax purposes, and any opinion of outside counsel or other external tax advisor represents the judgment of such counsel or advisor, which is not binding on the IRS or any court. Accordingly, notwithstanding receipt of the IRS private letter ruling and the tax opinions referred to above, there can be no assurance that the IRS will not assert that the separation, distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge.
If the distribution and/or certain related transactions failed to qualify as a transaction that is generally tax-free under Sections 368(a)(1)(D) and 355 of the Code, in general, WestRock would recognize taxable gain as if it had sold the Ingevity common stock in a taxable sale for its fair market value, WestRock
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stockholders who receive Ingevity common stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares and we could incur significant liabilities. For more information, please refer to “Certain Material U.S. Federal Income Tax Consequences of the Distribution.”
Ingevity may not be able to engage in certain corporate actions after the separation.
To preserve the tax-free treatment to WestRock of the separation and the distribution, under the tax matters agreement that Ingevity will enter into with WestRock, Ingevity and its subsidiaries will be restricted from taking or failing to take any action that prevents the distribution and/or certain related transactions from being tax-free for U.S. federal income tax purposes. Under the tax matters agreement, prior to or on the 25-month anniversary of the distribution date, Ingevity will be prohibited, except in certain circumstances, from:

entering into any transaction resulting in the acquisition of 50% or more of its stock (by vote or value, taking into account the stock indirectly acquired by Rock-Tenn stockholders in the Merger) or a substantial portion of its assets, whether by merger or otherwise;

merging, consolidating, dissolving or liquidating, or permitting any of its subsidiaries to merge, consolidate, dissolve or liquidate;

issuing equity securities beyond certain thresholds;

taking any action affecting the relative voting rights of Ingevity stock;

redeeming or repurchasing its capital stock beyond certain thresholds; and

ceasing to actively conduct certain businesses.
These restrictions may limit Ingevity’s ability to pursue certain strategic transactions or other transactions that it may believe to be in the best interests of its stockholders or that might increase the value of its business. In addition, under the tax matters agreement, Ingevity will be required to indemnify WestRock against any of WestRock’s tax liabilities as a result of the acquisition of Ingevity’s stock or assets, even if Ingevity did not participate in or otherwise facilitate the acquisition. For more information, see “Certain Relationships and Related Person Transactions — The Tax Matters Agreement.”
We will be subject to continuing contingent tax-related liabilities of WestRock following the distribution.
Under the Code, each corporation that was a member of WestRock's consolidated tax reporting group during any taxable period or portion of any taxable period ending on or before the effective time of the distribution is severally liable for the U.S. federal income tax liability of the entire consolidated tax reporting group for such taxable period. In connection with the separation, we will enter into a Tax Matters Agreement with WestRock that will allocate the responsibility for prior period taxes of WestRock's consolidated tax reporting group between us and WestRock. If WestRock were unable to pay any prior period taxes for which it is responsible, however, we could be required to pay the entire amount of such taxes, and such amounts could be significant. The Tax Matters Agreement generally gives WestRock discretion to handle consolidated tax returns and audits for pre-distribution periods in a manner which may be unfavorable to us and which may result in additional tax costs to us. For a more detailed description of the Tax Matters Agreement, see “Certain Relationships and Related Person Transactions — The Tax Matters Agreement.”
Until the separation occurs, the terms of the separation may be changed in ways which may be unfavorable to Ingevity.
Until the separation occurs, Ingevity will be a wholly owned subsidiary of WestRock. Accordingly, WestRock will effectively have the sole and absolute discretion to determine and change the terms of the separation, including the establishment of the record date for the distribution and the distribution date. These changes could be unfavorable to Ingevity.
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Ingevity may not achieve some or all of the expected benefits of the separation, and the separation may adversely affect Ingevity’s business.
Ingevity may not be able to achieve the full strategic and financial benefits expected to result from the separation, or such benefits may be delayed or not occur at all. The separation and distribution are expected to provide the following benefits, among others:

enhanced strategic and management focus;

more efficient allocation of capital;

direct access to capital markets; and

alignment of incentives with performance objectives.
Ingevity may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (a) the separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing Ingevity’s business; (b) following the separation, Ingevity may be more susceptible to market fluctuations and other adverse events than if it were still a part of WestRock; (c) following the separation, Ingevity’s business will be less diversified than WestRock’s business prior to the separation; and (d) the other actions required to separate WestRock’s and Ingevity’s respective businesses could disrupt Ingevity’s operations. If Ingevity fails to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, the business, financial conditions and results of operations of Ingevity could be adversely affected.
Ingevity will be dependent upon WestRock for the performance of obligations under various critical agreements that will be executed as part of the separation.
In connection with the separation, Ingevity and WestRock will enter into a separation and distribution agreement and will also enter into various other agreements, including a transition services agreement, intellectual property agreement, a tax matters agreement, and an employee matters agreement. These transaction agreements will determine the allocation of assets and liabilities between the companies following the separation for those respective areas, will include any necessary indemnifications related to liabilities and obligations and will provide for certain important services to be performed between the companies. Ingevity will rely on WestRock to satisfy its performance and payment obligations under these agreements. If WestRock is unable or unwilling to satisfy its obligations under these agreements, including its indemnification obligations, Ingevity could incur operational difficulties or losses. If Ingevity does not have in place its own systems and services, or if Ingevity does not have agreements with other providers of these services once the transition services agreement expires, Ingevity may not be able to operate its business effectively and its profitability may decline. Ingevity is in the process of creating its own, or engaging third parties to provide, systems and services to replace many of the systems and services that WestRock currently provides to Ingevity. However, Ingevity may not be successful in implementing these systems and services or in transitioning data from WestRock’s systems to Ingevity. For more information, please see “Risk Factors — Our Performance Chemicals segment is highly dependent on CTO which is limited in supply; lack of access to sufficient CTO would impact our ability to produce CTO-based products” and “Risk Factors — We are dependent upon third parties for the provision of certain critical operating services at several of our facilities.”
Challenges in the commercial and credit environments may materially adversely affect Ingevity’s ability to complete the separation and Ingevity’s future access to capital.
Ingevity’s ability to issue debt or enter into other financing arrangements on acceptable terms could be materially adversely affected if there is a material decline in the demand for Ingevity’s products or in the solvency of its customers or suppliers or if other significantly unfavorable changes in economic conditions occur. Volatility in the world financial markets could increase borrowing costs or affect Ingevity’s ability to gain access to the capital markets, which could have a material adverse effect on Ingevity’s competitive position, business, financial condition, results of operations and cash flows.
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Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the distribution.
Our financial results previously were included within the consolidated results of WestRock, and our reporting and control systems were appropriate for those of subsidiaries of a public company. Prior to the distribution, we were not directly subject to reporting and other requirements of the Exchange Act and Section 404 of the Sarbanes-Oxley Act of 2002. Following the distribution, we are subject to such reporting and other requirements, which require, among other things, annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These and other obligations place significant demands on our management, administrative and operational resources, including accounting and IT resources.
To comply with these requirements, we have upgraded and continue to upgrade our systems, including computer hardware infrastructure, implementation of additional financial and management controls, reporting systems and procedures, and we continue to hire additional accounting, finance and IT staff. If we are unable to upgrade our financial and management controls, reporting systems, IT and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired. Any failure to achieve and maintain effective internal controls could have an adverse effect on our business, financial condition, results of operations and cash flows.
Risks Relating to Ingevity’s Common Stock
Ingevity cannot be certain that an active trading market for its common stock will develop or be sustained after the separation, and following the separation, Ingevity’s stock price may fluctuate significantly.
A public market for Ingevity common stock does not currently exist. Ingevity anticipates that on or prior to the record date for the distribution, trading of shares of its common stock will begin on a “when-issued” basis and will continue through the distribution date. However, Ingevity cannot guarantee that an active trading market will develop or be sustained for its common stock after the separation, nor can Ingevity predict the prices at which shares of its common stock may trade after the separation. Similarly, Ingevity cannot predict the effect of the separation on the trading prices of its common stock or whether the combined market value of the shares of Ingevity common stock and the WestRock common shares will be less than, equal to or greater than the market value of WestRock common shares prior to the separation.
The market price of Ingevity common stock may fluctuate significantly due to a number of factors, some of which may be beyond Ingevity’s control, including:

actual or anticipated fluctuations in Ingevity’s operating results;

changes in earnings estimated by securities analysts or Ingevity’s ability to meet those estimates;

the operating and stock price performance of comparable companies;

changes to the regulatory and legal environment under which Ingevity operates; and

domestic and worldwide economic conditions.
We cannot guarantee the timing, amount or payment of any dividends on our common stock in the future.
The payment and amount of any dividend will be subject to the sole discretion of our post-distribution, independent board of directors and will depend upon many factors, including our financial condition and prospects, our capital requirements and access to capital markets, covenants associated with certain of our debt obligations, legal requirements and other factors that our board of directors may deem relevant, and there can be no assurances that we will pay a dividend. For more information, see the section entitled “Dividend Policy.”
Your percentage of ownership in Ingevity may be diluted in the future.
In the future, your percentage ownership in Ingevity may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that Ingevity will be granting
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to Ingevity’s directors, officers and certain employees. Certain of Ingevity’s employees will have options to purchase shares of its common stock after the distribution as a result of conversion of their WestRock stock options (in whole or in part) to Ingevity stock options. Ingevity anticipates its compensation committee will grant additional stock options or other stock-based awards to certain employees after the distribution. Such awards will have a dilutive effect on Ingevity’s earnings per share, which could adversely affect the market price of Ingevity’s common stock. From time to time, Ingevity will issue additional options or other stock-based awards to certain employees under Ingevity’s employee benefits plans.
In addition, Ingevity’s amended and restated certificate of incorporation will authorize Ingevity to issue, without the approval of Ingevity’s stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over Ingevity’s common stock respecting dividends and distributions, as Ingevity’s board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of Ingevity’s common stock. For example, Ingevity could grant the holders of preferred stock the right to elect some number of Ingevity’s directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences Ingevity could assign to holders of preferred stock could affect the residual value of the common stock. For more information, see the section entitled “Description of Capital Stock.”
Certain provisions in Ingevity’s amended and restated certificate of incorporation and amended and restated bylaws, and of Delaware law, may prevent or delay an acquisition of Ingevity, which could depress the trading price of Ingevity’s common stock.
Ingevity’s amended and restated certificate of incorporation and amended and restated bylaws will contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with Ingevity’s board of directors rather than to attempt a hostile takeover. These provisions include, among others:

the inability of Ingevity’s stockholders to act by written consent;

rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

the right of Ingevity’s board to issue preferred stock without stockholder approval;

the ability of Ingevity’s remaining directors to fill vacancies on Ingevity’s board of directors;

the division of Ingevity’s board of directors into three classes of directors, which classification will terminate beginning at the company’s 2019 annual meeting;

the inability of Ingevity’s stockholders to remove directors other than for cause while the board is classified; and

the requirement that the affirmative vote of holders of at least 75% of Ingevity’s outstanding voting stock is required to amend certain provisions of Ingevity’s amended and restated certificate of incorporation and amended and restated bylaws.
In addition, because Ingevity has not chosen to be exempt from Section 203 of the Delaware General Corporation Law (the “DGCL”), this provision could also delay or prevent a change of control that you may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with persons that acquire, more than 15% of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliates becomes the holder of more than 15% of the corporation’s outstanding voting stock.
Ingevity believes these provisions will protect its stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with Ingevity’s board of directors and by providing Ingevity’s board of directors with more time to assess any acquisition proposal. These provisions are not intended to make Ingevity immune from takeovers. However, these provisions will apply even if the
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offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that Ingevity’s board of directors determines is not in the best interests of Ingevity and Ingevity’s stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.
In addition, an acquisition or further issuance of Ingevity’s stock could trigger the application of Section 355(e) of the Code. For a discussion of Section 355(e), see “Certain Material U.S. Federal Income Tax Consequences of the Distribution.” Under the tax matters agreement, Ingevity would be required to indemnify WestRock for the resulting tax, and this indemnity obligation might discourage, delay or prevent a change of control that you may consider favorable. For more information, see “Certain Relationships and Related Person Transactions — The Tax Matters Agreement.”
Ingevity’s amended and restated bylaws will designate the state courts within the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Ingevity’s stockholders, which could discourage lawsuits against Ingevity and Ingevity’s directors and officers.
Ingevity’s amended and restated bylaws will provide that unless the board of directors otherwise determines, a state court within the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Ingevity, any action asserting a claim of breach of a fiduciary duty owed by any director of officer of Ingevity to Ingevity or Ingevity’s stockholders, creditors or other constituents, any action asserting a claim against Ingevity or any director or officer of Ingevity arising pursuant to any provision of the DGCL, or Ingevity’s amended and restated certificate of incorporation or bylaws, or any action asserting a claim against Ingevity or any director or officer of Ingevity governed by the internal affairs doctrine. However, if no state court located within the State of Delaware has jurisdiction, the action may be brought in the federal district court for the District of Delaware. Although Ingevity’s amended and restated bylaws will include this exclusive forum provision, it is possible that a court could rule that this provision is inapplicable or unenforceable. This exclusive forum provision may limit the ability of Ingevity’s stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with Ingevity or Ingevity’s directors or officers, which may discourage such lawsuits against Ingevity and Ingevity’s directors and officers. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, Ingevity may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect Ingevity’s business, financial condition or results of operations.
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CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR”
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Certain statements in this information statement and other materials WestRock or Ingevity have filed or will file with the SEC and made elsewhere by management contain “forward-looking statements” within the meaning of the Securities Exchange Act of 1934, as amended 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. 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 results and impacts of the merger of MeadWestvaco and Rock-Tenn;

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 outside the United States require us to comply with a number of U.S. and foreign regulations, violations of which could have a material adverse effect on our financial condition and results of operations;

we are dependent upon attracting and retaining key personnel;

adverse conditions in the automotive market may adversely affect demand for our automotive carbon products;

if increasingly more stringent air quality standards worldwide are not adopted, our growth could be impacted;

the company’s printing inks business serves customers in a market that is facing declining volumes;

our Performance Chemicals segment is highly dependent on CTO which is limited in supply;

lack of access to sufficient CTO would impact our ability to produce CTO-based products;

if WestRock exercises certain rights to terminate our supply agreement with them or to remove a kraft mill as a supply source, and we are unable to obtain a substitute supply of CTO, our ability to produce CTO-based products will be affected;

a prolonged period of low energy prices may materially impact our results of operations;

we are dependent upon third parties for the provision of certain critical operating services at several of our facilities;

the occurrence of a natural disaster, such as a hurricane, winter or tropical storm, earthquake, tornado, flood, fire or other unanticipated problems such as labor difficulties, equipment failure or unscheduled maintenance and repair, which could result in operational disruptions of varied duration;

our ability to protect our intellectual property and other proprietary information;

government policies and regulations, including, but not limited, to those affecting the environment, climate change, tax policies and the chemicals industry; and

losses due to lawsuits arising out of environmental damage or personal injuries associated with chemical manufacturing.
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THE SEPARATION
Background
On January 8, 2015, MWV announced that it intended to separate its specialty chemicals business through a pro rata distribution of common stock to its stockholders. Prior to the separation, but following the announcement of the separation, MWV entered into an Amended and Restated Business Combination Agreement, dated March 9, 2015, with Rock-Tenn Company whereby Rock-Tenn and MWV agreed to become wholly owned subsidiaries of a newly formed company, WestRock Company (the “Merger”). The Merger was completed on July 1, 2015. Upon the completion of the Merger, WestRock announced its continued plans to pursue the separation.
On April 21, 2016, the WestRock board of directors approved the distribution of all of the issued and outstanding shares of Ingevity common stock on the basis of one share of Ingevity common stock for every six shares of WestRock held as of the close of business on the record date of May 4, 2016.
At 11:59 p.m. Eastern Time, on May 15, 2016, the distribution date, each WestRock stockholder will receive one share of Ingevity common stock for every six shares of WestRock held as of the close of business on the record date for the distribution, as described below. WestRock stockholders will receive cash in lieu of any fractional shares of Ingevity common stock that they would have received after application of this ratio. You will not be required to make any payment, surrender or exchange your WestRock common shares or take any other action to receive your shares of Ingevity’s common stock in the distribution. The distribution of Ingevity’s common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “The Separation — Conditions to the Distribution.”
Reasons for the Separation
The WestRock board of directors believes that the separation of WestRock’s specialty chemicals business would be in the best interests of WestRock and its stockholders for a number of reasons, including the following:

Enhanced strategic and management focus.   The separation will allow Ingevity and WestRock to each more effectively pursue their distinct operating priorities and strategies and enable management of both companies to better focus on unique opportunities for long-term growth and profitability.

More efficient allocation of capital.   The separation will permit Ingevity and WestRock to each concentrate financial resources on its own operations, providing greater flexibility to invest capital in its businesses in a time and manner appropriate for its strategy and business needs and facilitate a more efficient allocation of capital.

Direct access to capital markets.   The separation will create an independent equity structure that will afford Ingevity direct access to the capital markets and will facilitate Ingevity’s ability to effect future acquisitions utilizing Ingevity’s common stock. As a result, each company will have more flexibility to capitalize on its unique growth opportunities and objectives.

Alignment of incentives with performance objectives.   The separation will facilitate incentive compensation arrangements for employees more directly tied to the performance of each of Ingevity’s and WestRock’s respective businesses, and enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.
Neither Ingevity nor WestRock can assure you that, following the separation, any of the benefits described above or otherwise will be realized to the extent anticipated or at all.
Potentially Negative Factors Considered by the Board
The WestRock board of directors also considered a number of potentially negative factors in evaluating the separation, including the loss of synergies and joint purchasing power and increased costs resulting from operating as a separate public entity, one-time costs of the separation, the risk of not
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realizing the anticipated benefits of the separation and limitations placed upon Ingevity as a result of any tax matters agreement. The WestRock board of directors concluded that the potential benefits of the separation outweighed these factors.
Internal Reorganization
Prior to the distribution, WestRock will complete an internal corporate reorganization to transfer to Ingevity the businesses and assets that are part of its specialty chemicals business that are not already owned by Ingevity to Ingevity.
The Number of Shares You Will Receive
At 11:59 p.m. Eastern Time, on May 15, 2016, the distribution date, each WestRock stockholder will receive one share of Ingevity common stock for every six shares of WestRock held as of the close of business of NYSE on May 4, 2016, the record date.
Treatment of Fractional Shares
WestRock will not distribute any fractional shares of Ingevity common stock to its stockholders. Instead, as soon as practicable on or after the distribution date, the distribution agent will aggregate fractional shares of our common stock held by holders of record into whole shares, sell them in the open market at the prevailing market prices and then distribute the aggregate sale proceeds ratably to WestRock stockholders who would otherwise have received fractional shares of our common stock. The amount of this payment will depend on the prices at which the distribution agent sells the aggregated fractional shares of our common stock in the open market shortly after the distribution date. The distribution agent will, in its sole discretion, without any influence by WestRock or Ingevity, determine when, how, through which broker-dealer and at what price to sell the whole shares. The distribution agent is not, and any broker-dealer used by the distribution agent will not be, an affiliate of either WestRock or Ingevity. Ingevity will be responsible for payment of any brokerage fees, which we do not expect to be material to us. Your receipt of cash in lieu of fractional shares of our common stock generally will result in a taxable gain or loss for U.S. federal income tax purposes, as described in more detail under “Certain Material U.S. Federal Income Tax Consequences of the Distribution.”
When and How You Will Receive the Dividend
With the assistance of WFSS, WestRock expects to distribute Ingevity common stock on May 15, 2016, the distribution date, to all holders of outstanding WestRock common shares as of the close of business on May 4, 2016, the record date. WFSS, which currently serves as the transfer agent and registrar for WestRock’s common shares, will serve as the settlement and distribution agent in connection with the distribution and the transfer agent and registrar for Ingevity common stock.
If you own WestRock common shares as of the close of business on the record date, Ingevity’s common stock that you are entitled to receive in the distribution will be issued electronically, as of the distribution date, to you in direct registration form or to your bank or brokerage firm on your behalf. If you are a registered holder, WFSS will then mail you a direct registration account statement that reflects your shares of Ingevity common stock. If you hold your shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for the shares. “Direct registration form” refers to a method of recording share ownership when no physical share certificates are issued to stockholders, as is the case in this distribution. If you sell WestRock common shares in the “regular-way” market up to and including the distribution date, you will be selling your right to receive shares of Ingevity common stock in the distribution.
Commencing on or shortly after the distribution date, if you hold physical share certificates that represent your WestRock common shares and you are the registered holder of the shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of Ingevity’s common stock that have been registered in book-entry form in your name.
Most WestRock stockholders hold their common shares through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your WestRock common stock through a
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bank or brokerage firm, your bank or brokerage firm will credit your account for the Ingevity common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in “street name,” please contact your bank or brokerage firm.
Results of the Distribution
After the separation, Ingevity will be an independent, publicly traded company. The actual number of shares to be distributed will be determined by WestRock at the close of business on May 4, 2016, the record date for the distribution, and will reflect any exercise of WestRock options between the date the WestRock board of directors declares the distribution and the record date for the distribution. The distribution will not affect the number of outstanding WestRock common shares or any rights of WestRock stockholders. WestRock will not distribute any fractional shares of Ingevity common stock.
Ingevity will enter into a separation and distribution agreement and other related agreements with WestRock before the distribution to effect the separation and provide a framework for Ingevity’s relationship with WestRock after the separation. These agreements will provide for the allocation between WestRock and Ingevity of WestRock’s assets, liabilities and obligations (including employee benefits, intellectual property and tax-related assets and liabilities) attributable to periods prior to Ingevity’s separation from WestRock and will govern the relationship between WestRock and Ingevity after the separation. For a more detailed description of these agreements, see “Certain Relationships and Related Person Transactions.”
Market for Common Stock
There is currently no public trading market for Ingevity’s common stock. Ingevity has applied to list its common stock on the NYSE under the symbol “NGVT”. Ingevity has not and will not set the initial price of its common stock. The initial price will be established by the public markets. Ingevity cannot predict the price at which its common stock will trade after the distribution. In fact, the combined trading prices, after the separation, of the shares of Ingevity common stock that each WestRock stockholder will receive in the distribution and the WestRock common shares held at the record date for the distribution may not equal the “regular-way” trading price of a WestRock share immediately prior to the distribution. The price at which Ingevity common stock trades may fluctuate significantly, particularly until an orderly public market develops. Trading prices for Ingevity common stock will be determined in the public markets and may be influenced by many factors. See “Risk Factors — Risks Related to Ingevity’s Common Stock.”
Trading Between the Record Date and Distribution Date
Beginning on or shortly before the record date for the distribution and continuing up to and including through the distribution date, WestRock expects that there will be two markets in WestRock common shares: a “regular-way” market and an “ex-distribution” market. WestRock common shares that trade on the “regular-way” market will trade with an entitlement to Ingevity common shares distributed pursuant to the separation. WestRock common shares that trade on the “ex-distribution” market will trade without an entitlement to Ingevity common stock distributed pursuant to the distribution. Therefore, if you sell WestRock common shares in the “regular-way” market up to and including through the distribution date, you will be selling your right to receive Ingevity common stock in the distribution. If you own WestRock common shares at the close of business on the record date and sell those shares on the “ex-distribution” market up to and including through the distribution date, you will receive the shares of Ingevity common stock that you are entitled to receive pursuant to your ownership as of the record date of the WestRock common shares.
Furthermore, beginning on or shortly before the record date for the distribution and continuing up to and including the distribution date, Ingevity expects that there will be a “when-issued” market in its common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for Ingevity common stock that will be distributed to holders of WestRock common shares on the distribution date. If you owned WestRock common shares at the close of business on the record date for the distribution, you would be entitled to Ingevity common stock distributed pursuant to the distribution. You may trade this
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entitlement to shares of Ingevity common stock, without the WestRock common shares you own, on the “when-issued” market. On the first trading day following the distribution date, “when-issued” trading with respect to Ingevity common stock will end, and “regular-way” trading will begin.
Conditions to the Distribution
Ingevity has announced that the distribution will be effective at 11:59 p.m., Eastern time, on May 15, 2016, which is the distribution date, provided that the following conditions shall have been satisfied (or waived by WestRock in its sole discretion):

the transfer of assets and liabilities from WestRock to Ingevity shall have been completed in accordance with the separation and distribution agreement;

(i) the private letter ruling received by WestRock from the IRS regarding certain U.S. federal income tax matters relating to the separation, distribution and certain related transactions shall not have been modified or revoked, and (ii) WestRock shall have received opinions from its outside tax advisors to the effect that the distribution, together with certain related transactions, will be generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code;

the SEC shall have declared effective Ingevity’s registration statement on Form 10, of which this information statement forms a part, and this information statement in its final form shall have been made available to the WestRock stockholders;

all actions and filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities laws shall have been taken and, where applicable, have become effective or been accepted by the applicable governmental authority;

the transaction agreements relating to the separation shall have been duly executed and delivered by the parties;

no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, distribution or any of the related transactions shall be in effect;

the shares of Ingevity common stock to be distributed shall have been accepted for listing on with NYSE subject to official notice of distribution; and

certain other conditions to be identified in an amendment to this information statement.
WestRock will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the record date for the distribution and the distribution date and the distribution ratio. WestRock will also have sole discretion to waive any of the conditions to the distribution. WestRock does not intend to notify its stockholders of any modifications to the terms of the separation that, in the judgment of its board of directors, are not material. For example, the WestRock board of directors might consider material such matters as significant changes to the distribution ratio, the assets to be contributed or the liabilities to be assumed in the separation. To the extent that the WestRock board of directors determines that any modifications by WestRock materially change the material terms of the distribution, WestRock will notify WestRock stockholders in a manner reasonably calculated to inform them about the modification as may be required by law, by, for example, publishing a press release, filing a current report on Form 8-K or circulating a supplement to this information statement.
Reason for Furnishing this Information Statement
This information statement is being furnished solely to provide information to WestRock’s stockholders that are entitled to receive shares of our common stock in the distribution. This information statement is not, and is not to be construed as, an inducement or encouragement to buy, hold or sell any of
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our securities. We believe that the information in this information statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither WestRock nor we undertake any obligation to update the information except in the normal course of our respective public disclosure obligations.
Treatment of Equity Awards
Each WestRock equity-based incentive award held by Ingevity employees will remain a WestRock equity incentive award following the separation, with adjustments made to the number of shares covered and (if applicable) the per share exercise price of the award to maintain its intrinsic value. Unvested WestRock equity-based incentive awards held by our employees will vest to the extent provided in the employee matters agreement between WestRock and Ingevity. We are responsible for reimbursing WestRock on an ongoing basis for the cost of WestRock equity-based incentive awards held by our employees based on the fair market value of a WestRock share on the vesting date in the case of restricted stock units and performance stock units, and, in the case of stock options or stock appreciation rights, based on the difference between the per share exercise price and the fair market value of a WestRock share on the exercise date. WestRock and Ingevity will cooperate so that the value of any tax benefit realized by WestRock in connection with the vesting or exercise of WestRock equity awards held by Ingevity employees will be transferred to Ingevity.
See “Certain Relationships and Related Person Transactions — The Employee Matters Agreement” for more information.
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DIVIDEND POLICY
The payment and amount of any dividend will be subject to the sole discretion of our post-distribution, independent board of directors and will depend upon many factors, including our financial condition and prospects, our capital requirements and access to capital markets, covenants associated with certain of our debt obligations, legal requirements and other factors that our board of directors may deem relevant, and there can be no assurances that we will pay a dividend or continue to pay a dividend in the future.
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CAPITALIZATION
The following table, which you should read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Ingevity,” “Unaudited Pro Forma Combined Financial Statements” and the historical combined financial statements and accompanying notes included elsewhere in this Information Statement, sets forth our cash and cash equivalents and combined capitalization as of December 31, 2015 on an historical basis and on a pro forma basis after giving effect to the planned transactions to be effected prior to the distribution of Ingevity Corporation common stock to the stockholders of WestRock.
As of December 31, 2015
In millions
Historical
Pro Forma
Cash and cash equivalents
$ 32 $ 15
Debt, including current and long-term:
Notes payable and current maturities of long-term debt
9 9
Long-term debt due after one year
80 581
Total debt
89 590
Equity:
Common stock
Capital in excess of par value
75
Net parent investment
534 $
Accumulated other comprehensive (loss) income
(17) (17)
Noncontrolling interests
5 5
Total equity
522 63
Total capitalization
$ 611 $ 753
42

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Financial Statements are derived from the historical combined financial statements of Ingevity, prepared in accordance with U.S. generally accepted accounting principles, which are included elsewhere in this information statement.
The Unaudited Pro Forma Combined Statement of Operations for the fiscal year ended December 31, 2015 give effect to the distribution as if it had occurred on January 1, the first day of fiscal year 2015. The Unaudited Pro Forma Combined Balance Sheet as of December 31, 2015 gives effect to the distribution as if it had occurred on December 31, 2015. These Unaudited Pro Forma Combined Financial Statements include adjustments required by SEC Staff Accounting Bulletin Topic 1:B-3 and Article 11 of SEC Regulation S-X, including the following:
a.
the inclusion of total long-term indebtedness of  $585 million with a weighted-average interest rate of 3.1%;
b.
the expected distribution to WestRock of  $438 million;
c.
the pro-rata distribution of approximately 42 million shares of Ingevity common stock to WestRock stockholders;
d.
the impact of the Separation and Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement and other commercial agreements between Ingevity and WestRock; and
e.
the net assets related to a qualified defined benefit pension plan and the liability related to a non-qualified retirement plan that were not included in the Ingevity Audited Combined Financial Statements.
Ingevity’s historical combined financial statements included elsewhere in this information statement include allocations for certain expenses and support functions historically provided by WestRock, such as business shared services, and other selling, general and administrative costs that benefit Ingevity. Effective with the separation, we will assume responsibility for all of these functions and related costs. Ingevity will incur incremental costs as an independent public company, including costs to replace services previously provided by WestRock as well as other stand-alone costs. In total, we estimate that these costs will range from $2 million to $4 million before-tax annually, over and above amounts currently included in the Unaudited Pro Forma Combined Statement of Operations. Due to the scope and complexity of these activities, the amount and timing of these incremental costs could vary and, therefore, are not included within the Unaudited Pro Forma Combined Financial Statements.
After the separation, subject to the terms of the Separation and Distribution Agreement, all costs and expenses related to ongoing support of a stand-alone company, including certain one-time separation costs incurred after the distribution date, will be our responsibility. No pro forma adjustments have been made to our statement of operations to reflect these costs.
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Ingevity Corporation
Unaudited Pro Forma Combined Statement of Operations
Year Ended December 31, 2015
(In millions except share and per share data)
Ingevity
Pro Forma
Adjustments
Pro Forma
Net sales
968 $ $ 968
Cost of sales
687 3
(A)
690
Gross profit
281 (3) 278
Selling, general and administrative expenses
114 7
(A)
121
Separation costs
17 (17)
(B)
Interest expense
21 (2)
(C)
19
Other (income) expense, net
(9) (9)
Income before income taxes
138 9 147
Provision for income taxes
53
(D)
53
Net income
85 9 94
Less: Net income (loss) attributable to noncontrolling interests, net of taxes
5 5
Net income attributable to the company
80 $ 9 $ 89
Unaudited pro forma earnings per share:
Basic
(E)
$ 2.68
Diluted
(F)
$ 2.67
Average number of shares used in calculating unaudited pro forma earnings per share:
Basic
(E)
33,200,000
Diluted
(F)
33,358,000
See accompanying notes to Unaudited Pro Forma Combined Statements of Operations.
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Notes to Unaudited Pro Forma Combined Statements of Operations
(A)
We have entered into agreements to obtain audit and certain compliance functions as a stand-alone public company as well as compensation agreements with certain members of our executive team. Prior to the completion of the separation, we will also enter into agreements to obtain insurance coverage according to quotations we have received based on our individual loss history, credit profile and selected insurance coverage. These expenses will represent recurring costs in excess of the amounts historically allocated to Ingevity.
In addition, at the completion of the separation we will enter into a new raw material supply agreement with WestRock for the purchase of black liquor soap skimmings (“BLSS”) and crude tall oil (“CTO”). We have historically obtained BLSS and CTO from WestRock under previously existing supply agreements. We have evaluated the new agreement and its impact on our pro forma income statement. The pro forma adjustment also includes incremental costs of less than $1 million associated with this new agreement calculated by applying the new agreement’s pricing and incentive terms to the actual purchased volumes in 2015.
(B)
Represents the elimination of  $17 million of non-recurring expenses directly related to transaction costs incurred during the year ended December 31, 2015 in connection with the separation from WestRock, primarily related to professional fees associated with separation activities within the finance, tax and legal functions.
(C)
Represents adjustments to interest expense and amortization of debt issuance costs related to our target pro forma long-term indebtedness net of pro forma interest income. As described in balance sheet Note (D), we expect to incur total long-term indebtedness of  $585 million. We expect the weighted-average interest rate on the debt to be 3.1%. Assumed long-term indebtedness of $585 million consisting of borrowings under a secured term loan facility, amounts drawn on a secured revolving credit facility, and existing debt as well as $4 million of debt issuance costs and a weighted-average interest rate of 3.1%. Interest expense may be higher or lower if our actual interest rate or credit ratings change. A change in assumed interest rates of 12.5 basis points would change the pro forma annual interest expense by $0.7 million. The below table presents the impact on pro forma interest expense:
In millions
Year ended
December 31,
2015
Pro forma interest expense on assumed pro forma indebtedness within interest expense:
$ 19
(D)
After the effects of the pro forma adjustments, our applicable effective tax rate for the year ended December 31, 2015 is 36%. The effective tax rate of Ingevity could be different (either higher or lower) depending on activities subsequent to the distribution.
(E)
The estimated number of shares of Ingevity common stock used to compute basic earnings per share is based on the weighted-average WestRock basic shares outstanding for the year ended December 31, 2015 assuming an assumed distribution ratio of one share of Ingevity common stock for every six shares of WestRock common stock.
(F)
The unaudited pro forma diluted earnings per common share and pro forma weighted-average diluted shares outstanding give effect to the potential dilution from common shares related to stock-based awards granted to our employees under WestRock’s stock-based compensation programs. This calculation may not be indicative of the dilutive effect that will actually result from Ingevity’s stock-based awards issued in connection with the adjustment of outstanding WestRock stock-based awards or the grant of new stock-based awards. The number of dilutive shares of common stock underlying Ingevity’s stock-based awards issued in connection with the adjustment of outstanding WestRock stock-based awards will not be determined until the distribution date or shortly thereafter. For the purposes of preparing the unaudited pro forma diluted earnings per common share and pro forma weighted-average diluted shares, we believe an estimate based on applying the distribution ratio described in Note (E) above to the weighted-average WestRock diluted shares outstanding for the year ended December 31, 2015 provides a reasonable approximation of the potential dilutive effect of the stock-based awards.
   
45

Ingevity Corporation
Unaudited Pro Forma Combined Balance Sheet
As of December 31, 2015
(In millions except share and per share data)
Ingevity
Pro Forma
Adjustments
Pro Forma
Assets
Cash and cash equivalents
$ 32 $ (17)
(A), (D)
$ 15
Accounts receivable, net
96 96
Inventories, net
151 151
Prepaid and other current assets
20 20
Current assets
299 (17) 282
Property, plant and equipment, net
438 438
Goodwill
12 12
Other intangibles, net
10 10
Restricted cash
80 (D) 80
Other assets
23 5 (E) 28
Total assets
$ 782 $ 68 $ 850
Liabilities and Equity
Accounts payable
$ 65 $ $ 65
Accounts payable due to WestRock
20 (B) 20
Accrued expenses
13 13
Accrued payroll and employee benefits
10 10
Notes payable
9 9
Current liabilities
97 20 117
Long-term debt
80 501 (D) 581
Deferred income taxes
76 2 (C) 78
Other liabilities
7 4 (E) 11
Total liabilities
260 527 787
Commitments and contingencies
Net parent investment/stockholders’ equity
$ 534 $ (534) (A), (B),
(E), (F)
$
Common stock
(G)
Capital in excess of par value
75 (G) 75
Accumulated other comprehensive (loss) income
(17) (17)
Total net parent investment/stockholders’ equity before noncontrolling interests
517 (459) 58
Noncontrolling interests
5 5
Total net parent investment/stockholders’ equity and noncontrolling interests
522 (459) 63
Total liabilities and net parent investment/stockholders’ equity
$ 782 $ 68 $ 850
See accompanying notes to Unaudited Pro Forma Combined Balance Sheet.
46

Notes to Unaudited Pro Forma Combined Balance Sheet
(A)
Reflects the proceeds of the debt described in balance sheet Note (D) less the anticipated cash distribution to WestRock and restricted cash described in balance sheet Note (D). We expect the distribution to WestRock to be a cash payment of  $438 million in total value.
(B)
Reclassification of accounts payable due to WestRock from net parent investment to reflect the commercial agreement between the parties. Additionally, amount includes expected costs incurred by WestRock associated with equity-based incentive awards held by our employees. See “Treatment of Equity Awards” included within “The Separation” Section on page 40 within this Information Statement for more information.
(C)
Reflects the tax effects of the pro forma adjustments at the applicable income tax rate. The effective tax rate of Ingevity could be different (either higher or lower) depending on activities subsequent to the distribution. The impacts of pro forma adjustments on long-term deferred tax assets and liabilities were offset against existing long-term deferred tax assets and liabilities reflected in our historical Combined Balance Sheet based on jurisdiction. The offset to this adjustment is net parent investment.
(D)
We expect total pro forma long-term indebtedness of  $585 million to be incurred by Ingevity. Proceeds from our pro forma long-term indebtedness will be used to fund our distribution to WestRock described in balance sheet Note (A), a deposit ranging between $50 million and $80 million will be held in escrow restricted for repayment of the portion of our existing debt that we will retain, and cash needs of the business. For purposes of preparing the unaudited pro forma combined financial information, we have assumed an amount to be held in escrow of  $80 million, a target long-term indebtedness of approximately $580 million, consisting of borrowings under a secured term loan facility, amounts drawn on a secured revolving credit facility and existing debt, as well as $4 million of debt issuance costs. The debt issuance costs are shown as a reduction of the outstanding long-term debt as of December 31, 2015, consistent with the treatment prescribed under Accounting Standards Update (ASU) No. 2015-03, “Interest — Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.” The Company adopted this new accounting standard on January 1, 2016.
(E)
Reflects the addition of net pension plan assets and non-qualified retirement plan liabilities that will be transferred to Ingevity by WestRock as part of the separation. These net pension plan assets and non-qualified retirement plan liabilities are excluded from the historical Combined Balance Sheet. The benefit plan expenses associated with these liabilities are included in the Ingevity’s historical Combined Statements of Operations. The offset to this adjustment is net parent investment.
(F)
Reflects the pro forma recapitalization of our equity. As of the distribution date, WestRock’s net investment in our business will be exchanged to reflect the distribution of our shares of common stock to WestRock stockholders. WestRock stockholders will receive shares of our common stock based on an assumed distribution ratio of one share of Ingevity common stock for every six shares of WestRock common stock.
(G)
Represents the elimination of WestRock’s net investment and adjustments to capital in excess of par to reflect the following:
Reclassification of WestRock’s net investment
$ 534
Distribution of cash to WestRock as described in Note A
(438)
Accounts payable due to WestRock under commercial agreement described in balance sheet Note B
(20)
Additional deferred tax assets and liabilities described in balance sheet Note C
(2)
Addition of net pension plan assets and retirement plan liability described in balance sheet Note E
1
Total net parent investment/shareholders’ equity
75
Shares of Ingevity common stock
Total capital in excess of par value
$ 75
   
47

SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION OF INGEVITY
The following table sets forth selected historical financial information of Ingevity. The selected combined financial information as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013 are derived from the company’s audited combined financial statements that are included within this information statement beginning on page F-1.
The combined financial statements as of December 31, 2015, 2014 and 2013 for the years ended 2015, 2014, 2013 and 2012 were audited by an independent registered public accounting firm. Information as of December 31, 2011 and 2010 and for the years ended December 31, 2011 and 2010 are unaudited and have been prepared on a consistent basis with the audited combined financial statements. The selected historical financial information below should be read in conjunction with the combined financial statements and related notes that are included in this proxy statement/ prospectus-information statement on pages noted above. The historical results do not necessarily indicate the results expected for any future period.
The selected combined financial data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Ingevity” and the combined financial statements and accompanying notes included elsewhere in this information statement.
Years ended December 31,
In millions
2015
2014
2013
2012
2011
2010
Statement of Operations Data:
Net sales
$ 968 $ 1,041 $ 980 $ 939 $ 811 $ 676
Gross Profit
281 323 295 297 260 182
Interest Expense
21 16 13 12 12 12
Income before income taxes
138 203 184 189 173 114
Net income
85 133 118 122 114 76
Net income attributable to the company
80 129 119 119 110 73
Unaudited pro forma earnings per share:
Basic
$ 2.68
Diluted
$ 2.67
Balance Sheet Data (at period end):
Working capital (Current Assets Less Current Liabilities)
$ 202 $ 132 $ 122 $ 110 $ 85 $ 69
Current ratio
3.1 1.9 2.2 2.1 2.0 1.9
Property, plant and equipment, net
438 410 326 300 265 257
Total assets
782 718 593 550 484 451
Capital lease obligations due after one year
80 86 86 86 86 86
Total equity
522 420 328 294 242 213
Other Data:
Capital expenditures
102 101 63 40 29 22
Depreciation and amortization expense
35 33 33 32 29 30
48

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF INGEVITY
The following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures about market risk should be read in conjunction with our historical combined financial statements and accompanying notes and the unaudited pro forma combined financial statement, each included elsewhere in this Information Statement.
The financial information discussed below and included elsewhere in this Information Statement may not necessarily reflect what our financial condition, results of operations or cash flow would have been had we been a stand-alone company during the periods presented or what our financial condition, results of operations and cash flows may be in the future.
Introduction
Management’s discussion and analysis of Ingevity’s results of operations and financial condition (“MD&A”) is provided as a supplement to the Annual Combined Financial Statements and the related notes included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations.
Forward-looking statements are based on certain assumptions and expectations of future events which may not be accurate or realized. Forward-looking statements also involve risks and uncertainties, many of which are beyond Ingevity’s control. Some of the important factors that could cause Ingevity’s actual results to differ materially from those projected in any such forward-looking statements are set forth in the section entitled “Risk Factors” included within this Information Statement.
Separation and Distribution
Prior to the separation, we operated as a reporting segment of WestRock, which was formed upon the combination (the “Merger”) of MWV and Rock-Tenn. The Merger was completed on July 1, 2015.
Prior to the Merger, we operated as a reporting segment of MWV. On January 8, 2015, MWV announced that it intended to separate its specialty chemicals business through a pro rata distribution of common stock to its stockholders. Upon the completion of the Merger, WestRock announced its continued plans to complete the separation.
On April 21, 2016, the WestRock board of directors approved the distribution of all of the issued and outstanding shares of Ingevity common stock on the basis of one share of Ingevity common stock for every six shares of WestRock held as of the close of business on the record date of May 4, 2016.
Overview
Ingevity is a leading global manufacturer of specialty chemicals and high performance carbon materials. Ingevity participates in attractive, higher growth sectors of the global specialty chemicals industry. Our specialty chemicals products serve as critical inputs used in a variety of high performance applications, primarily in three product families: pavement technologies, oilfield technologies and industrial specialties. We are also the leading global manufacturer of activated carbon used in gasoline vapor emission control systems in cars, trucks, motorcycles and boats, with over 750 million units installed globally over the 30-year history of this business. We report in two business segments, Performance Chemicals and Performance Materials.
The Performance Chemicals segment develops, manufactures and sells a wide range of specialty chemicals primarily derived from co-products of the kraft pulping process. Products include performance chemicals derived from pine chemicals used in asphalt paving, adhesives, agrochemical dispersants, publication inks, lubricants, petroleum and other diverse industrial uses. The Performance Chemicals segment serves customers globally from its manufacturing operations in the United States and Brazil.
The Performance Materials segment primarily produces automotive carbon products used in gasoline vapor emission control systems in cars, trucks, motorcycles and boats. The automotive carbon products capture gasoline vapor emissions that would otherwise be released into the atmosphere as volatile organic
49

compounds (“VOCs”) which contain hazardous air pollutants. Ingevity’s automotive carbon products are typically part of vehicle-based control systems which capture gasoline vapor emissions. The stored vapors are then largely purged from the carbon and directed to the engine where they are used as supplemental power for the vehicle. The Performance Materials segment serves customers globally from its manufacturing operations in the United States and China.
Basis of Presentation
References to Ingevity’s historical business and operations refer to the business and operations of the specialty chemicals business of WestRock Company, or prior to the merger of MWV and Rock-Tenn, which was completed on July 1, 2015, the Specialty Chemicals Business of MWV. The historical business and operations have been or will be transferred to Ingevity in connection with the separation and distribution.
These combined financial statements include all majority-owned or controlled entities of WestRock related to its specialty chemicals business (the “company”), and all significant inter-company transactions have been eliminated. The company does not operate as a separate, stand-alone entity and is comprised of certain WestRock wholly owned legal entities for which the company is the sole business and components of legal entities in which the company operates in conjunction with other WestRock businesses. For purposes of this discussion, the term “WestRock” herein also refers to the legacy operations of MWV prior to the consummation of the Merger.
These combined financial statements include allocated expenses associated with centralized WestRock support functions including legal, accounting, tax, treasury, internal audit, information technology, human resources and other services. The costs associated with these functions generally include all payroll and benefit costs as well as related overhead costs. These combined financial statements also include allocated costs associated with WestRock’s office facilities, corporate insurance coverage and medical, pension, post-retirement and other health plan costs attributed to the company’s employees participating in WestRock’s sponsored plans. Allocations are generally based on a number of utilization measures including employee count and proportionate effort. In situations in which determinations based on utilization are impracticable, WestRock and the company use other methods and criteria such as net sales which are believed to result in reasonable estimates of costs attributable to the company. All such amounts have been assumed to have been immediately settled by the company to WestRock in the period in which the costs were recorded in the combined financial statements. Such amounts are included in net cash provided by operating activities in the combined statements of cash flows.
The company and WestRock management believes the related-party allocations included in these combined financial statements have been made on a reasonable basis. However, these combined financial statements may not necessarily be indicative of the results of operations that would have been obtained if the company had operated as a separate entity during the periods presented. Actual costs that may have been incurred if the company had been a stand-alone business would depend on a number of factors, including organizational structure and what functions were outsourced or performed by employees, as well as strategic decisions made in areas such as information technology and infrastructure. Consequently, Ingevity’s future earnings if operated as an independent business could include items of income and expense that are materially different from what is included in these Combined Statements of Operations. Accordingly, the combined financial statements for the periods presented are not necessarily indicative of the company’s future results of operations, financial position and cash flows.
Use of Non-GAAP Financial Measures
Ingevity has presented certain financial measures, defined below, which have not been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and has provided a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable financial measure calculated in accordance with GAAP. The company believes these non-GAAP measures provide investors, potential investors, securities analysts and others with useful information to evaluate the performance of the business, because such measures, when viewed together with our financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance and projected future results.
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Ingevity uses the following non-GAAP measures: Combined Adjusted EBITDA and Segment EBITDA. Combined Adjusted EBITDA is defined as net income plus provision for income taxes, interest expense, depreciation and amortization, separation costs and restructuring and other (income) charges. Segment EBITDA is defined as segment profit plus depreciation and amortization.
These non-GAAP measures are 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. Reconciliations of Combined Adjusted EBITDA and Segment EBITDA to net income and segment profit, respectively, are set forth within this section.
Combined Adjusted EBITDA
Years ended December 31,
In millions
2015
2014
2013
Net income
$ 85 $ 133 $ 118
Provision for income taxes
53 70 66
Interest expense
21 16 13
Depreciation and amortization
35 33 33
Separation costs
17
Restructuring and other (income) charges
(8) (5) (3)
Combined Adjusted EBITDA
$ 203 $ 247 $ 227
Segment EBITDA
Performance Chemicals
Years ended December 31,
2015
2014
2013
Segment Profit
$ 87 $ 124 $ 126
Depreciation and amortization
24 23 23
Segment EBITDA
$ 111 $ 147 $ 149
Performance Materials
Years ended December 31,
2015
2014
2013
Segment Profit
$ 81 $ 90 $ 68
Depreciation and amortization
11 10 10
Segment EBITDA
$ 92 $ 100 $ 78
Drivers of Demand and Key Factors Affecting Profitability
Drivers of demand and key factors affecting our profitability differ by segment. In Performance Chemicals, drivers of demand are specific to the various markets. In pavement technologies, demand is influenced by long-term secular growth trends in infrastructure preservation and development. In the United States, for example, which has a very established road system, the trend towards preservation of existing roads compared to construction of new roads has been positive for Ingevity due to our development of innovative chemistries for such applications. Additionally, secular trends in paving are driving the use of more recycled content in roads to both lower construction costs and prolong the life of the road. Ingevity has developed innovative chemistries for these applications as well. In oilfield technologies, demand is influenced by growth in unconventional oil exploration, drilling and production. Current oil prices and the corresponding reduction in exploration, drilling and production have negatively impacted demand for our oilfield technologies products, though there are opportunities for us to continue to innovate and provide innovative chemistries for our customers in the more challenging economic environment as our products aid in reducing the net cost of producing a barrel of oil. Demand in the
51

industrial specialties market is driven by levels of global agricultural activity, volume needs from the global graphic arts industry and general industrial production that requires adhesives, metalworking and fuel additives. Global macroeconomic demand factors as well as the strengthening of the U.S. dollar relative to the Euro have put pressure on demand in this market.
Profitability in Performance Chemicals is impacted by sales volume, price and mix of products sold, a secure and stable supply of CTO at appropriate market prices, hydrocarbon-based raw material prices, refinery and post refinery asset operating rates, foreign exchange rates, level of expense investment to serve and develop innovative solutions for our customers and successfully serving new and existing markets that value the company’s ability to meet specialized, complex customer needs. Headwinds in foreign exchange, specifically the strengthening of the U.S. dollar relative to the Euro, as well as headwinds in oil pricing as it relates to our sales in that market and pressure in our industrial specialties end markets have been partially offset by positive demand in our pavement technologies market, stable supply and declining price of CTO, and price declines in other, hydrocarbon based raw materials corresponding to reduced oil prices.
In Performance Materials, demand is a function of global vehicle sales and the impact that increasingly stringent emission standards have on the volume and type of products our customers utilize in their gasoline vapor emission control systems. Increased global vehicle sales and continuing regulatory trends, especially in the NAFTA region, has had a positive effect on our sales and product mix in our automotive market and will continue to positively impact our results. Global macroeconomic weakness in the near term could have a negative impact on vehicle sales and thus our automotive product sales.
Profitability in Performance Materials is impacted by sales volume, price and mix of products sold, the price of raw materials, primarily sawdust and phosphoric acid, the cost of natural gas used to fuel the carbon activation process, the ability to control the yields and technical characteristics of our products during manufacturing, foreign exchange rates and our level of expense investment to serve and develop innovative solutions for our customers. Growth in global vehicle sales and more stringent regulatory standards positively impact volumes, mix and content per vehicle. The cost of recent reinvestment in the business, primarily the expansion of our manufacturing facilities and the greenfield facility startup in China, has partially offset the favorable profit impact of this growth. We expect favorable profitability trends to continue now that the greenfield facility is commercialized.
Business Outlook
We expect revenue to decline in 2016 compared to 2015, as ongoing negative pricing and mix issues in the Performance Chemicals’ industrial specialties and oilfield technologies product families, and foreign exchange impacts outweigh volume and price gains in Performance Materials and in Performance Chemicals’ pavement technologies market. We expect our 2016 Combined Adjusted EBITDA to be flat to slightly negative compared to 2015. This is driven by expected incremental costs to be incurred as an independent public company, including costs to replace services previously provided by WestRock as well as other stand-alone costs, and ongoing pressure on pricing and mix in our Performance Chemicals’ industrial specialties and oilfield technologies segments. Offsetting these additional incremental public company costs are cost savings driven by a series of implemented cost reduction initiatives and incremental margin due to growth in our Performance Materials’ and Performance Chemicals’ pavement technologies markets. The cost reduction initiatives include reductions in selling, general and administrative costs, supply chain spending reduction initiatives, plant spending reductions, and control of costs related to being a stand-alone, public company. Additionally we will begin to see benefits from our major capital expansion projects that took place in 2014 and 2015. As these projects are reaching completion in early 2016, we expect a reduction in capital spending versus the prior two years.
Performance Chemicals
Demand in the industrial specialties market is driven by levels of global agricultural activity, volume needs from the global graphic arts industry, and general industrial production that requires adhesives, metalworking and fuel additives. Global macroeconomic demand factors as well as the strengthening of the U.S. dollar relative to the Euro have put pressure on demand in this market.
Demand for our oilfield technologies services and products is particularly sensitive to the level of exploration, development and production activity of, and the corresponding capital spending by, oil and
52

natural gas companies, including national oil companies. The level of exploration, development and production activity is directly affected by trends in oil and natural gas prices, which historically have been volatile. Crude oil prices have declined significantly since 2014, with West Texas Intermediate (WTI) oil spot prices declining from a high of  $108 per barrel in June 2014 to a low of  $27 per barrel in January 2016, a level which has not been experienced since 2003, and pricing is not forecasted to improve significantly during 2016. Any prolonged low pricing environment for oil and natural gas is likely to result in reduced demand for our oilfield technology products, which may have a material adverse effect on our results of operations.
Demand in pavement technologies is influenced by long-term secular growth trends in infrastructure preservation and development. In the United States, for example, which has a very established road system, the trend towards preservation of existing roads compared to construction of new roads has been positive for Ingevity due to our development of innovative chemistries for such applications. Additionally, secular trends in paving are driving the use of more recycled content in roads to both lower construction costs and prolong the life of the road. Ingevity has developed innovative chemistries for these applications as well.
Profitability in Performance Chemicals is impacted by sales volume, price and mix of products sold, a secure and stable supply of CTO at appropriate market prices, hydrocarbon-based raw material prices, refinery and post-refinery asset operating rates, foreign exchange rates, level of expense investment to serve and develop innovative solutions for our customers and successfully serving new and existing markets that value the company’s ability to meet specialized, complex customer needs. Headwinds in foreign exchange, specifically the strengthening of the U.S. dollar relative to the Euro, as well as headwinds in oil pricing as it relates to our sales in that market and pressure in our industrial specialties end markets have been partially offset by positive demand in our pavement technologies market, stable supply and declining price of CTO, and price declines in other hydrocarbon-based raw materials corresponding to reduced oil prices.
Performance Materials
Demand is a function of global vehicle sales and the impact that increasingly stringent emission standards have on the volume and type of products our customers utilize in their gasoline vapor emission control systems. Increased global vehicle sales and continuing regulatory trends, especially in the NAFTA region, has had a positive effect on our sales and product mix in our automotive market and will continue to positively impact our results. Global macroeconomic weakness in the near term could have a negative impact on vehicle sales and thus our automotive product sales.
Profitability in Performance Materials is impacted by sales volume, price and mix of products sold, the price of raw materials, primarily sawdust and phosphoric acid, the cost of natural gas used to fuel the carbon activation process, the ability to control the yields and technical characteristics of our products during manufacturing, foreign exchange rates and our level of expense investment to serve and develop innovative solutions for our customers. Growth in global vehicle sales and more stringent regulatory standards positively impact volumes, mix and content per vehicle. The cost of recent reinvestment in the business, primarily the expansion of our manufacturing facilities and the greenfield facility startup in China, and headwinds in foreign exchange, specifically the strengthening of the U.S. dollar relative to the Japanese Yen, has partially offset the favorable profit impact of this growth. We expect favorable profitability trends to continue now that the greenfield facility is commercialized.
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Results of Operations
For the Years Ended December 31, 2015, 2014 and 2013
The following table presents the combined statements of operations of the company for the years ended December 31, 2015, 2014 and 2013 as reported in accordance with accounting principles generally accepted in the United States.
Years ended December 31,
In millions
2015
2014
2013
Net sales
$ 968 $ 1,041 $ 980
Cost of sales
687 718 685
Gross Profit
281 323 295
Selling, general and administrative expenses
114 112 103
Separation costs
17
Interest expense
21 16 13
Other (income) expense, net
(9) (8) (5)
Income before income taxes
138 203 184
Provision for income taxes
53 70 66
Net income
85 133 118
Less: Net income (loss) attributable to noncontrolling interests, net of taxes
5 4 (1)
Net income attributable to the company
$ 80 $ 129 $ 119
Combined Adjusted EBITDA(1)
$ 203 $ 247 $ 227
(1)
Combined Adjusted EBITDA is defined as net income plus provision for income taxes, interest expense, depreciation and amortization, separation costs and restructuring and other (income) charges.
Comparison of Years Ended December 31, 2015 and 2014
The table below shows the 2015 combined net sales and percentage variances from 2014:
In millions
2015
Net Sales
Percentage
change vs.
prior year
Currency
effect
Price/Mix
Volume
Other
Combined
$ 968 (7)% (3)% (2)% (2)% %
Sales were $968 million and $1,041 million for the years ended December 31, 2015 and 2014, respectively. The sales decrease in 2015 was driven by foreign exchange of  $31 million (three percent of sales) due to the devaluation of the Euro, Japanese Yen and Brazilian Real versus the U.S. Dollar and unfavorable pricing and mix of  $24 million in performance chemicals (two percent of sales) in the rubber, publication inks, and adhesives markets and certain industrial specialties and oilfield technologies products due to pricing pressure from competitive materials partially offset by favorable pricing and mix of  $5 million in performance materials resulting in an overall reduction in sales by two percent as compared to 2014. Overall, volume declined $23 million (two percent of sales) due to volume declines in process purification markets, oilfield and certain industrial specialties markets that were partially offset by volume growth in high value strategic markets for pavement due to sales penetration and market growth and performance materials due to strength in the NAFTA automotive market and continued regulatory trends.
Cost of sales were $687 million (71% of sales) and $718 million (69% of sales) for the years ended December 31, 2015 and 2014, respectively. The $31 million decrease in cost of sales was due to a decrease of $18 million due to a two percent decline in sales volume, a decrease of  $17 million due to the devaluation of the Euro and Brazilian Real versus the U.S. Dollar, and $20 million due to lower input costs related to CTO, other petroleum-based raw materials, freight and energy. These decreases were partially offset by $24 million due to unfavorable productivity related to significantly higher planned maintenance outages, particularly in the fourth quarter, higher costs related to the startup of the new Performance Materials plant in China, higher depreciation and amortization with higher capital expenditures, and other manufacturing related spending.
54

Selling, general and administrative expenses were $114 million (12% of sales) and $112 million (11% of sales) for the years ended December 31, 2015 and 2014, respectively. The increase of  $2 million was primarily driven by higher employee costs compared to 2014.
Separation costs of  $17 million were one-time expenses related to the spin-off of the business from WestRock. See Note 12 within the Combined Financial Statements within this Information Statement for more information.
Interest expense was $21 million and $16 million for the years ended December 31, 2015 and 2014, respectively. Interest expense consisted of  $8 million and $6 million related to capital lease obligations and $13 million and $10 million in allocated interest expense from WestRock for the years ended December 31, 2015 and 2014, respectively.
Other income, net was $9 million and $8 million for the years ended December 31, 2015 and 2014, respectively, and consisted of the following:
Years ended December 31,
In millions
2015
2014
Foreign currency exchange losses (income)
$ 1 $ 1
Royalty and sundry income(1)
(2) (4)
Restructuring and other (income) charges, net(2)
(8) (5)
Other (income) expense, net
$ (9) $ (8)
(1)
Primarily represents royalty income for technology licensing.
(2)
See below for more information regarding the company’s restructuring and other (income) charges, net.
Years ended December 31,
In millions
2015
2014
Restructuring and other (income) charges, net
Gain on sale of assets and businesses
$ (12) $ (5)
Insurance and legal settlements
Asset write-downs
4
Total restructuring and other (income) charges, net
$ (8) $ (5)
2015 activities
During 2015, the company sold its 60 percent interest in a subsidiary in China for cash proceeds of  $11 million and recorded a gain on the sale of the subsidiary of  $11 million. Prior to its sale this subsidiary operated under the company’s Performance Materials operating segment. The additional $1 million of income relates to an additional gain on the 2014 sale of Performance Materials’ air purification business as noted below.
As part of a plan that was implemented to restructure a portion of the Company’s operations, we recorded an impairment of  $4 million to write down inventory and property, plant and equipment associated with certain manufacturing operations of the Company’s Performance Chemicals segment.
2014 activities
The company made a strategic decision to sell its Performance Materials’ air purification business. During 2014, the company sold the net working capital and associated customer list related to the air purification business and recorded a $5 million gain on sale.
The company’s effective tax rate was 38% and 35% for the years ended December 31, 2015 and 2014, respectively. The differences in these effective rates compared to the combined statutory rates were primarily due to non-deductible transaction costs in 2015.
55

Adjusted EBITDA was $203 million and $247 million for years ended December 31, 2015 and 2014, respectively. This decrease of  $44 million was primarily driven by declines in segment EBITDA in Performance Chemicals of  $36 million and in Performance Materials of  $8 million. See Segment Operating Results section below for more information on the results of operations for each of the company’s operating segments.
Comparison of Years Ended December 31, 2014 and 2013
The table below shows the 2014 combined net sales and percentage variances from 2013:
In millions
2014
Net Sales
Percentage
change vs.
prior year
Currency
effect
Price/Mix
Volume
Other
Combined
$ 1,041 6% (1)% 1% 6% %
Sales were $1,041 million and $980 million for the years ended December 31, 2014 and 2013, respectively. The sales increase in 2014 was driven by $60 million in volume growth (six percent of sales) in pavement, inks, adhesives, oilfield, other industrial specialties and automotive emissions markets due to market growth and share gains in those markets. Pricing and product mix improved by $6 million (one percent of sales) from gains in high value strategic markets for pavement, inks, adhesives, automotive emissions and process purification due to changes in customer mix and price. These increases were partially offset by negative pricing and product mix in certain industrial specialties and oilfield technologies products. These gains were partially offset by unfavorable foreign currency exchange of  $5 million (one percent of sales) due to the devaluation of the Japanese Yen and the Brazilian Real versus the U.S. Dollar compared to 2013.
Cost of sales were $718 million (69% of sales) and $685 million (70% of sales) for the years ended December 31, 2014 and 2013, respectively. Cost of sales increased by $33 million primarily driven by $40 million due to six percent higher volume, $12 million due to input cost inflation related to raw materials, freight and energy compared to 2013. These increases were partially offset by $16 million in productivity improvements and $3 million due to a depreciation in the Brazilian Real versus the U.S. dollar compared to 2013.
Selling, general and administrative expenses were $112 million (11% of sales) and $103 million (11% of sales) for the years ended December 31, 2014 and 2013, respectively. Selling, general and administrative expenses increased $9 million primarily driven by $6 million in higher employee costs primarily driven by higher incentive compensation and investments in sales and technical support capabilities, $2 million in higher commissions due to higher sales in pavement technologies, and $2 million in higher travel, entertainment and consulting expenses partially offset by a decrease in legal spending and other costs of  $1 million compared to 2013.
Interest expense was $16 million and $13 million for the years ended December 31, 2014 and 2013, respectively. Interest expense consisted of  $6 million and $7 million related to capital lease obligations and $10 million and $6 million in allocated interest expense from WestRock for the years ended December 31, 2014 and 2013, respectively.
Other income, net was $8 million and $5 million for the years ended December 31, 2014 and 2013, respectively, and consisted of the following:
Years ended December 31,
In millions
2014
2013
Foreign currency exchange losses (income)
$ 1 $
Royalty and sundry income(1)
(4) (2)
Restructuring and other (income) charges, net(2)
(5) (3)
Other (income) expense, net
$ (8) $ (5)
(1)
Primarily represents royalty income for technology licensing.
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(2)
See below for more information regarding the company’s restructuring and other (income) charges, net.
Years ended December 31,
In millions
2014
2013
Restructuring and other (income) charges, net
Gain on sale of assets and businesses
$ (5) $
Insurance and legal settlements
(13)
Asset write-downs
10
Total restructuring and other (income) charges, net
$ (5) $ (3)
2014 activities
The company made a strategic decision to sell its Performance Materials’ air purification business. During 2014, the company sold the net working capital and associated customer list related to the air purification business and recorded a $5 million gain on sale.
2013 activities
During 2013, the company incurred pre-tax charges of  $10 million ($6 million attributable to the company and $4 million associated with noncontrolling interests) in connection with certain asset write-downs at one of the company’s Performance Materials’ foreign manufacturing locations.
The company’s Performance Chemical operating segment benefited from favorable non-recurring insurance and legal settlements during 2013.
The company’s effective tax rate was 35% and 36% for the years ended December 31, 2014 and 2013, respectively. The differences in these effective rates compared to the combined statutory rates were primarily due to the mix and levels of domestic versus foreign earnings. In 2014, Ingevity recorded a tax provision of $70 million, reflecting an increase of  $4 million from 2013 primarily due to an increase in earnings. The decrease in the effective tax rate to 35% in 2014 compared to 36% in 2013 was primarily due to the increase in a valuation allowance in 2013 partially offset by an increased benefit recognized in 2014 relating to IRC Section 199 deductions.
Combined Adjusted EBITDA was $247 million and $227 million for the years ended December 31, 2014 and 2013, respectively. This increase of  $20 million was primarily driven by improvements in segment EBITDA in Performance Materials of  $22 million and a slight decline in segment EBITDA Performance Chemicals of  $2 million. See “Segment Operating Results” section below for more information on the results of operations for each of the company’s operating segments.
Segment Operating Results
In addition to the information discussed above, the following sections discuss the results of operations for each of the company’s segments. The company’s segments are (i) Performance Chemicals and (ii) Performance Materials.
In general, the accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in the Annual Combined Financial Statements.
Performance Chemicals
Years ended December 31,
In millions
2015
2014
2013
Net sales
$ 711 $ 792 $ 759
Segment profit
87 124 126
Plus: Depreciation and amortization
24 23 23
Segment EBITDA
$ 111 $ 147 $ 149
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Comparison of Years Ended December 31, 2015 and 2014
In millions
2015
Net Sales
Percentage
change vs.
prior year
Currency
effect
Price/Mix
Volume
Other
Performance Chemicals
$ 711 (10)% (3)% (3)% (4)% %
Segment sales for the Performance Chemicals segment were $711 million and $792 million for the years ended December 31, 2015 and 2014, respectively. The sales decrease was driven by $28 million (three percent of sales) of unfavorable foreign currency exchange due to the devaluation of the Euro and Brazilian Real versus the U.S. Dollar and $24 million (three percent of sales) of unfavorable pricing and product mix in the rubber, publication inks, and adhesives markets and certain other industrial specialties and oilfield technologies products. Volume declined by $29 million (four percent of sales) driven by unfavorable volume in oilfield and certain industrial specialties markets partially offset by volume growth in high value strategic markets for pavement, adhesives, and agrochemicals markets compared to 2014.
Segment EBITDA for Performance Chemicals segment was $111 million and $147 million for the years ended December 31, 2015 and 2014, respectively. Segment EBITDA decreased primarily due to $24 million from unfavorable pricing and product mix in the rubber, publication inks, and adhesives markets and certain industrials specialties and oilfield technologies products, $9 million from unfavorable foreign currency exchange due to the devaluation of the Euro and Brazilian Real versus the U.S. Dollar, $7 million from lower sales volume, and $14 million from unfavorable productivity, higher costs related to higher planned maintenance downtime, costs from continued investments in sales and technical support capabilities, and investments in product development and innovation. These decreases were partially offset by $18 million of deflation on CTO and other petroleum-based raw materials compared to 2014.
Comparison of Years Ended December 31, 2014 and 2013
In millions
2014
Net Sales
Percentage
change vs.
prior year
Currency
effect
Price/Mix
Volume
Other
Performance Chemicals
$ 792 4% % % 5% (1)%
Segment sales for the Performance Chemicals segment were $792 million and $759 million for the years ended December 31, 2014 and 2013, respectively. The sales increase in 2014 was driven by $39 million (five percent of sales) of volume growth in pavement, inks, adhesives, oilfield and other industrial specialties markets. These gains were partially offset by unfavorable foreign currency exchange of  $3 million (less than one percent of sales) due to the devaluation of the Brazilian Real versus the U.S. Dollar. Pricing and product mix was unfavorable by $3 million (less than one percent of sales) due to certain industrial specialties and oilfield technologies standard product offerings partially offset by improvements from gains in the pavement, inks and adhesives markets compared to 2013.
Segment EBITDA for Performance Chemicals segment was $147 million and $149 million for the years ended December 31, 2014 and 2013, respectively. Segment profit decreased in 2014 primarily due to $10 million of CTO and other pine-based raw material input cost increases and other input cost inflation primarily related to energy, $3 million from unfavorable pricing and product mix within industrial specialty markets and $5 million from continued investments in sales and technical support capabilities and investments in product development and innovation. These decreases were partially offset by $9 million from higher volumes and $7 million manufacturing productivity associated with higher plant operating rates compared to 2013.
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Performance Materials
Years ended December 31,
In millions
2015
2014
2013
Net sales
$ 257 $ 249 $ 221
Segment profit
81 90 68
Depreciation and Amortization
11 10 10
Segment EBITDA
$ 92 $ 100 $ 78
Comparison of Years Ended December 31, 2015 and 2014
In millions
2015
Net Sales
Percentage
change vs.
prior year
Currency
effect
Price/Mix
Volume
Other
Performance Materials
$ 257 3% (1)% 2% 2% %
Segment sales for the Performance Materials segment were $257 million and $249 million for the years ended December 31, 2015 and 2014, respectively. The sales increase in 2015 was driven by $6 million (two percent of sales) in volume improvements in the automotive emissions market due to strength in the NAFTA market and continued regulatory trends partially offset by declines in process purification markets and $5 million (two percent of sales) in pricing and mix improvements from gains in the automotive emissions market. These gains were partially offset by $3 million (one percent of sales) of unfavorable foreign currency exchange due to the devaluation of the Japanese Yen and the Euro versus the U.S. Dollar compared to 2014.
Segment EBITDA for the Performance Materials segment was $92 million and $100 million for the years ended December 31, 2015 and 2014, respectively. Segment EBITDA was down by $8 million primarily due to $13 million from unfavorable productivity related to higher planned maintenance outages and project expenses incurred during the construction of our greenfield plant in China, and $3 million from unfavorable foreign currency exchange due to the devaluation of the Japanese Yen and Euro versus the U.S. Dollar which was partially offset by $5 million in favorable pricing and mix in automotive emissions and $3 million in favorable volume compared to 2014.
Comparison of Years Ended December 31, 2014 and 2013
In millions
2014
Net Sales
Percentage
change vs.
prior year
Currency
effect
Price/Mix
Volume
Other
Performance Materials
$ 249 13% (1)% 4% 10% %
Segment sales for the Performance Materials segment were $249 million and $221 million for the years ended December 31, 2014 and 2013, respectively. The sales increase in 2014 was driven by $22 million (ten percent of sales) in volume growth in the automotive emissions market partially offset by volume declines in process purification markets. Revenue benefited by $8 million (four percent of sales) in pricing and product mix improvements in both the automotive emissions and process purification markets. These gains were partially offset by $2 million (one percent of sales) of unfavorable foreign currency exchange due to the devaluation of the Japanese Yen versus the U.S. Dollar compared to 2013.
Segment EBITDA for the Performance Materials segment was $100 million and $78 million for the years ended December 31, 2014 and 2013, respectively. Segment EBITDA increased in 2014 primarily due to $10 million from higher volumes in automotive emissions, $9 million from favorable productivity, including savings from cost reduction initiatives and increased plant throughput and operating rates and $8 million from favorable pricing and product mix in automotive emissions and process purification markets compared to 2013. These benefits were partially offset by $3 million of inflation on raw materials and other input costs and $2 million from unfavorable foreign currency exchange due to the devaluation of the Japanese Yen versus the U.S. Dollar compared to 2013.
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Liquidity and Capital Resources
Historically, the primary source of liquidity for Ingevity’s business is the cash flow provided by operations which has historically been transferred to WestRock to support its overall cash management strategy. Prior to separation, transfers of cash to and from WestRock have been reflected in Net Parent Investment in the historical Combined Balance Sheets, Statements of Cash Flows and Statements of Changes in Net Parent Investment. We expect WestRock to continue to fund us with cash as needed through the date of the separation.
Cash and cash equivalents totaled $32 million at December 31, 2015. Cash equivalents are comprised of short-term investments in U.S. and Brazilian government securities. Management continuously monitors deposit concentrations and the credit quality of the financial institutions that hold the company’s cash and cash equivalents, as well as the credit quality of its insurance providers, customers and key suppliers.
Due to the global nature of the company’s operations, a portion of its cash is held outside the United States. We believe that our foreign holdings of cash will not have a material adverse impact on our liquidity. The company does not currently expect to repatriate cash earnings from its foreign operations in order to fund U.S. operations. If these earnings were distributed, such amounts would be subject to U.S. federal income tax at the statutory rate less the available foreign tax credits, if any, and potentially subject to withholding taxes in the various jurisdictions.
Separation and Distribution impact on liquidity
We do not expect the financing transactions, we have entered (as described below) or will enter into in connection with the separation, including the payment of the dividend, distribution or other cash transfer to WestRock, to impact our cash flow requirements for 2016 or the foreseeable future. We expect to deleverage by using cash flow from operations to repay outstanding borrowings associated with the separation. In addition, we expect our cash flow from operations combined with cash on hand to be sufficient to meet our working capital needs. We believe these sources will be sufficient to fund our planned operations, and in meeting our interest, dividend and contractual obligations.
Revolving Credit and Term Loan Facility
On March 7, 2016 we entered into a credit agreement governing a senior secured multi-currency revolving credit facility (the “Revolving Credit Facility”), which provides for maximum borrowings of  $400 million for the company, with a €100 million subfacility for a Belgian subsidiary borrower of Ingevity (the “Belgian Borrower”) subject to certain additional conditions on the initial funding date. The Revolving Credit Facility allows for borrowings in U.S. dollars, euros and Japanese yen, with certain sub-limits. The Revolving Credit Facility has a letter of credit sub-limit of  $75 million and a swingline facility sub-limit of approximately $40 million. The Revolving Credit Facility will be available, subject to certain customary conditions, on and after the initial funding date, which is expected to be up to 10 business days prior to or substantially concurrently with the separation from WestRock. The Revolving Credit Facility can be utilized for working capital and other general corporate purposes, and is expected to be drawn up to $225 million on the distribution date.
We also, on March 7, 2016, entered into a senior secured term loan facility (the “Term Loan Facility” and together with the Revolving Credit Facility, the “Facilities”) of  $300 million, the proceeds of which, together with the funding date draw under the Revolving Credit Facility, we expect will be used to pay a dividend, distribution or other cash transfer of up to $500 million to WestRock or one of its subsidiaries prior to the consummation of the separation and distribution and to pay fees and expenses associated with the Facilities and the separation. The term loan will be funded subject to certain additional conditions on the funding date.
The Facilities mature on the five-year anniversary of the initial funding date of the Facilities. The Term Loan Facility amortizes at a rate equal to 0 percent per annum during the first year after the funding date, 5 percent per annum during the second and third years after the funding date and 10 percent per annum during the fourth and fifth years after the funding date, with the balance due at maturity. The Term Loan Facility will require the proceeds of certain asset sales and casualty events to be applied to prepay the loans under the Term Loan Facility, subject to certain thresholds, exceptions and reinvestment rights.
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The interest rates per annum applicable to the loans under the Facilities are based on a fluctuating rate of interest measured by reference to, at the borrowers’ election, either (1) an adjusted London inter-bank offered rate (LIBOR) plus a borrowing margin, or (2) an alternate base rate plus a borrowing margin. The borrowing margin for the Facilities is subject to adjustment based on the company’s consolidated total leverage ratio, and is between 1.25% and 2.00% in the case of LIBOR loans and between 0.25% and 1.00% in the case of base rate loans.
Customary fees will be payable in respect of both Facilities. The Revolving Credit Facility fees will include (i) commitment fees, based on a percentage of the daily unused portions of the facility ranging from 0.15% to 0.30%, and (ii) customary letter of credit fees. These fees are expected to be capitalized and amortized over the term of the Facilities.
The Facilities include financial covenants requiring the company to maintain on a consolidated basis, as of the end of each fiscal quarter, a maximum total leverage ratio of 3.75 to 1.00, which may be increased to 4.25 to 1.00 under certain circumstances and a minimum interest coverage ratio of 3.00 to 1.00, in each case, as of the first fiscal quarter ending after the funding date. The Facilities include customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross default to certain other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments and change of control.
For a further description of the above mentioned financing arrangements, see “Description of Material Indebtedness” within this Information Statement.
Cash flow comparison of Years Ended December 31, 2015, 2014 and 2013
Years ended December 31,
In millions
2015
2014
2013
Net cash provided by operating activities
$ 73 $ 143 $ 137
Net cash used in investing activities
(90) (102) (64)
Net cash provided by (used in) financing activities
27 (31) (79)
Operating activities
During 2015, cash flow from operations decreased primarily due to lower year-over-year cash earnings as well as net increases in working capital compared to 2014. During 2014, cash flow increased due to higher year-over-year cash earnings, which was partially offset by net increases in working capital compared to 2013. Working capital increases are driven primarily by increases in inventory balances offset by increases in accounts payable when compared to 2013.
Investing activities
For all periods, the cash used in investing activities are primarily attributable to capital expenditures. In 2015 and 2014, capital spending included base maintenance capital supporting ongoing operations and significant growth spending primarily related to the construction of an activated carbon manufacturing facility in China and new derivative equipment in Charleston supporting the adhesives, pavement and oilfield markets.
December 31,
In millions
2015
2014
Maintenance capital expenditures
$ 33 $ 28
Safety, health and environment
12 11
Growth and cost improvement capital expenditures
57 62
Total capital expenditures
$ 102 $ 101
Projected 2016 capital expenditures are expected to be $65 million to $80 million.
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Financing activities
As WestRock manages the company’s cash and financing arrangements, all excess cash generated through earnings is remitted to WestRock and all sources of cash are funded by WestRock.
Cash provided by financing activities in 2015 was $27 million and was driven by cash provided by WestRock of  $30 million. Cash used in financing activities in 2014 was $31 million and was driven by excess cash remitted to WestRock of  $31 million. Cash used in financing activities in 2013 was $79 million and was driven primarily by excess cash remitted to WestRock of  $70 million and distributions to noncontrolling interests of  $8 million.
Current Assets and Liabilities
December 31,
In millions
2015
2014
Cash and cash equivalents
$ 32 $ 20
Accounts receivable, net
96 108
Inventories
151 130
Prepaid and other current assets
20 13
Total current assets
$ 299 $ 271
Current assets as of December 31, 2015 increased $28 million compared to December 31, 2014 primarily due to increases in cash and inventories. Accounts receivable, net as of December 31, 2015 decreased $12 million consistent with the lower revenues in 2015 compared to 2014. Inventories increased by $21 million, driven by higher raw materials, including CTO, as well as higher finished goods supporting automotive emissions and pavement technologies year over year growth as well as seasonality in the pavement technologies market.
December 31,
In millions
2015
2014
Accounts payable
$ 65 $ 105
Accrued expenses
13 13
Accrued payroll and employee benefits
10 18
Notes payable
9 3
Total current liabilities
$ 97 $ 139
Current liabilities as of December 31, 2015 decreased by $42 million compared to December 31, 2014 primarily driven by decreases in accounts payable partially offset by increases in notes payable. Accounts payable decreased $40 million primarily due to decreases in fourth quarter 2015 capital expenditures when compared to the fourth quarter of 2014. Notes payable increased $6 million due to an increase in borrowing related to the funding of the construction of our new Chinese activated carbon manufacturing facility.
Contractual Obligations
The company enters into various contractual obligations throughout the year. Presented below are the contractual obligations of the company as of December 31, 2015, and the time period in which payments under the obligations are due. Disclosures related to capital lease obligations are included in Note 9 of Notes to Combined Financial Statements. Also included below are disclosures regarding the amounts due under purchase obligations. A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The company has included in the below disclosure all normal and recurring purchase orders, take-or-pay contracts, supply arrangements as well as other purchase commitments that management believes meet the above definition of a purchase obligations.
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Payments due by period
In millions
Total
Less than
1 yr – 2016
1 – 3 yrs
2017 – 2018
3 – 5 yrs
2019 – 2020
More than
5 yrs
2021 and
beyond
Contractual obligations:
Capital lease obligations(1)
$ 150 $ 6 $ 12 $ 12 $ 120
Operating lease obligations
33 10 14 7 2
Purchase obligations
158 158
Total
$ 341 $ 174 $ 26 $ 19 $ 122
(1)
Amounts include the interest payments under the capital lease as well as the principle payment due in 2027.
New Accounting Guidance
Refer to the Note 3 to the Combined Financial Statements included within this Information Statement beginning on page F-1 for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on the company’s Combined Financial Statements.
Critical Accounting Policies
Our principal accounting policies are described in Note 2 to the Combined Financial Statements included within this Information Statement beginning on page F-1. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and, in some instances, the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Management believes the accounting policies discussed below represent those accounting policies requiring the exercise of judgment where a different set of judgments could result in the greatest changes to reported results.
Revenue recognition:   The company recognizes revenues at the point when title and the risk of ownership passes to the customer. Substantially all of the company’s revenues are generated through product sales and shipping terms generally indicate when title and the risk of ownership have passed. Revenue is recognized at shipment for sales where shipping terms are FOB (freight on board) shipping point unless risk of loss is maintained under freight terms. For sales where shipping terms are FOB destination, revenue is recognized when the goods are received by the customer. The company provides allowances for estimated returns and other customer credits such as discounts and volume rebates, when the revenue is recognized, based on historical experience, current trends and any notification of pending returns.
Accounts receivable and allowance for doubtful accounts:   Accounts receivable, net on the Combined Balance Sheets are comprised of both trade receivable and non-trade receivable balances less allowances for doubtful accounts. Trade receivable consist of amounts owed to the company from customer sales and are recorded at the invoiced amounts when revenue is recognized and generally do not bear interest. Non-trade receivables represent $3 million and $6 million at December 31, 2015 and 2014, respectively. The allowance for doubtful accounts is the company’s best estimate of the amount of probable loss in the existing accounts receivable. The company determines the allowance based on historical write-off experience, current collection trends, and external business factors such as economic factors, including regional bankruptcy rates, and political factors. Past due balances over a specified amount are reviewed individually for collectability. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. Accounts receivables have been reduced by an allowance for doubtful accounts of $0.1 million and $0.5 million at December 31, 2015 and 2014, respectively.
Concentration of credit risk:   The financial instruments that potentially subject the company to concentrations of credit risk are accounts receivable. The company limits its credit risk by performing ongoing credit evaluations and, when necessary, requiring letters of credit, guarantees or collateral. The company had accounts receivable from its largest customer of  $24 million and $20 million as of
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December 31, 2015 and 2014, respectively. Sales to this customer, which are included in the Performance Chemicals segment, were 11 percent, 11 percent and 10 percent of total net sales for the years ended December 31, 2015, 2014 and 2013, respectively. No other customers individually accounted for greater than 10 percent of the company’s combined net sales.
Impairment of long-lived assets:   The company periodically evaluates whether current events or circumstances indicate that the carrying value of its long-lived assets, including intangible assets, to be held and used may not be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived asset, or the appropriate grouping of assets, is compared to carrying value to determine whether impairment exists.
If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. The company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable value.
Income taxes:   As a division of WestRock, the company is not an income tax payer in the United States as its domestic results and related tax obligations, if any, are included in the tax returns of WestRock. The income tax provision included in these combined financial statements related to domestic income was calculated on a separate return basis, as if the company was a separate taxpayer and the resulting current tax receivable or liability, including any liabilities related to uncertain tax positions, was settled with WestRock through equity.