Correspondence 0001653477-24-000062 from Ingevity Corp (NGVT) (CIK 0001653477) (NGVT)
Ingevity Corp (NGVT) (CIK 0001653477)
Date: May 6, 2024 · CIK: 0001653477 · Accession: 0001653477-24-000062
AI Filing Summary & Sentiment
File numbers found in text: 001-37586
Referenced dates: April 23, 2024
Letter
VIA EDGAR United States Securities and Exchange Commission Division of Corporation Finance Office of Industrial Applications and Services Li Xiao Re: Ingevity Corp Form 10-K for the Fiscal Year Ended December 31, 2023 File No. 001-37586
Dear Ladies and Gentlemen:
On behalf of Ingevity Corporation (“Ingevity,” the “Company,” “we,” “us,” or “our”), this letter responds to the comments of the Staff of the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (the “SEC”) contained in the letter dated April 23, 2024 (the “Comment Letter”) relating to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed on February 22, 2024 (the “2023 Form 10-K”).
The headings and numbered paragraphs of this letter correspond to the headings and paragraph numbers contained in the Comment Letter. To facilitate your review, we have reproduced the text of the Staff’s comments in boldfaced print below, followed by the Company’s response to each comment.
Form 10-K for the Fiscal Year Ended December 31, 2023
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Recent Developments
Restructuring Charges, Performance Chemicals Repositioning, page 28
1.Revise future filings to include a discussion about the expected effects on future earnings and cash flows resulting from the repositioning plan (for example, reduced depreciation, reduced employee expense, etc.). The effect on future periods should be quantified and disclosed, along with the initial period in which those effects are expected to be realized. This includes whether the cost savings are expected to be offset by anticipated increases in other expenses or reduced revenues. This discussion should clearly identify the income statement line items to be impacted (for example, cost of sales; marketing; selling, general and administrative expenses; etc.). In addition, in future periods, if actual savings anticipated by the exit plan are not achieved as expected or are achieved in periods other than as expected, MD&A should discuss that outcome, its reasons, and its likely effects on future operating results and liquidity. Reference SAB Topic 5P4.
Division of Corporate Finance
May 6, 2024
Page 2 of 9
Response: We acknowledge the Staff’s comment and respectfully advise the Staff that we will enhance our disclosure in future filings to include a discussion about the expected effects on future earnings and liquidity resulting from the Performance Chemicals’ repositioning plan in accordance with Staff Accounting Bulletin (“SAB”) Topic 5P4. For reference, we have expanded the Performance Chemicals’ repositioning disclosures included within Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments and Updates, page 27 included within our Form 10-Q for the quarterly period ended March 31, 2024, filed on May 2, 2024 (“Q1 2024 Form 10-Q”).
Performance Chemicals Reporting Unit, page 29
2.Reference your disclosure on page that you performed impairment tests of goodwill related to the Performance Chemicals reporting unit because continued reduction in demand in industrial end markets had negatively impacted your ability to offset elevated CTO costs through pricing actions. In future filings, revise to provide information for investors to assess the probability of future goodwill impairment charges. For example, for each reporting unit at risk of failing an impairment test, disclose the following:
•the percentage by which fair value exceeded carrying value at the date of the most recent test;
•a detailed description of the methods and key assumptions used and how the key assumptions were determined;
•a discussion of the degree of uncertainty associated with the assumptions; and
•a description of potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions.
Refer to Item 303(b)(3) of Regulation S-K.
Response: We acknowledge the Staff’s comment and respectfully advise the Staff that we will, to the extent applicable, enhance our disclosure in future filings to include information for investors to assess the probability of future goodwill impairment charges in accordance with Item 303(b)(3) of Regulation S-K for each reporting unit that is at risk of failing an impairment test.
For additional information, as disclosed in the following excerpt from Page 31 of our Form 10-Q for the quarterly period ended September 30, 2023, filed on November 2, 2023 (“Q3 2023 Form 10-Q”):
“Based on our analysis, the headroom associated with our Performance Chemicals’ reporting unit, which is defined as the percentage difference between the fair value of a reporting unit and its carrying value, is currently 19 percent.”
Since September 30, 2023, and as a result of the actions we took with respect to the Performance Chemicals’ repositioning announced on November 1, 2023, the headroom (as defined above) has increased to greater than 25 percent as of December 31, 2023, and therefore we removed the disclosures and related sensitivities we had included within our Q3 2023 Form 10-Q.
Division of Corporate Finance
May 6, 2024
Page 3 of 9
3. As a related matter, we also note that in your earnings release you refer to Road Technologies business line and Industrial Specialties business line as components of your Performance Chemicals segment. Please provide us an analysis how you have determined that they do not represent separate reporting units under ASC 350-20 as you stated on page 42 that your reporting units are your operating segments.
Response: We acknowledge the Staff’s comment and respectfully advise the Staff that the Company has concluded that the Performance Chemicals operating segment is one reporting unit. To clarify, Industrial Specialties and Road Technologies are product lines within our Performance Chemicals operating segment, as disclosed on Page 4 and Page 64 of our 2023 Form 10-K. These product lines do not constitute components of an operating segment pursuant to ASC 350-20-35-34 as discrete financial information is not available. We respectfully advise the Staff that we have revised our earnings release for the quarter ended March 31, 2024 (furnished as Exhibit 99.1 to our Form 8-K, filed on May 1, 2024) to refer to Industrial Specialties and Road Technologies as product lines, consistent with the disclosures in our 2023 Form 10-K and Q1 2024 Form 10-Q.
Reconciliation of Net Income to Adjusted EBITDA, page 37
4. Please tell us how you determined that the non-GAAP adjustment for "Loss on CTO resales" meets the requirements of Question 100.01 of the C&DI on Non-GAAP Financial Measures. Reference ASC 420-10-S99-3 which states, “…the staff believes that decisions about the timing, method, and pricing of dispositions of inventory generally are considered to be normal, recurring activities integral to the management of the ongoing business."
Response: We respectfully advise the Staff that the “Loss on CTO resales” is only adjusted in the Company’s presentation of Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”), to the extent that such items arise from a restructuring initiative. When evaluating the appropriate presentation of the “Loss on CTO resales” for the Company’s presentation of Adjusted EBITDA, we considered the Compliance & Disclosure Interpretations (“C&DI”), specifically Question 100.01. As we disclosed on Page 61 of our 2023 Form 10-K:
“...due to the DeRidder Plant closure and the corresponding reduced CTO refining capacity, we may be obligated, under an existing CTO supply contract, to purchase CTO volumes through 2025 at amounts in excess of required CTO volumes. We intend to manage our CTO volumes by reselling excess volumes (herein referred to as "CTO resales") in the open market.
Our Performance Chemicals reportable segment is in the business of producing, primarily from CTO-based feedstocks, derivative specialty chemicals for sale to third-party customers. As a result of the Performance Chemicals’ repositioning, we are selling excess CTO volumes, which is outside of the ordinary course of business, that is, not a normal ongoing part of our operations and not core to our business.”
As further described in our response to the Staff’s comment No. 6 included below, the “Loss on CTO resales” resulted from our Performance Chemicals’ repositioning (restructuring initiative) and does not represent normal, recurring expenses necessary to operate our business. Further, the activity of CTO resales is being excluded from the Company’s presentation of Adjusted EBITDA regardless of whether that activity produces a loss or gain. We do not engage in the resale of CTO as part of our normal operations.
Division of Corporate Finance
May 6, 2024
Page 4 of 9
CTO is a by-product of the pulp and paper production process, and hence, CTO is produced by pulp and paper producers based on their production rates. CTO is not easily stored as readily available storage options are very limited. The Company has not previously had a need to resell CTO as our purchases of CTO were consumed in the normal operations of our manufacturing facilities. As such, the need to resell CTO only arose because we are required to purchase and take delivery of CTO in volumes that are in excess of our operating needs and storage capabilities subsequent to the Performance Chemicals' repositioning announcement. The three-month period ended December 31, 2023 was the first period we sold and incurred a loss on CTO resales. Lastly, we do not anticipate engaging in CTO resales past the contractually mandated “wind-down period” associated with our primary supply contract to acquire CTO.
We believe utilizing Adjusted EBITDA as a non-GAAP financial measure provides management as well as investors, potential investors, securities analysts, and others with useful information to evaluate the performance of the business, because such measure, when viewed together with our financial results computed in accordance with GAAP, provides a more complete understanding of the factors and trends affecting our historical financial performance and projected future results. We believe Adjusted EBITDA is a useful measure because it excludes the effects of financing and investment activities as well as non-operating activities. As such, we believe the exclusion of the “Loss on CTO resales” does not result in a misleading non-GAAP measure as it does not represent an operating expense that has occurred repeatedly or occasionally or one that occurs at irregular intervals.
Additionally, please refer to our response to the Staff’s comment No. 6 included below with respect to our evaluation and conclusions regarding ASC 420-10-S99-3.
5. We note that the non-GAAP adjustment for Restructuring and other (income) charges, net includes $19.7 million of inventory charges that were recorded within cost of sales. With reference to ASC 420-10-S99-3, please tell us your consideration of the guidance in Question 100.01 the Compliance and Disclosure Interpretations for Non-GAAP Financial Measures for this portion of the adjustment.
Response: We respectfully advise the Staff that the $19.7 million of non-cash inventory charges are only adjusted for in the Company’s presentation of Adjusted EBITDA to the extent that such items arise from a restructuring initiative. As further described on Page 88 of our 2023 Form 10-K:
“Throughout 2023 we initiated several measures across the organization to pursue greater cost efficiency which included a reorganization to streamline certain functions and reduce ongoing costs. On November 1, 2023 we announced a number of strategic actions designed to further reposition our Performance Chemicals reportable segment to improve the profitability and reduce the cyclicality of the Company as a whole. These actions increase our focus on growing our most profitable Performance Chemicals' product lines such as road technologies and accelerate our transition to non-crude tall oil ("CTO") based fatty acids. This initiative will result in the reduction, and in some cases exit, of certain historical end-use markets of our industrial specialties product line such as adhesives, publication inks, and oilfield, representing approximately $300.0 million of net sales. The announced actions include the permanent closure of our Performance Chemicals' CTO refinery and the closure of our manufacturing plant located in DeRidder, Louisiana (the “DeRidder Plant”), including the polyol production assets associated with the Advance[d] Polymer Technologies reportable segment, as well as additional corporate and business cost reduction actions. We expect to close the DeRidder Plant by the end of the first half of 2024. These actions are referred to as Performance Chemicals' repositioning.
Division of Corporate Finance
May 6, 2024
Page 5 of 9
The Performance Chemicals' repositioning, when combined with earlier targeted workforce reduction initiatives, during 2023 resulted in the reduction of Ingevity's global workforce by almost 20 percent, 25 percent of these reductions being employees directly associated with commercial sales activities of the soon-to-be exited and/or reduced end-use markets of our industrial specialties product line. Specific to Performance Chemicals, the reduction represented approximately 30 percent of the reportable segment's workforce. The collective actions of workforce, operational, and regional business exits, we believe, will hinder our ability to dispose of the associated inventory on hand, as of December 31, 2023. As a result, we have recorded $19.7 million of non-cash, lower of cost or market, inventory charges to adjust the carrying value of the impacted inventory to what we will realize upon disposal, less disposal costs. These inventory charges are recorded to Cost of sales on the consolidated statement of operations. Since these inventory charges are directly attributable to the Performance Chemicals’ repositioning, that is, they do not represent normal, recurring expenses necessary to operate our business, we have combined these charges with the restructuring charges, noted above, and have excluded such impact from the financial results of our Performance Chemicals reportable segment, refer to Note 19 for more information.”
As disclosed in the above excerpt from our 2023 Form 10-K, we believe we have complied with ASC 420-10-S99-3, that is, the $19.7 million of inventory charges, although the result of a “restructuring activity” is classified as a component of Cost of sales on the Consolidated Statement of Operations.
While evaluating the appropriate presentation of the $19.7 million of inventory charges for the Company’s presentation of Adjusted EBITDA, we considered the C&DI, specifically Question 100.01. As we disclosed in the following excerpt from our 2023 Form 10-K:
“Since these inventory charges are directly attributable to the Performance Chemicals’ repositioning, that is, they do not represent normal, recurring expenses necessary to operate our business, we have combined these charges with the restructuring charges, noted above, and have excluded such impact from the financial results of our Performance Chemicals reportable segment…”
The $19.7 million of inventory charges that resulted from our Performance Chemicals’ repositioning were separate and distinct from the costs the Company recognizes as part of its normal, recurring operations, and do not represent normal, recurring expenses necessary to operate our business. As such, we believe the exclusion of these charg
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Ingevity Corporation
4920 O'Hear Avenue, Suite 400
North Charleston, South Carolina 29405
843-740-2300
May 6, 2024
VIA EDGAR
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Industrial Applications and Services
100 F Street N.E.
Washington, D.C. 20549-7010
Attn: Kristin Lochhead
Li Xiao
Re: Ingevity Corp
Form 10-K for the Fiscal Year Ended December 31, 2023
File No. 001-37586
Dear Ladies and Gentlemen:
On behalf of Ingevity Corporation (“Ingevity,” the “Company,” “we,” “us,” or “our”), this letter responds to the comments of the Staff of the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (the “SEC”) contained in the letter dated April 23, 2024 (the “Comment Letter”) relating to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed on February 22, 2024 (the “2023 Form 10-K”).
The headings and numbered paragraphs of this letter correspond to the headings and paragraph numbers contained in the Comment Letter. To facilitate your review, we have reproduced the text of the Staff’s comments in boldfaced print below, followed by the Company’s response to each comment.
Form 10-K for the Fiscal Year Ended December 31, 2023
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Recent Developments
Restructuring Charges, Performance Chemicals Repositioning, page 28
1.Revise future filings to include a discussion about the expected effects on future earnings and cash flows resulting from the repositioning plan (for example, reduced depreciation, reduced employee expense, etc.). The effect on future periods should be quantified and disclosed, along with the initial period in which those effects are expected to be realized. This includes whether the cost savings are expected to be offset by anticipated increases in other expenses or reduced revenues. This discussion should clearly identify the income statement line items to be impacted (for example, cost of sales; marketing; selling, general and administrative expenses; etc.). In addition, in future periods, if actual savings anticipated by the exit plan are not achieved as expected or are achieved in periods other than as expected, MD&A should discuss that outcome, its reasons, and its likely effects on future operating results and liquidity. Reference SAB Topic 5P4.
Division of Corporate Finance
May 6, 2024
Page 2 of 9
Response: We acknowledge the Staff’s comment and respectfully advise the Staff that we will enhance our disclosure in future filings to include a discussion about the expected effects on future earnings and liquidity resulting from the Performance Chemicals’ repositioning plan in accordance with Staff Accounting Bulletin (“SAB”) Topic 5P4. For reference, we have expanded the Performance Chemicals’ repositioning disclosures included within Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments and Updates, page 27 included within our Form 10-Q for the quarterly period ended March 31, 2024, filed on May 2, 2024 (“Q1 2024 Form 10-Q”).
Performance Chemicals Reporting Unit, page 29
2.Reference your disclosure on page that you performed impairment tests of goodwill related to the Performance Chemicals reporting unit because continued reduction in demand in industrial end markets had negatively impacted your ability to offset elevated CTO costs through pricing actions. In future filings, revise to provide information for investors to assess the probability of future goodwill impairment charges. For example, for each reporting unit at risk of failing an impairment test, disclose the following:
•the percentage by which fair value exceeded carrying value at the date of the most recent test;
•a detailed description of the methods and key assumptions used and how the key assumptions were determined;
•a discussion of the degree of uncertainty associated with the assumptions; and
•a description of potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions.
Refer to Item 303(b)(3) of Regulation S-K.
Response: We acknowledge the Staff’s comment and respectfully advise the Staff that we will, to the extent applicable, enhance our disclosure in future filings to include information for investors to assess the probability of future goodwill impairment charges in accordance with Item 303(b)(3) of Regulation S-K for each reporting unit that is at risk of failing an impairment test.
For additional information, as disclosed in the following excerpt from Page 31 of our Form 10-Q for the quarterly period ended September 30, 2023, filed on November 2, 2023 (“Q3 2023 Form 10-Q”):
“Based on our analysis, the headroom associated with our Performance Chemicals’ reporting unit, which is defined as the percentage difference between the fair value of a reporting unit and its carrying value, is currently 19 percent.”
Since September 30, 2023, and as a result of the actions we took with respect to the Performance Chemicals’ repositioning announced on November 1, 2023, the headroom (as defined above) has increased to greater than 25 percent as of December 31, 2023, and therefore we removed the disclosures and related sensitivities we had included within our Q3 2023 Form 10-Q.
Division of Corporate Finance
May 6, 2024
Page 3 of 9
3. As a related matter, we also note that in your earnings release you refer to Road Technologies business line and Industrial Specialties business line as components of your Performance Chemicals segment. Please provide us an analysis how you have determined that they do not represent separate reporting units under ASC 350-20 as you stated on page 42 that your reporting units are your operating segments.
Response: We acknowledge the Staff’s comment and respectfully advise the Staff that the Company has concluded that the Performance Chemicals operating segment is one reporting unit. To clarify, Industrial Specialties and Road Technologies are product lines within our Performance Chemicals operating segment, as disclosed on Page 4 and Page 64 of our 2023 Form 10-K. These product lines do not constitute components of an operating segment pursuant to ASC 350-20-35-34 as discrete financial information is not available. We respectfully advise the Staff that we have revised our earnings release for the quarter ended March 31, 2024 (furnished as Exhibit 99.1 to our Form 8-K, filed on May 1, 2024) to refer to Industrial Specialties and Road Technologies as product lines, consistent with the disclosures in our 2023 Form 10-K and Q1 2024 Form 10-Q.
Reconciliation of Net Income to Adjusted EBITDA, page 37
4. Please tell us how you determined that the non-GAAP adjustment for "Loss on CTO resales" meets the requirements of Question 100.01 of the C&DI on Non-GAAP Financial Measures. Reference ASC 420-10-S99-3 which states, “…the staff believes that decisions about the timing, method, and pricing of dispositions of inventory generally are considered to be normal, recurring activities integral to the management of the ongoing business."
Response: We respectfully advise the Staff that the “Loss on CTO resales” is only adjusted in the Company’s presentation of Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”), to the extent that such items arise from a restructuring initiative. When evaluating the appropriate presentation of the “Loss on CTO resales” for the Company’s presentation of Adjusted EBITDA, we considered the Compliance & Disclosure Interpretations (“C&DI”), specifically Question 100.01. As we disclosed on Page 61 of our 2023 Form 10-K:
“...due to the DeRidder Plant closure and the corresponding reduced CTO refining capacity, we may be obligated, under an existing CTO supply contract, to purchase CTO volumes through 2025 at amounts in excess of required CTO volumes. We intend to manage our CTO volumes by reselling excess volumes (herein referred to as "CTO resales") in the open market.
Our Performance Chemicals reportable segment is in the business of producing, primarily from CTO-based feedstocks, derivative specialty chemicals for sale to third-party customers. As a result of the Performance Chemicals’ repositioning, we are selling excess CTO volumes, which is outside of the ordinary course of business, that is, not a normal ongoing part of our operations and not core to our business.”
As further described in our response to the Staff’s comment No. 6 included below, the “Loss on CTO resales” resulted from our Performance Chemicals’ repositioning (restructuring initiative) and does not represent normal, recurring expenses necessary to operate our business. Further, the activity of CTO resales is being excluded from the Company’s presentation of Adjusted EBITDA regardless of whether that activity produces a loss or gain. We do not engage in the resale of CTO as part of our normal operations.
Division of Corporate Finance
May 6, 2024
Page 4 of 9
CTO is a by-product of the pulp and paper production process, and hence, CTO is produced by pulp and paper producers based on their production rates. CTO is not easily stored as readily available storage options are very limited. The Company has not previously had a need to resell CTO as our purchases of CTO were consumed in the normal operations of our manufacturing facilities. As such, the need to resell CTO only arose because we are required to purchase and take delivery of CTO in volumes that are in excess of our operating needs and storage capabilities subsequent to the Performance Chemicals' repositioning announcement. The three-month period ended December 31, 2023 was the first period we sold and incurred a loss on CTO resales. Lastly, we do not anticipate engaging in CTO resales past the contractually mandated “wind-down period” associated with our primary supply contract to acquire CTO.
We believe utilizing Adjusted EBITDA as a non-GAAP financial measure provides management as well as investors, potential investors, securities analysts, and others with useful information to evaluate the performance of the business, because such measure, when viewed together with our financial results computed in accordance with GAAP, provides a more complete understanding of the factors and trends affecting our historical financial performance and projected future results. We believe Adjusted EBITDA is a useful measure because it excludes the effects of financing and investment activities as well as non-operating activities. As such, we believe the exclusion of the “Loss on CTO resales” does not result in a misleading non-GAAP measure as it does not represent an operating expense that has occurred repeatedly or occasionally or one that occurs at irregular intervals.
Additionally, please refer to our response to the Staff’s comment No. 6 included below with respect to our evaluation and conclusions regarding ASC 420-10-S99-3.
5. We note that the non-GAAP adjustment for Restructuring and other (income) charges, net includes $19.7 million of inventory charges that were recorded within cost of sales. With reference to ASC 420-10-S99-3, please tell us your consideration of the guidance in Question 100.01 the Compliance and Disclosure Interpretations for Non-GAAP Financial Measures for this portion of the adjustment.
Response: We respectfully advise the Staff that the $19.7 million of non-cash inventory charges are only adjusted for in the Company’s presentation of Adjusted EBITDA to the extent that such items arise from a restructuring initiative. As further described on Page 88 of our 2023 Form 10-K:
“Throughout 2023 we initiated several measures across the organization to pursue greater cost efficiency which included a reorganization to streamline certain functions and reduce ongoing costs. On November 1, 2023 we announced a number of strategic actions designed to further reposition our Performance Chemicals reportable segment to improve the profitability and reduce the cyclicality of the Company as a whole. These actions increase our focus on growing our most profitable Performance Chemicals' product lines such as road technologies and accelerate our transition to non-crude tall oil ("CTO") based fatty acids. This initiative will result in the reduction, and in some cases exit, of certain historical end-use markets of our industrial specialties product line such as adhesives, publication inks, and oilfield, representing approximately $300.0 million of net sales. The announced actions include the permanent closure of our Performance Chemicals' CTO refinery and the closure of our manufacturing plant located in DeRidder, Louisiana (the “DeRidder Plant”), including the polyol production assets associated with the Advance[d] Polymer Technologies reportable segment, as well as additional corporate and business cost reduction actions. We expect to close the DeRidder Plant by the end of the first half of 2024. These actions are referred to as Performance Chemicals' repositioning.
Division of Corporate Finance
May 6, 2024
Page 5 of 9
The Performance Chemicals' repositioning, when combined with earlier targeted workforce reduction initiatives, during 2023 resulted in the reduction of Ingevity's global workforce by almost 20 percent, 25 percent of these reductions being employees directly associated with commercial sales activities of the soon-to-be exited and/or reduced end-use markets of our industrial specialties product line. Specific to Performance Chemicals, the reduction represented approximately 30 percent of the reportable segment's workforce. The collective actions of workforce, operational, and regional business exits, we believe, will hinder our ability to dispose of the associated inventory on hand, as of December 31, 2023. As a result, we have recorded $19.7 million of non-cash, lower of cost or market, inventory charges to adjust the carrying value of the impacted inventory to what we will realize upon disposal, less disposal costs. These inventory charges are recorded to Cost of sales on the consolidated statement of operations. Since these inventory charges are directly attributable to the Performance Chemicals’ repositioning, that is, they do not represent normal, recurring expenses necessary to operate our business, we have combined these charges with the restructuring charges, noted above, and have excluded such impact from the financial results of our Performance Chemicals reportable segment, refer to Note 19 for more information.”
As disclosed in the above excerpt from our 2023 Form 10-K, we believe we have complied with ASC 420-10-S99-3, that is, the $19.7 million of inventory charges, although the result of a “restructuring activity” is classified as a component of Cost of sales on the Consolidated Statement of Operations.
While evaluating the appropriate presentation of the $19.7 million of inventory charges for the Company’s presentation of Adjusted EBITDA, we considered the C&DI, specifically Question 100.01. As we disclosed in the following excerpt from our 2023 Form 10-K:
“Since these inventory charges are directly attributable to the Performance Chemicals’ repositioning, that is, they do not represent normal, recurring expenses necessary to operate our business, we have combined these charges with the restructuring charges, noted above, and have excluded such impact from the financial results of our Performance Chemicals reportable segment…”
The $19.7 million of inventory charges that resulted from our Performance Chemicals’ repositioning were separate and distinct from the costs the Company recognizes as part of its normal, recurring operations, and do not represent normal, recurring expenses necessary to operate our business. As such, we believe the exclusion of these charg