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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
FORM
10-K
☒
  
ANNUAL
REPORTANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the fiscal year ended
December 31 2019
,
2022
  
  
or
  
☐
  
TRANSITION REPORTTRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to
Commission file number
1-13879
INNOSPEC INC.
(Exact name of registrant as specified in
its
charter)
DELAWARE
  
98-0181725
State or other jurisdiction of
incorporation or organization
  
(I.R.S. Employer
Identification No.)
  
8310 South Valley Highway
Suite 350
Englewood
Colorado
  
80112
(Address of principal executive offices)
  
(Zip Code)
Registrant’s telephone number, including area code:
(303)
(
303
)
792 5554
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock
, par value $0.01 per share
 
IOSP
 
NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
Name of each exchange on which registered
N/A
N/A
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐
     No  
☒
     No
☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐
No
☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filingfil
ing requirements for the past 90 days.
Yes
☒
     No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
     No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer
 ☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐     
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated
filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act)Act
).
Yes  
☐
     No  
☒
The
aggregate market value of the voting and
non-voting
common equity held by
non-affiliates
of the registrant as of the most recently completed second fiscal quarter (June 30, 2019)2022) was approximately $1,133$
1,409
 million, based on the closing price of the common shares on the NASDAQ on June 30, 2019.2022. Shares of common stock held by each officer and director and by each beneficial owner who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.
As of February 12, 2020, 24,507,08015, 2023,
24,765,534
 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Innospec Inc.’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 6, 20204, 2023 are incorporated by reference into Part III of this Form
10-K.

Table of Contents

TABLE OF CONTENTS

PART I

   2

Item 1

Business   2 

Item 1A

PART IRisk Factors   
2
11		 

Item 1B

Unresolved Staff Comments   23

Item 2

Properties   24 

Item 1

3

 
BusinessLegal Proceedings
   
2
25		 

Item 1A

4

 
Risk FactorsMine Safety Disclosures
   
8
25		 
Item 1B
Unresolved Staff CommentsPART II
   
17
26		 

Item 25

 
Properties
18
Item 3
Legal Proceedings
19
Item 4
Mine Safety Disclosures
19
PART II
20
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
   
20
26		 

Item 6

 
Selected Financial Data[Reserved]
   
22
28		 

Item 7

 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
24
29		 

Item 7A

 
Quantitative and Qualitative Disclosures Aboutabout Market Risk
   
42
47		 

Item 8

 
Financial Statements and Supplementary Data
   
45
50		 

Item 9

 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
   
93
98		 

Item 9A

 
Controls and Procedures
   
93
98		 

Item 9B

 
Other Information
   
94
99		 

Item 9C

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections   99 
PART III   
95
99		 

Item 10

 
Item 10
Directors, Executive Officers and Corporate Governance
   
95
99		 

Item 11

 
Executive Compensation
   
95
100		 

Item 12

 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
   
95
100		 

Item 13

 
Certain Relationships and Related Transactions, and Director Independence
   
96
100		 

Item 14

 
Principal Accountant Fees and Services
   
96
100		 
PART IV   101 
PART IV

Item 15

 
97
Item 15
Exhibits and Financial Statement Schedules
   
97
101		 

Item 16

 
Form 10-K Summary
   
101
104		 
SIGNATURES   
SIGNATURES
102
105		 

Table of Contents

CAUTIONARY STATEMENT RELATIVE TO FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS

This Form

10-K
contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. Such forward-looking statements include statements (covered by words like “expects,” “estimates,” “anticipates,” “may,” “could,” “believes,” “feels,” “plan,“plans,” “intend”“intends” or similar words or expressions, for example,)example) which relate to earnings, growth potential, operating performance, events or developments that we expect or anticipate will or may occur in the future. Although forward-looking statements are believed by management to be reasonable when made, they are subject to certain risks, uncertainties and assumptions, and our actual performance or results may differ materially from these forward-looking statements. You are urged to review our discussion of risks and uncertainties that could cause actual results to differ from forward-looking statements under the heading “Risk Factors.” Innospec undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I

Item 1

Business

When we use the terms “Innospec,” “the Corporation,” “the Company,” “Registrant,” “we,” “us” and “our,” we are referring to Innospec Inc. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

General

Innospec develops, manufactures, blends, markets and supplies a wide range of specialty chemicals to markets in the Americas, Europe, the Middle East, Africa and Asia-Pacific. Our Performance Chemicals business creates innovative technology-based solutions for use as fuel additives, ingredients forour customers in the personal care, home care, agrochemical, metal extraction and other applications and oilfield chemicals. Our products are sold primarily to oil and gas exploration and production companies, oil refiners, fuel manufacturers and users, formulators of personal care, home care, agrochemical and metal extraction formulations, and other chemicalmining and industrial companies throughout the world.markets. Our Fuel Specialties business specializes in manufacturing and supplying fuel additives helpthat improve fuel efficiency, boost engine performance and reduce harmful emissions. Our performance chemicals provide effective technology-based solutions for our customers’ processes or products focused in the Personal Care, Home Care, Agrochemical and Metal Extraction markets. Our Oilfield Services business supplies drilling, completion and production chemicals which make exploration and production more effective, cost­efficientcost-efficient and environmentally friendly. Our Octane Additives business manufactures a fuel additive for use in automotive gasoline.

Segment Information

The Company reports its financial performance based on the fourthree reportable segments described as follows:

Fuel Specialties
which are Performance Chemicals,
Oilfield Services
Octane Additives
The Fuel Specialties Performance Chemicals and Oilfield Services segments operate in markets where we actively seek growth opportunities although their ultimate customers are different. TheServices.

Our Octane Additives segment revenues may conclude in the early part ofhas previously ceased trading and is no longer a reporting segment from July 1, 2020, as reported in our one remaining refinery customer transitions to unleaded fuel.

Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

For financial information about each of our segments, see Note 3 of the Notes to the Consolidated Financial Statements.

Performance Chemicals

Our Performance Chemicals segment provides innovative technology-based solutions for our customers’ processes or products focused in the personal care, home care, agrochemical, mining and other industrial markets.

This segment has grown through acquisitions, together with the organic development and marketing of innovative products in these end-markets.

Our customers in this segment include large multinational companies, manufacturers of personal care and home care products and global mining, agriculture and building products and other industrial companies.

Fuel Specialties

Our Fuel Specialties segment develops, manufactures, blends, markets and supplies a range of specialty chemical products used as additives to a wide range ofin diesel, jet, marine, fuel oil and other fuels.

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These fuel additive

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products help improve fuel efficiency, boost engine performance and reduce harmful emissions; and are most commonly used in the efficient operation of automotive,commercial trucking, marine and aviation engines, power station generators, heating oil and heating oil.
other industrial machinery applications.

The segment has grown organically through our development of new products to address what we believe are the key drivers in demand for fuel additives. These drivers include increased demand for fuel, focus on fuel economy, changinghigher efficiency engine technologytechnologies and legislative developments.developments, including tightening global emissions regulations. We haveare also devoted substantial resources towards the developmentapplying these fuels technologies to an increasing number of new and improved products that may be used to improve combustion efficiency.

non-fuel applications in a variety of industries.

Our customers in this segment include national oil companies,and multinational oil companies, fuel marketers and retailers, fuel retailers.

Performance Chemicals
Our Performance Chemicals segment provides effective technology-based solutions for our customers’ processes or products focused in the Personal Care, Home Care, Agrochemical and Metal Extraction markets.
This segment has grown through acquisitions, and the development and marketing of innovative products. The focus for our Performance Chemicals segment is to develop high performance products from its technology base in a number of targeted markets.
Our customers in this segment include large multinational companies, manufacturers of personal care and household products and specialty chemical manufacturers operating in agrochemical, metal extractionterminals, marine lines, coating & plastics producers and other heavy industrial applications.
end-users.

Oilfield Services

Our Oilfield Services segment develops and markets products to prevent loss of mud in drilling operations, chemical solutions for fracturing, drilling, stimulation and completion operations, and products for oil and gas production and transport which aid flow assurance and maintain asset integrity.

This segment has been growing strongly in recent years, driven by increased customer activity as the industry has been supported by stable oil prices.

Our customers in this segment include multinational public and independent exploration & production and oilfield services companies currently operating currently principally in the Americas.

Octane Additives
Our Octane Additives segment, which we believe is the world’s only producer of tetra ethyl lead (“TEL”), comprises sales of TEL for use in automotive gasoline and provides services in respect of environmental remediation. We are continuing to responsibly manage the decline in the demand for TEL for use in automotive gasoline in line with the transition plans to unleaded gasoline for our one remaining refinery customer. Cost improvement measures continue to be taken to respond to declining market demand. We expect the possible conclusion of revenues from our Octane Additives segment in the early part of 2020.
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Sales of TEL for use in automotive gasoline are principally made to state-owned refineries located in North Africa. Our environmental remediation business manages the cleanup of redundant TEL facilities as refineries complete the transition to unleaded gasoline.

Strategy

Our strategy is to develop new and improved products and technologies to continue to strengthen and increase our market positions within our Performance Chemicals, Fuel Specialties Performance Chemicals and Oilfield Services segments. We also actively continue to assess potential strategic acquisitions, partnerships and other opportunities that would enhance and expand our customer offering. We focus on opportunities that would extend our technology base, geographical coverage or product portfolio. We believe that focusing on the Performance Chemicals, Fuel Specialties Performance Chemicals and Oilfield Services segments, in which the Company has existing experience, expertise and knowledge, provides opportunities for positive returns on investment with reduced operating risk. We also continue to developexpand our geographical footprint, consistent with the development of global markets.

Geographical Area Information

Financial information with respect to our domestic and foreign operations is contained in Note 3 of the Notes to the Consolidated Financial Statements.

Working Capital

The nature of our customers’ businesses generally requires us to hold appropriate amounts of inventory in order to be able to respond quickly to customers’ needs. We therefore require corresponding amounts of working capital for normal operations. We do not believe that this is materially different to what our competitors do, with the exception of cetane number improvers, in which case we maintain high enough levels of inventory, as required, to retain our position as market leader in sales of these products.competitors.

3

The purchase of large amounts of certain raw materials across all our segments can create some variations in working capital requirements, but these are planned and managed by the business.

We do not believe that our terms of sale or purchase differ markedly from those of our competitors.

Raw Materials and Product Supply

We use a variety of raw materials and chemicals in our manufacturing and blending processes and believe that sources for these are adequate for our current operations. Our major purchases are oleochemicals and derivatives, cetane number improvers, ethylene, various solvents, amines, alcohols, olefin and polyacrylamides.

These purchases account for a substantial portion of the Company’s variable manufacturing costs. These materials are, with the exception of ethylene for our operations in Germany,
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readily available from more than one source. Although ethylene is, in theory, available from several sources, it is not permissible to transport ethylene by road in Germany. As a result, we source ethylene for our German operations via a direct pipeline, from a neighboring site, making it effectively a single source. Ethylene is used as a primary raw material for one of our German operations in products representing approximately 4%5% of Innospec’s sales.

We use long-term contracts (generally with fixed or formula-based costs) and advance bulk purchases to help ensure availability and continuity of supply, and to manage the risk of cost increases. From time to time, for some raw materials, the risk of cost increases is managed with commodity swaps.

We continue to monitor the situation and adjust our procurement strategies as we deem appropriate. The Company forecasts its raw material requirements substantially in advance, and seeks to build long-term relationships and contractual positions with supply partners to safeguard its raw material positions. In addition, the Company operates an extensive risk management program which seeks to source key raw materials from multiple sources and to develop suitable contingency plans.

Intellectual Property

Our intellectual property, including trademarks, patents and licenses, forms a significant part of the Company’s competitive advantage particularly in the Fuel Specialties, Oilfield Specialties and Performance Chemicalsfor all our segments. The Company does not, however, consider its business as a whole to be dependent on any one trademark, patent or license.

The Company has a portfolio of trademarks and patents, both granted and in the application stage, covering products and processes in several jurisdictions. The majority of these patents were developed by the Company and, subject to maintenance obligations including the payment of renewal fees, have at least 10 years life remaining.

The trademark “Innospec and the Innospec device” in Classes 1, 2 and 4 of the “International Classification of Goods and Services for the Purposes of the Registration of Marks” are

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registered in all jurisdictions in which the Company has a significant market presence. The Company also has trademark registrations for certain product names in all jurisdictions in which it has a significant

market presence.

We actively protect our inventions, new technologies, and product developments by filing patent applications and maintaining trade secrets. In addition, we vigorously participate in patent opposition proceedings around the world where necessary to secure a technology base free from infringement of intellectual property.

Customers

In 2022, the Company had a significant customer in the Oilfield Services segment which accounted for $222.2 million (11.3%) of our net group sales.

Competition

Certain markets in which the Company operates are subject to significant competition. The Company competes on the basis of a number of factors including, but not limited to, product quality and performance, specialized product lines, customer relationships and service, and regulatory expertize.

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Fuel Specialties:
Fuel Specialties is generally characterized by a small number of competitors, none of which hold a dominant position. We consider our competitive edge to be our proven technical development capacity, independence from major oil companies and strong long-term customer relationships.
expertise.

Performance Chemicals:

Within the Performance Chemicals segment we operate in the Personal Care, Home Care, Agrochemicalpersonal care, home care, agrochemical, mining markets and Metal Extractionother industrial markets, which are highly fragmented, and the Company experiences substantial competition from a large number of multinational and specialty chemical suppliers in each geographical market. Our competitive position in these markets is based on us supplying a superior, diverse product portfolio which solves particular customer problems or enhances the performance of new or existing products. In a number of specialty chemicals markets, we also supply niche product lines, where we enjoy market-leading positions.

Fuel Specialties: The Fuel Specialties segment is generally characterized by a small number of competitors, none of which hold a dominant position. We consider our competitive edge to be our proven technical development capacity, independence from major oil companies and strong long-term customer relationships. We believe we remain the world’s only producer of tetra ethyl lead (“TEL”) for use in aviation gasoline, which we market as our AvGas product line.

Oilfield Services:

Our Oilfield Services segment is very fragmented and although there are a small number of very large competitors, there are also a large number of smaller players focused on specific technologies or regions. Our competitive strength is our proven technology, broad regional coverage and strong customer relationships.
Octane Additives:
We believe our Octane Additives segment is the world’s only producer of TEL and accordingly is the only supplier of TEL for use in automotive gasoline. The segment therefore competes with marketers of products and processes that provide
alternative ways of enhancing octane performance in automotive gasoline.

Research, Development, Testing and Technical Support

Research, product/application development and technical support (“R&D”) provide the basis for the growth of our Performance Chemicals, Fuel Specialties Performance Chemicals and Oilfield Services

5

segments. Accordingly, the Company’s R&D activity has been, and will continue to be, focused on the development of new products and formulations. Our R&D department provides technical support for all of our reporting segments. Expenditures to support R&D services were $35.4$38.7 million, $33.4$37.4 million and $31.4$30.9 million in 2019, 20182022, 2021 and 2017,2020, respectively.

We believe that our proven technical capabilities provide us with a significant competitive advantage. Our Performance Chemicals business has launched significant new mild surfactants, which are well aligned with developing customer needs. In addition, the last five years,business has developed further formulations in emollients, silicones and surfactants for the personal care, home care, agrochemical, mining markets and other industrial markets. Fuel Specialties segment has developedcontinued to innovate, focused on bringing new technologies to market which reduce pollution and improve fuel economy, including detergents and cold flow improvers, stabilizers, lubricityimprovers. In Oilfield Services, new technologies have been introduced to improve the hydrocarbon yield from customers’ operations and combustion improver products, in addition to the introduction of many new cost effective fuel additive packagesprotect assets, including friction modifiers, biocide formulations and products for dealing with the dangers of low conductivity. This proven technical capability has also facilitated the development of our leading edge isethionate and taurate product ranges in Performance Chemicals.

additives to improve drilling muds.

Health, Safety and Environmental Matters

We are subject to environmental laws in the countries in which we operate and conduct business. Management believes that the Company is in material compliance with applicable environmental laws and has made the necessary provisions for the continued costs of compliance with environmental laws.

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Our principal site giving rise to environmental remediation liabilitiesasset retirement obligations is our Ellesmere Port manufacturing site in the United Kingdom. There are also asset retirement obligations and environmental remediation liabilities on a much smaller scale in respect of our other manufacturing sites in the U.S. and Europe. At Ellesmere Port there is a continuing asset retirement program related to certain manufacturing units that have been closed.

We recognize environmental remediation liabilities when they are probable and costs can be reasonably estimated, and asset retirement obligations when there is a legal obligation and costs can be reasonably estimated. This involves anticipating the program of work and the associated future expected costs, and so involves the exercise of judgment by management.sites. We regularly review the future expected costs of remediation and the current estimate is reflected in the Consolidated Balance Sheets and Note 1213 of the Notes to the Consolidated Financial Statements.

The European Union (“E.U.”) legislation known as the Registration, Evaluation and Authorization of Chemical Substances Regulations (“REACH”) requires most of the substances in the Company’s products to be registered with the European Chemicals Agency. Under this legislation the Company has to demonstrate that the substances it uses in its products are safe for use and appropriate for their intended purposes.purposes in the E.U.. During this registration and continuedcontinual evaluation process, the Company incurs expenseexpenses to test and register substances it manufactures or imports in the E.U..

Following the end of the Brexit transition process, on January 11, 2021 the United Kingdom (“U.K.”) government introduced U.K. REACH with the same registration requirements for substances produced in or imported into the U.K.. Furthermore, globally, similar regulatory regimes to the E.U. and U.K. REACH are also entering into force or are being proposed in several other countries. These registration based regulatory regimes will result in increasing test expenses and registration fees to ensure Innospec products remain compliant with the appropriate regulations and can continue to be sold in these markets.

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Environmental, Social & Governance (“ESG”) and Corporate Social Responsibility Reporting

As part of our commitment to being open and transparent about our performance, our latest Responsible Business Report, which is our 2021 Report, was independently assured to assess its products.

adherence to the globally recognized AA1000 Assurance Standard.

The Responsible Business Report, along with further information on our sustainability program and performance is available online in the “Corporate Social Responsibility” section of the Company’s website at https://innospecsustainability.com. Such information does not constitute part of, and is not incorporated by reference into this Annual Report on Form 10-K.

Employees

and Human Capital Management

The Company had approximately 20002,100 employees in 2425 countries as at December 31, 2019.2022.

Human capital management is critical to Innospec’s ongoing business success, which requires investing in our people. Our aim is to create a highly engaged and motivated workforce where employees are inspired by leadership, engaged in purpose-driven, meaningful work and have opportunities for growth and development.

An effective approach to human capital management requires that we invest in talent, development, culture and employee engagement. We aim to create an environment where our employees are encouraged to make positive contributions and fulfill their potential.

The Company’s Board of Directors (the “Board”) is also actively involved in reviewing and approving executive compensation, selections and succession plans so that we have leadership in place with the requisite skills and experience to deliver results the right way. The Company’s Chief Executive Officer (“CEO”) periodically provides the Board with an assessment of senior executives that have potential as successor for the CEO position, as well as perspectives on potential candidates for other senior management positions.

Core Values & Culture

Responsible Growth through Innovation and Customer Service: Financial stability and growth are essential to maintain our goal of making a positive contribution towards a more sustainable future. Generating economic benefits for our employees, stockholders, and local communities, while encouraging ongoing innovation in our product portfolio alongside excellent customer service which will allow our business to be competitive and sustainable.

Caring for People: We strive to create a safe and caring culture where our employees are supported and encouraged to make positive contributions. Our continued success depends on keeping people safe, promoting a healthy lifestyle, protecting human rights, improving education, training and maintaining good relations with our neighbors.

Conserving & Protecting the Environment: We aim to use resources as efficiently as practicable and minimize the impact of our operations on the environment. We look to supply

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safe, sustainable products, designed to meet the needs of society now and in the future while minimizing their environmental impact.

Leading by Example: We understand that honest, ethical and transparent conduct is vital to our success and reputation. Every employee plays an essential part in complying with local and national laws, rules and regulations. We uphold a high standard of corporate and business integrity across all of our activities.

Employee Engagement

Attracting Talent: We believe our hardworking team of employees is our greatest asset. We employ approximately 2,100 people across 25 countries and we believe that the skills, commitment and enthusiasm of our employees helps us to deliver long-term growth for investors.

Training: Across our sites, we provide local support and opportunities for the next generation of talent in our industry by offering a range of placements, internships, work experience and apprenticeships. We strive to attract and retain the best talent in a changing and competitive working environment.

As an organization, we are committed to making Innospec a great company to work for and we invest, as appropriate, in the development of our employees to meet this ambition.

Our employees are offered both internal and external training, where appropriate, to support their continued development and to meet the needs of our business. Where relevant, we support our employees’ ongoing professional training and development to encourage their progression within our business.

Pay and Benefits: We offer what we believe are competitive reward and recognition programs, based on both business-wide and individual performance. Our packages have been designed to attract and retain the best employees, reward achievement and encourage our teams to deliver superior performance for our customers and our company.

In addition to our company-wide performance incentive plans, we encourage our employees to share in the long-term success of our company with incentive programs, such as our Global Sharesave Plan. This plan gives employees the opportunity to participate in a savings plan linked to an option to buy shares in Innospec at a discount and, therefore, benefit from any growth in the share price over the savings period. We also provide a range of other benefits in line with the market practice in each location we operate in, including insurance and pension arrangements.

Performance Management Framework: We conduct an annual performance management process across the organization. Together with their line managers, employees agree upon annual objectives, and, at the end of the year, review with their line manager their performance against those objectives and their overall performance. The results of each annual performance review affect performance bonus amounts, pay reviews and career advancement decisions.

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Senior Leadership Communications and Transparency: We actively seek opportunities for regular engagement and communication by our CEO and other senior executives with our broader employee population. Communications are through a variety of means including written communications, webcasts and conference calls. For example, we hold a CEO Call at least once a year, during which the CEO and CFO discuss current issues and developments in the business, including a Q&A session answering questions raised by employees. The CEO Call is accessible to all employees across the Company. In addition to the CEO Calls, each financial quarter, following the quarterly financial results announcement, the CEO and CFO provide a written review of the financial results to all employees.

Diversity and Inclusion

Innospec aims to attract and retain the best people by ensuring that employment decisions are based on merit, performance, ability and contribution to the Company. As part of our Global HR Policy, our diversity and equal opportunities policy ensures that current and prospective employees receive equal opportunities irrespective of gender, sexual orientation, race, color, ethnic or national origin, marital status, age, disability, religion or belief.

Health and Safety

Objectives: We prioritize the safety of employees, communities and everyone involved in the manufacture, use or disposal of our products. We set high standards for process and occupational safety, which is managed by our network of Safety, Health and Environment (“SHE”) professionals throughout the business. Our three core objectives being that:

•

No-one gets hurt

We don’t annoy our neighbors

We leave only the gentlest footprints on our environment

Leadership: The Company periodically reviews the Corporate SHE structure and organization so that we have the optimum resources and correct approach. We strive to embed SHE in our culture by having leadership that comes from executive management. Our Responsible Care Executive Committee (known as RESPECT) comprises members of the senior leadership team and is led by the CEO. RESPECT is responsible for setting the group’s SHE and Sustainability policies and objectives across the global business. It also monitors ongoing performance in these areas throughout the year. Through this structure, we have established a strong culture of safety within our organization.

Training: Training is an essential part of our health and safety strategy. To minimize the risk of accident or injury, we give our employees the information they need, delivered effectively and at the appropriate time. Our ongoing training programs demonstrate our commitment to targeting zero accidents, making sure that safety is always front of mind and that we continually raise standards.

Every year, employees across our sites take part in a variety of site-specific training courses to enable them to be competent and safe in their roles.

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Available Information

Our corporate web sitewebsite is www.innospecinc.com.www.innospec.com. We make available, free of charge, on or through this web sitewebsite our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the U.S. Securities and Exchange Commission (“SEC”). In addition, the SEC maintains an internet site at

http://www.sec.gov
that contains reports, proxy and information statements, and other information that we file electronically with the SEC and state the address of that site.
SEC.

The Company routinely posts important information for investors on its web sitewebsite (under Investor Relations)Investors). The Company uses this web sitewebsite as a means of disclosing material,

non-public
information and for complying with its disclosure obligations under SEC Regulation FD (“Fair Disclosure”). Accordingly, investors should monitor the Investor RelationsInvestors portion of the Company’s web site,website, in addition to following the Company’s press releases, SEC filings, public conference calls, presentations and webcasts.

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Item 1ARisk Factors

Item 1A    Risk Factors

The factors described below represent the principal risks associated with our business.

Global Conditions

Competition and market conditions may adversely affect our operating results.

In certain markets, our competitors are larger than us and may have greater access to financial, technological and other resources. As a result, competitors may be better able to adapt to changes in conditions in our industries, fluctuations in the costs of raw materials or changes in global economic conditions. Competitors may also be able to introduce new products with enhanced features that may cause a decline in the demand and sales of our products. Consolidation of customers or competitors, or economic problems of customers in our markets could cause a loss of market share for our products, place downward pressure on prices, result in payment delays or non-payment, or declining plant utilization rates. These risks could adversely impact our results of operations, financial position and cash flows.

Russian military invasion of the sovereign state of Ukraine.

On February 24, 2022, Russia launched an invasion into Ukraine which has had some effect on our ability to obtain and import certain raw materials used to manufacture our products and our ability to export and sell our products in these countries. The ongoing conflict, and sanctions imposed upon Russia and Belarus, may impact on the Company’s sales, cost of procuring raw materials or distribution costs in future periods. The wider implications of the conflict have driven up the cost of energy and utilities used to operate our manufacturing plants, particularly in Europe, with the further potential for issues relating to the supply of energy, particularly natural gas, for our manufacturing sites in countries reliant on supplies from Russia. The fluidity and continuation of the conflict may result in additional economic sanctions and other impacts which could have a negative impact on the Company’s financial condition, results of operations and cash flows. These include decreased sales; supply chain and logistics disruptions; volatility in foreign exchange rates and interest rates; inflationary pressures on raw materials and energy; and heightened cybersecurity threats.

Continuing adverse global economic conditions could materially affect our current and future businesses.

Global economic factors affecting our business include, but are not limited to, geopolitical instability in some markets, consumer demand for premium personal care and cosmetic products, miles driven by passenger and commercial vehicles, legislation to control fuel quality, impact of alternative propulsion systems, and oil and gas drilling and production rates. The availability, cost and terms of credit have been, and may continue to be, adversely affected by the foregoing factors and these circumstances have produced, and may in the future result in, illiquid markets and wider credit spreads, which may make it difficult or more expensive for us to obtain credit.

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The level of inflation and energy costs, particularly in Europe, may result in an adverse impact to the Group’s results from employee wages and other costs of operations of our manufacturing sites.

Continuing uncertainties in the U.S. and international markets and economies leading to a decline in business and consumer spending could adversely impact our results of operations, financial position and cash flows.

Domestic or international natural disasters or terrorist attacks may disrupt our operations, decrease the demand for our products or otherwise have an adverse impact on our business.

Chemical related assets, and U.S. corporations such as us, may be at greater risk of future terrorist attacks than other possible targets in the U.S., the U.K. and throughout the world. Extraordinary events such as natural disasters may negatively affect local economies, including those of our customers or suppliers. The occurrence and consequences of such events cannot be predicted, but they can adversely impact economic conditions in general and in our specific markets. The resulting damage from such events could include loss of life, severe injury and property damage or site closure. Any of these matters could adversely impact our results of operations, financial position and cash flows.

While Innospec maintains business continuity plans that are intended to allow it to continue operations or mitigate the effects of events that could disrupt its business, Innospec cannot provide assurances that its plans would fully protect it from all such events. In addition, insurance maintained by Innospec to protect against property damage, loss of business and other related consequences resulting from catastrophic events is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of Innospec’s damages or damages to others in the event of a catastrophe. In addition, insurance related to these types of risks may not be available now or, if available, may not be available in the future at commercially reasonable rates.

Our business and operations have been, and may in the future, be adversely affected by epidemics, pandemics, outbreaks of disease and other adverse public health developments, including COVID-19.

Epidemics, pandemics, outbreaks of novel diseases and other adverse public health developments in countries and states where we operate may arise at any time. Such developments, including the COVID-19 pandemic, have had, and in the future may have, an adverse effect on our business, financial condition and results of operations. These effects include a potentially negative impact on the availability of our key personnel, labor shortages and increased turnover, temporary closures of our facilities or facilities of our business partners, customers, suppliers, third-party service providers or other vendors, and interruption of domestic and global supply chains, distribution channels and liquidity and capital or financial markets. In particular, restrictions on or disruptions of transportation, port closures or increased border controls or closures, or other impacts on domestic and global supply chains or distribution channels, could increase our costs for raw materials and commodity costs,

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increase demand for raw materials and commodities from competing purchasers, limit our ability to meet customer demand or otherwise have a material adverse effect on our business, financial condition and results of operations or cash flows.

Precautionary measures that we may take in the future intended to limit the impact of any epidemic, pandemic, disease outbreak or other public health development, may result in additional costs. In addition, such epidemics, pandemics, disease outbreaks or other public health developments may adversely affect economies and financial markets throughout the world, such as the effect that COVID-19 has had on world economies and financial markets, which may affect our ability to obtain additional financing for our businesses and demand for our products and services. The extent to which COVID-19 or other pandemics will impact our business and our financial results in the future will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include ongoing spread of the virus, disease severity, outbreak duration, extent of any reoccurrence of the coronavirus or any evolutions or mutations of the virus, and availability, administration and effectiveness of vaccines and development of therapeutic treatments that can restore consumer and business economic confidence.

Business Operations

We face risks related to our foreign operations that may adversely affect our business.

We serve global markets and operate in certain countries with political and economic instability, including the Middle East, Northern Africa, Asia-Pacific, Eastern Europe and South American regions. Our international operations are subject to numerous international business risks including, but not limited to, geopolitical and economic conditions, military actions and war, risk of expropriation, import and export restrictions, trade wars, exchange controls, national and regional labor strikes, high or unexpected taxes, government royalties and restrictions on repatriation of earnings or proceeds from liquidated assets of overseas subsidiaries. Any of these could have a material adverse impact on our results of operations, financial position and cash flows.

We may not be able to consummate, finance or successfully integrate future acquisitions, partnerships or other opportunities into our business, which could hinder our strategy or result in unanticipated expenses and losses.

Part of our strategy is to pursue strategic acquisitions, partnerships and other opportunities to complement and expand our existing business. The success of these transactions depends on our ability to efficiently complete transactions, integrate assets and personnel acquired in these transactions and apply our internal control processes to these acquired businesses. Consummating acquisitions, partnerships or other opportunities and integrating acquisitions involves considerable expense, resources and management time commitments, and our failure to manage these as intended could result in unanticipated expenses and losses. Post-acquisition integration may result in unforeseen difficulties and may deplete significant financial and management resources that could otherwise be available for the ongoing

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development or expansion of existing operations. Furthermore, we may not realize the benefits of an acquisition in the way we anticipated when we first entered the transaction. Any of these risks could adversely impact our results of operations, financial position and cash flows.

Our success depends on our management team and other key personnel, the loss of any of whom could disrupt our business operations.

Our future success will depend in substantial part on the continued services of our senior management. The loss of the services of one or more of our key executive personnel could affect the implementation of our business plan and result in reduced profitability. Our future success also depends on the continued ability to attract, develop, retain and motivate highly-qualified technical and support staff. We cannot guarantee that we will be able to retain our key personnel or attract or retain qualified personnel in the future. If we are unsuccessful in our efforts in this regard, this could adversely impact our results of operations, financial position and cash flows.

An information technology system failure may adversely affect our business.

We rely on information technology systems to transact our business. Like other global companies, we and our third party service providers have, from time to time, been and will likely in the future be, subject to or targets of unauthorized or fraudulent access, including, but not limited to, physical or electronic break-ins or unauthorized tampering, as well as attempted cyber and other security threats and other computer-related penetrations including by state actors, terrorists or organized crime. Also, like other global companies, we have an increasing challenge of attracting and retaining highly qualified security personnel to assist us in combatting these security threats. The frequency and sophistication of such threats continue to increase, with malicious actors frequently changing tactics and techniques. These threats often become further heightened in connection with geopolitical tensions. Although we have implemented administrative and technical controls and take protective actions to reduce the risk of cyber incidents and breaches of our information technology, and we endeavor to modify such procedures as circumstances warrant, such measures may be insufficient to prevent physical and electronic break-ins, cyber-attacks or other security breaches to our computer systems.

Our systems, processes, software and network and those of our third party service providers may be vulnerable to internal or external security breaches, computer viruses, malware or other malicious code or cyber-attacks, catastrophic events, power interruptions, hardware failures, fire, natural disasters, human error, system failures and disruptions, and other events that could have security consequences. An information technology failure or disruption could prevent us from being able to process transactions with our customers, operate our manufacturing facilities, and properly report those transactions in a timely manner. Our information technology costs may increase to ensure the appropriate level of cyber security as we continuously adapt to the changing technological environment.

While we have limited insurance coverage in place that may, subject to policy terms and conditions, cover certain aspects of cyber risks, this insurance coverage is subject to certain

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limitations and may not be applicable to a particular incident or otherwise be sufficient to cover all our losses beyond any coverage limitations. Furthermore, a significant or protracted information technology system failure may result in a material adverse effect on our results of operations, financial position and cash flows.

Decline in our AvGas business

The sales of our AvGas product line for use in aviation fuel are recorded within our Fuel Specialties business. The piston aviation industry has been, and is currently, researching a safe replacement fuel to replace leaded fuel. The U.S. Federal Aviation Administration (“FAA”) program (Piston Aviation Fuels Initiative) has been established to identify a replacement fuel, and candidate fuels are at an early pre-screening stage. In 2022, the FAA created a new team named Eliminate Aviation Gasoline Lead Emissions (“EAGLE”). This is a government-industry partnership that also encompasses fuel producers and distributors, airport operators, communities that support general aviation airports, and environmental experts. The most significant announcement impacting the Company is the stated aim of EAGLE to eliminate lead emissions from general aviation by the end of 2030. There are also regulatory projects underway for the European Union, which are considering the phase out of leaded fuel for the aviation industry earlier than the FAA timetable.

While we expect that at some point in the future a replacement fuel will be identified, trialed and supplied to the industry, there is no currently available alternative. If a suitable product is identified and the use of leaded fuel is prohibited in piston aviation the Company’s future operating income and cash flows from operating activities would be adversely impacted.

Failure to protect our intellectual property rights could adversely affect our future performance and cash flows.

Failure to maintain or protect our intellectual property rights may result in the loss of valuable technologies, or us having to pay other companies for infringing on their intellectual property rights. Measures taken by us to protect our intellectual property may be challenged, invalidated, circumvented or rendered unenforceable. In addition, international intellectual property laws may be more restrictive or may offer lower levels of protection than under U.S. law. We may also face patent infringement claims from our competitors which may result in substantial litigation costs, claims for damages or a tarnishing of our reputation even if we are successful in defending against these claims, which may cause our customers to switch to our competitors. Any of these events could adversely impact our results of operations, financial position and cash flows.

Industry Matters

Trends in oil and gas prices affect the level of exploration, development and production activity of our customers, and the demand for our services and products, which could have a material adverse impact on our business.

Demand for our services and products in our Oilfield Services business is particularly sensitive to the level of exploration, development and production activity of, and the

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corresponding capital spending by, oil and gas companies. The level of exploration, development and production activity is directly affected by trends in demand for and prices of oil and gas, which historically have been volatile and are likely to continue to be volatile. Prices for oil and gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and gas, market uncertainty, and a variety of other economic and political factors that are beyond our control. Even the perception of longer-term lower oil and gas prices by oil and gas companies can similarly reduce or defer major expenditures given the long-term nature of many large-scale development projects. Factors affecting the prices of oil and gas include, but are not limited to, the level of supply and demand for oil and gas,gas; governmental regulations, including the policies of governments regarding the exploration for and production and development of their oil and gas reserves,reserves; weather conditions and natural disasters,disasters; worldwide political, military and economic conditions,conditions; the level of oil and gas production by

non-OPEC
(“ (“Organization of the Petroleum Exporting Countries”) countries and the available excess production capacity within OPEC,OPEC; the cost of producing and delivering oil and gasgas; and potential acceleration of the development of alternative power generation, fuels and engine technologies. Any prolonged reduction in oil and gas prices will depress the immediate levels of exploration, development and production activity, which could have a material adverse impact on our results of operations, financial position and cash flows.
We face risks related to our foreign operations that may adversely affect our business.
We serve global markets and operate in certain countries with political and economic instability, including the Middle East, Northern Africa, Asia-Pacific, Eastern Europe and South American regions. Our international operations are subject to numerous international business risks including, but not limited to, geopolitical and economic conditions, risk of expropriation, import and export restrictions, trade wars, exchange controls, national and regional labor strikes, high or unexpected taxes, government royalties and restrictions on repatriation of earnings or proceeds from liquidated assets of overseas subsidiaries. Any of these could have a material adverse impact on our results of operations, financial position and cash flows.
We are subject to extensive regulation of our international operations that could adversely affect our business and results of operations.
Due to our global operations, we are subject to many laws governing international commercial activity, conduct and relations, including those that prohibit improper payments to government
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officials, restrict where and with whom we can do business, and limit the products, software and technology that we can supply to certain countries and customers. These laws include, but are not limited to, the U.S. Foreign Corrupt Practices Act and United Kingdom Bribery Act, sanctions and assets control programs administered by the U.S. Department of the Treasury and/or the European Union from time to time, and the U.S. export control laws such as the regulations under the U.S. Export Administration Act, as well as similar laws and regulations in other countries relevant to our business operations. Violations of any of these laws or regulations, which are often complex in their application, may result in criminal or civil penalties that could have a material adverse effect on our results of operations, financial position and cash flows.
We may not be able to consummate, finance or successfully integrate future acquisitions, partnerships or other opportunities into our business, which could hinder our strategy or result in unanticipated expenses and losses.
Part of our strategy is to pursue strategic acquisitions, partnerships and other opportunities to complement and expand our existing business. The success of these transactions depends on our ability to efficiently complete transactions, integrate assets and personnel acquired in these transactions and apply our internal control processes to these acquired businesses. Consummating acquisitions, partnerships or other opportunities and integrating acquisitions involves considerable expense, resources and management time commitments, and our failure to manage these as intended could result in unanticipated expenses and losses. Post-acquisition integration may result in unforeseen difficulties and may deplete significant financial and management resources that could otherwise be available for the ongoing development or expansion of existing operations. Furthermore, we may not realize the benefits of an acquisition in the way we anticipated when we first entered the transaction. Any of these risks could adversely impact our results of operations, financial position and cash flows.
Competition and market conditions may adversely affect our operating results.
In certain markets, our competitors are larger than us and may have greater access to financial, technological and other resources. As a result, competitors may be better able to adapt to changes in conditions in our industries, fluctuations in the costs of raw materials or changes in global economic conditions. Competitors may also be able to introduce new products with enhanced features that may cause a decline in the demand and sales of our products. Consolidation of customers or competitors, or economic problems of customers in our markets could cause a loss of market share for our products, place downward pressure on prices, result in payment delays or
non-payment,
or declining plant utilization rates. These risks could adversely impact our results of operations, financial position and cash flows.
Political developments may adversely affect our business
On June 23, 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the European Union (E.U.), commonly referred to as “Brexit”. Subsequently, the U.K. parliament passed the European Union (Notification of Withdrawal) Act 2017, which
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conferred power on the U.K. government to give notice to the European Council, under Article 50(2) of the Treaty on European Union, of the U.K.’s intention to withdraw from the European Union. The U.K. submitted this notice to the European Council on March 29, 2017. The U.K. left the E.U. on January 31, 2020. A transition period now exists until December 31, 2020, during which businesses in the U.K. will trade on essentially very similar if not the same terms as before and E.U. law will continue to apply in the U.K. while the detailed legal agreement on the future relationship between the U.K. and the E.U. is being negotiated. If a future trading relationship is not agreed between the U.K. and the E.U. before the end of the transition period then there are likely to be greater restrictions on imports and exports between the U.K. and E.U. member states and increased regulatory complexities for businesses trading goods and services between those jurisdictions. For example, during the proposed transition period, goods first lawfully put on the market in the E.U. or in the U.K. prior to the end of the transition period can circulate between the two markets before they reach the end user, but following the end of the transition period or in a No Deal scenario, they may not be able to do so without complying with additional requirements first.
These political developments may adversely impact our results of operations, financial position and cash flows.

We could be adversely affected by technological changes in our industry.

Our ability to maintain or enhance our technological capabilities, develop and market products and applications that meet changing customer requirements, and successfully anticipate or respond to technological changes in a cost effective and timely manner will likely impact our future business success. We compete on a number of fronts including, but not limited to, product quality and performance. In the case of some of our products, our competitors are larger than us and may have greater access to financial, technological and other resources. Technological changes include, but are not limited to, the development of electric and hybrid vehicles, and the subsequent impact on the demand for gasoline and diesel. Our inability to maintain a technological edge, innovate and improve our products could cause a decline in the demand and sales of our products, and adversely impact our results of operations, financial position and cash flows.

Having a small number of significant customers may have a material adverse impact on our results of operations.
Our principal customers are oil and gas exploration and production companies, oil refineries, personal care companies, and other chemical and industrial companies. These industries are characterized by a concentration of a few large participants. The loss of a significant customer, a material reduction in demand by a significant customer or termination or
non-renewal
of a significant customer contract could adversely impact our results of operations, financial position and cash flows.
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Our United Kingdom defined benefit pension plan could adversely impact our financial condition, results of operations and cash flows.
Movements in the underlying plan asset value and Projected Benefit Obligation (“PBO”) of our United Kingdom defined benefit pension plan are dependent on actual return on investments as well as our assumptions in respect of the discount rate, annual member mortality rates, future return on assets and future inflation. A change in any one of these assumptions could impact the plan asset value, PBO and pension credit recognized in the income statement. If future plan investment returns prove insufficient to meet future obligations, or should future obligations increase due to actuarial factors or changes in pension legislation, then we may be required to make additional cash contributions. These events could adversely impact our results of operations, financial position and cash flows.
We may have additional tax liabilities.
We are subject to income and other taxes in the U.S. and other jurisdictions. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. Significant judgment is required in estimating our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, any final determination pursuant to tax audits and any related litigation could be materially different to what is reflected in our consolidated financial statements. Should any tax authority disagree with our estimates and determine any additional tax liabilities, including interest and penalties for us, this could adversely impact our results of operations, financial position and cash flows.
Our success depends on our management team and other key personnel, the loss of any of whom could disrupt our business operations.
Our future success will depend in substantial part on the continued services of our senior management. The loss of the services of one or more of our key executive personnel could affect the implementation of our business plan and result in reduced profitability. Our future success also depends on the continued ability to attract, develop, retain and motivate highly-qualified technical, sales and support staff. We cannot guarantee that we will be able to retain our key personnel or attract or retain qualified personnel in the future. If we are unsuccessful in our efforts in this regard, this could adversely impact our results of operations, financial position and cash flows.
Continuing adverse global economic conditions could materially affect our current and future businesses.
Global economic factors affecting our business include, but are not limited to, geopolitical instability in some markets, miles driven by passenger and commercial vehicles, legislation to control fuel quality, impact of alternative propulsion systems, consumer demand for premium personal care and cosmetic products, and oil and gas drilling and production rates. The availability, cost and terms of credit have been, and may continue to be, adversely affected by
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the foregoing factors and these circumstances have produced, and may in the future result in, illiquid markets and wider credit spreads, which may make it difficult or more expensive for us to obtain credit. Continuing uncertainties in the U.S. and international markets and economies leading to a decline in business and consumer spending could adversely impact our results of operations, financial position and cash flows.
An information technology system failure may adversely affect our business.
We rely on information technology systems to transact our business. Like other global companies, we have, from time to time, experienced threats to our data and systems. Although we have implemented administrative and technical controls and take protective actions to reduce the risk of cyber incidents and breaches of our information technology, and we endeavor to modify such procedures as circumstances warrant, such measures may be insufficient to prevent physical and electronic
break-ins,
cyber-attacks or other security breaches to our computer systems.
As we have disclosed in the second quarter of 2019, we experienced a network security incident that prevented access to certain information technology systems and data within our network. Even after our remediation efforts, our systems, processes, software and network may be vulnerable to internal or external security breaches, computer viruses, malware or other malicious code or cyber-attack, catastrophic events, power interruptions, hardware failures, fire, natural disasters, human error, system failures and disruptions, and other events that could have security consequences. An information technology failure or disruption could prevent us from being able to process transactions with our customers, operate our manufacturing facilities, and properly report those transactions in a timely manner.
Whilst we have insurance coverage in place that may, subject to policy terms and conditions, cover certain aspects of cyber risks, this insurance coverage is subject to certain limitations and may not be applicable to a particular incident or otherwise be sufficient to cover all our losses beyond any coverage limitations. Furthermore, a significant or protracted information technology system failure may result in a material adverse effect on our results of operations, financial position and cash flows.
Decline in our TEL business
The remaining sales of the Octane Additives business are now concentrated to one remaining refinery customer. When this customer chooses to cease using TEL as an octane enhancer then the Company’s future operating income and cash flows from operating activities will be materially impacted. While we cannot be certain, we expect the possible conclusion of revenues from our Octane Additives segment in the early part of 2020.
The sales of the AvTel product line are recorded within our Fuel Specialties business. The piston aviation industry has been, and is currently, researching a safe replacement fuel to replace leaded fuel. While we expect that at some point in the future a replacement fuel will be identified, trialed and supplied to the industry, there is no currently known replacement. In addition, there is no clear timescale on the legislation of a replacement product. If a suitable
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product is identified and the use of leaded fuel is prohibited in piston aviation the Company’s future operating income and cash flows from operating activities would be adversely impacted.
We are exposed to fluctuations in foreign currency exchange rates, which may adversely affect our results of operations.
We generate a portion of our revenues and incur some operating costs in currencies other than the U.S. dollar. In addition, the financial position and results of operations of some of our overseas subsidiaries are reported in the relevant local currency and then translated to U.S. dollars at the applicable currency exchange rates for inclusion in our consolidated financial statements. Fluctuations in these currency exchange rates affect the recorded levels of our assets and liabilities, results of operations and cash flows.
The primary exchange rate fluctuation exposures we have are with the European Union euro, British pound sterling and Brazilian real. Exchange rates between these currencies and the U.S. dollar have fluctuated in recent years and may continue to do so. We cannot accurately predict future exchange rate variability among these currencies or relative to the U.S. dollar. While we take steps to manage currency exchange rate exposure, including entering into hedging transactions, we cannot eliminate all exposure to future exchange rate variability. These exchange risks could adversely impact our results of operations, financial position and cash flows.

Sharp and unexpected fluctuations in the cost of our raw materials and energy could adversely affect our profit margins.

We use a variety of raw materials, chemicals and energy in our manufacturing and blending processes. Many of these raw materials are derived from petrochemical-based and vegetable-based feedstocks which can be subject to periods of rapid and significant cost instability. These fluctuations in cost can be caused by political instability in oil producing nations and elsewhere, weather conditions or other factors influencing global supply and demand of these materials, over which we have little or no control. We use long-term contracts (generally with fixed or formula-based costs) and advance bulk purchases to help ensure availability and continuity of supply, and to manage the risk of cost increases. From time to time, we have

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entered into hedging arrangements for certain utilities and raw materials, but do not typically enter into hedging arrangements for all raw materials, chemicals or energy costs. If the costs of raw materials, chemicals or energy increase, and we are not able to pass on these cost increases to our customers, then profit margins and cash flows from operating activities would be adversely impacted. If raw material costs increase significantly, then our need for working capital could increase. Any of these risks could adversely impact our results of operations, financial position and cash flows.

A disruption in

Our business is subject to the supplyrisk of raw materials or transportation servicesmanufacturing disruptions, the occurrence of which would have a material adverse impact onadversely affect our results of operations.

Although we try

We are subject to anticipate problemshazards which are common to chemical manufacturing, blending, storage, handling and transportation. These hazards include, but are not limited to, fires, explosions, chemical spills and the release or discharge of toxic or hazardous substances together with suppliesthe more generic risks of raw materialslabor strikes or slowdowns, mechanical failure in scheduled downtime, extreme weather or transportation services by building certain inventoriesinterruptions. These hazards could result in loss of strategic importance, transport operations are

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exposed to various risks such as extreme weather conditions, natural disasters, technological problems, work stoppages as well as transportation regulations. If the Company experiences transportation problems,life, severe injury, property damage, environmental contamination and temporary or if there are significant changes in the costpermanent manufacturing cessation. Any of these services, the Company may not be able to arrange efficient alternatives and timely means to obtain raw materials or ship finished products, whichfactors could adversely impact our results of operations, financial position and cash flows.
A high concentration

Legal, Regulatory and Tax Matters

We are subject to extensive regulation of significant stockholdersour international operations that could adversely affect our business and results of operations.

Due to our global operations, we are subject to many laws governing international commercial activity, conduct and relations, including, but are not limited to, those that prohibit improper payments to government officials, restrict where and with whom we can do business and limit the products, software and technology that we can supply to certain countries and customers. These laws include, but are not limited to, the U.S. Foreign Corrupt Practices Act and U.K. Bribery Act, sanctions and assets control programs administered by the U.S. Department of the Treasury and/or the European Union from time to time, and the U.S. export control laws such as the regulations under the U.S. Export Administration Act, as well as similar laws and regulations in other countries relevant to our business operations. Violations of any of these laws or regulations, which are often complex in their application, may result in criminal or civil penalties that could have a material adverse impacteffect on our stock price.

Approximately 48%results of our common stock is held by five stockholders. A decision by any of these, or other substantial, stockholders to sell all or a significant part of its holding, or a sudden or unexpected disposition of our stock,operations, financial position and cash flows.

Our United Kingdom defined benefit pension plan could result in a significant decline in our stock price which could in turn adversely impact our abilityfinancial condition, results of operations and cash flows.

Movements in the underlying plan asset value and Projected Benefit Obligation (“PBO”) of our United Kingdom defined benefit pension plan (“UK Plan”) are dependent on our assumptions in respect of the discount rate, annual member mortality rates, future return on assets and future inflation. A change in any one of these assumptions could impact the plan asset value, PBO and pension credit recognized in the income statement.

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In May 2022, the Trustees of the UK Plan entered into an agreement with Legal and General Assurance Society Limited to access equity marketsacquire an insurance policy that operates as an investment asset, with the intent of matching the remaining uninsured part of the UK Plan’s future cash outflow arising from the accrued pension liabilities of members. Such an arrangement is commonly termed as a “buy-in”. The benefit obligation was not transferred to the insurer, and the Company remains responsible for paying pension benefits. The initial value of the asset associated with this contract was equal to the premium paid to secure the contract and is adjusted each reporting period to reflect the estimated fair value of the premium that would be paid for such a contract at that time. The buy-in reduces the UK Plan’s value at risk in relation to key risks associated with improved longevity, inflation and interest rate movements while improving the security to the UK Plan and its members. The Company consequently benefits from the buy-in as it reduces the UK Plan’s potential reliance on the Company for future cash funding requirements. However, should an unexpected issue arise, there could be consequences which adversely impact our results of operations, financial position and cash flows.

We may have additional tax liabilities.

We are subject to income and other taxes in turnthe U.S., the U.K., and a number of other jurisdictions. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. Significant judgment is required in estimating our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, any final determination pursuant to tax audits and any related litigation could be materially different to the amounts reflected in our Consolidated Financial Statements. Should any tax authority disagree with our estimates and determine any additional tax liabilities, including interest and penalties for us, this could adversely impact our results of operations, financial position and cash flows.

Failure to protect our intellectual property rights could adversely affect our future performance and cash flows.
Failure to maintain or protect our intellectual property rights may result in the loss of valuable technologies, or us having to pay other companies for infringing on their intellectual property rights. Measures taken by us to protect our intellectual property may be challenged, invalidated, circumvented or rendered unenforceable. In addition, international intellectual property laws may be more restrictive or may offer lower levels of protection than under U.S. law. We may also face patent infringement claims from our competitors which may result in substantial litigation costs, claims for damages or a tarnishing of our reputation even if we are successful in defending against these claims, which may cause our customers to switch to our competitors. Any of these events could adversely impact our results of operations, financial position and cash flows.

Our products are subject to extensive government scrutiny and regulation.

We are subject to regulation by federal, state, local and foreign government authorities. In some cases, we need government approval of our products, manufacturing processes and facilities before we may sell certain products. Many products are required to be registered with the U.S. Environmental Protection Agency (EPA), with the European Chemicals Agency (ECHA) and with comparable government agencies elsewhere. We are also subject to ongoing reviews of our products, manufacturing processes and facilities by government authorities, and must also produce product data and comply with detailed regulatory requirements.

In order to obtain regulatory approval of certain new products we must, among other things, demonstrate that the product is appropriate and effective for its intended uses, that the product has been appropriately tested for safety and that we are capable of manufacturing the product in accordance with applicable regulations. This approval process can be costly, time consuming, and subject to unanticipated and significant delays. We cannot be sure that necessary approvals will be granted on a timely basis or at all. Any delay in obtaining, or any

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failure to obtain or maintain, these approvals would adversely affect our ability to introduce new products and to generate income from those products. New or stricter laws and regulations may be introduced that could result in additional compliance costs and prevent or inhibit the development, manufacture, distribution and sale of our products. Such outcomes could adversely impact our results of operations, financial position and cash flows.

Diverse chemical regulatory processes in different countries around the world might create complexity and additional cost. U.K. REACH, which was precipitated by the U.K.’s exit from the E.U., is one such example.

Legal proceedings and other claims could impose substantial costs on us.

We are from time to time involved in legal proceedings that result from, and are incidental to, the conduct of our business, including employee and product liability claims. Although we maintain insurance to protect us against a variety of claims, if our insurance coverage is not adequate to cover such claims, then we may be required to pay directly for such liabilities. Such outcomes could adversely impact our results of operations, financial position and cash flows.

Environmental liabilities and compliance costs could have a substantial adverse impact on our results of operations.

We operate a number of manufacturing sites and are subject to extensive federal, state, local and foreign environmental, health and safety laws and regulations, including, but not limited to, those relating to emissions to the air, discharges to land and water, and the generation, handling, treatment and disposal of hazardous waste and other materials on these sites. We operate under numerous environmental permits and licenses, many of which require periodic notification and renewal, which is not automatic. New or stricter laws and regulations could increase our compliance burden or costs and adversely affect our ability to develop, manufacture, blend, market and supply products.

Our operations, and the operations of prior owners of our sites, pose the risk of environmental contamination which may result in fines or criminal sanctions being imposed or require significant amounts in environmental remediation payments.

We anticipate that certain manufacturing sites may cease production over time and on closure, will require safely decommissioning and some environmental remediation. The extent of our obligations will depend on the future use of the sites that are affected and the environmental laws in effect at the time. We currently have madehold a decommissioning and remediationplant closure provision in our consolidated financial statementsConsolidated Financial Statements based on current known obligations, anticipated plans for sites andor existing environmental laws. If there were to be unexpected or unknown contamination at these sites, or future plans for the sites or environmental laws change, then current provisions may prove inadequate, which could adversely impact our results of operations, financial position and cash flows.

19

We may be exposed to certain regulatory and financial risks related to climate change

The outcome of new or potential legislation or regulation in the U.S. and other jurisdictions in which we operate may result in new or additional requirements, additional charges to fund energy efficiency activities, fees or restrictions on certain activities. Compliance with these initiatives may also result in additional costs to us, including, among other things, increased production costs, additional taxes, reduced emission allowances or additional restrictions on production or operations. Any climate change regulations enacted in the future could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Even without such regulation, increased public awareness and adverse publicity about potential impacts on climate change emanating from us or our industry could harm us. We may not be able to recover the cost of compliance with new or more stringent laws and regulations, which could adversely affect our business and negatively impact our growth. Furthermore, the potential impacts of climate change and related regulation on our customers are highly uncertain and may adversely affect us.

Key Third Party Relationships

Having a small number of significant customers may have a material adverse impact on our results of operations.

Our principal customers are personal and home care companies, oil refiners, oil and gas exploration and production companies, and other chemical and industrial companies. These industries are characterized by a concentration of a few large participants. The loss of a significant customer, a material reduction in demand by a significant customer or termination or non-renewal of a significant customer contract could adversely impact our results of operations, financial position and cash flows.

A disruption in the supply of raw materials or transportation services would have a material adverse impact on our results of operations.

Although we try to anticipate problems with supplies of raw materials or transportation services by building certain inventories of strategic importance, transport operations are exposed to various risks such as extreme weather conditions, natural disasters, technological problems, work stoppages, geopolitical tensions, pandemics, as well as transportation regulations. If the Company experiences transportation problems, or if there are significant changes in the cost of these services, the Company may not be able to arrange efficient alternatives and timely means to obtain raw materials or ship finished products, which could adversely impact our results of operations, financial position and cash flows.

The inability of counterparties to meet their contractual obligations could have a substantial adverse impact on our results of operations.

We sell products to oil companies, oil and gas exploration and production companies and chemical companies throughout the world.

Credit limits, ongoing credit evaluation and

15
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account monitoring procedures are used to minimize bad debt risk. Collateral is not generally required. We have in place a credit facility with a syndicate of banks. From time to time, we use derivatives, including, but not limited to,

20

interest rate swaps, commodity swaps and foreign currency forward exchange contracts, in the normal course of business to manage market risks. We enter into derivative instruments with a diversified group of major financial institutions in order to manage the exposure to

non-performance
of such instruments.

We remain subject to market and credit risks including the ability of counterparties to meet their contractual obligations and the potential

non-performance
of counterparties to deliver contracted commodities or services at the contracted price. The inability of counterparties to meet their contractual obligations could have an adverse impact on our results of operations, financial position and cash flows.

Finance and Investment

We are exposed to fluctuations in foreign currency exchange rates, which may adversely affect our results of operations.

We generate a portion of our revenues and incur some operating costs in currencies other than the U.S. dollar. In addition, the financial position and results of operations of some of our overseas subsidiaries are reported in the relevant local currency and then translated to U.S. dollars at the applicable currency exchange rates for inclusion in our Consolidated Financial Statements. Fluctuations in these currency exchange rates affect the recorded levels of our assets and liabilities, results of operations and cash flows.

The primary exchange rate fluctuation exposures we have are with the E.U. euro, British pound sterling and Brazilian real. Exchange rates between these currencies and the U.S. dollar have fluctuated in recent years and may continue to do so. We cannot accurately predict future exchange rate variability among these currencies or relative to the U.S. dollar. While we take steps to manage currency exchange rate exposure, including entering into hedging transactions, we cannot eliminate all exposure to future exchange rate variability. These exchange risks could adversely impact our results of operations, financial position and cash flows.

A high concentration of significant stockholders may have a material adverse impact on our stock price.

Approximately 44% of our common stock is held by four stockholders. A decision by any of these, or other substantial, stockholders to sell all or a significant part of its holding, or a sudden or unexpected disposition of our stock, could result in a significant decline in our stock price. This could in turn adversely impact our ability to access equity markets, which could adversely impact our results of operations, financial position and cash flows.

21

Our amended and restated by-laws designate specific Delaware courts as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated by-laws (the “By-laws”) provide that, unless we consent in writing to the selection of an alternative forum, the appropriate court within the State of Delaware is the sole and exclusive forum, to the fullest extent provided by law, for the following types of actions or proceedings:

any derivative action or proceeding brought on behalf of the Corporation,

any action asserting a claim of breach of a fiduciary duty owed by any director, officer, other employee or stockholder of the Corporation to the Corporation or the Corporation’s stockholders,

•

any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”), our amended and restated certificate of incorporation, the By-laws, or as to which the DGCL confers jurisdiction upon the Court of Chancery of the State of Delaware,

any action asserting a claim governed by the internal affairs doctrine, or

any other internal corporate claim as defined in Section 115 of the DGCL.

This includes, to the extent permitted by the federal securities laws, lawsuits asserting both state law claims and claims under the federal securities laws.

This forum selection provision in the By-laws may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause included in the By-laws, a court could rule that such a provision is inapplicable or unenforceable.

Application of the choice of forum provision may be limited in some instances by law. Section 27 of the Securities Exchange Act of 1934 (“Exchange Act”) provides for exclusive federal court jurisdiction over Exchange Act claims. Accordingly, to the extent the exclusive forum provision is held to cover a shareholder derivative action asserting claims under the Exchange Act, such claims could not be brought in the Delaware Court of Chancery and would instead be within the jurisdiction of the federal district court for the District of Delaware. Section 22 of the Securities Act of 1933 (“Securities Act”) creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Our stockholders will not be deemed by operation of our choice of forum provision to have waived our compliance with the federal securities laws and the regulations promulgated thereunder. The selection of legal jurisdiction for litigation claims may impact the outcome of legal proceedings which could in turn impact our results of operations, financial position and cash flows.

22

The provisions of our revolving credit facility may restrict our ability to incur additional indebtedness or to otherwise expand our business.

Our revolving credit facility contains restrictive clauses which may limit our activities andas well as operational and financial flexibility. We may not be able to borrow under the revolving credit facility if an event of default under the terms of the facility occurs. An event of default under the credit facility includes a material adverse change to our assets, operations or financial condition, and certain other events. The revolving credit facility also contains a number of restrictions that limit our ability, among other things, and subject to certain limited exceptions, to incur additional indebtedness, pledge our assets as security, guarantee obligations of third parties, make investments, undergo a merger or consolidation, dispose of assets or materially change our line of business.

In addition, the revolving credit facility requires us to meet certain financial ratios, including ratios based on net debt to earnings before income tax, depreciation and amortization (“EBITDA”) and net interest expense to EBITDA. Net debt, net interest expense and EBITDA are

non-GAAP
measures of liquidity defined in the credit facility. Our ability to meet these financial covenants depends upon the future successful operating performance of the business. If we fail to comply with these financial covenants, we would be in default under the revolving credit facility and the maturity of our outstanding debt could be accelerated unless we were able to obtain waivers from our lenders. If we were found to be in default under the revolving credit facility, it could adversely impact our results of operations, financial position and cash flows.
Our business is subject to the risk of manufacturing disruptions, the occurrence of which would adversely affect our results of operations.
We are subject to hazards which are common to chemical manufacturing, blending, storage, handling and transportation. These hazards include fires, explosions, remediation, chemical spills and the release or discharge of toxic or hazardous substances together with the more generic risks of labor strikes or slowdowns, mechanical failure in scheduled downtime, extreme weather or transportation interruptions. These hazards could result in loss of life,
16
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severe injury, property damage, environmental contamination and temporary or permanent manufacturing cessation. Any of these factors could adversely impact our results of operations, financial position and cash flows.
Domestic or international natural disasters, pandemics or terrorist attacks may disrupt our operations, decrease the demand for our products or otherwise have an adverse impact on our business.
Chemical related assets, and U.S. corporations such as us, may be at greater risk of future terrorist attacks than other possible targets in the U.S., the United Kingdom and throughout the world. Extraordinary events such as natural disasters and pandemics may negatively affect local economies, including those of our customers or suppliers. The occurrence and consequences of such events cannot be predicted, but they can adversely impact economic conditions in general and in our specific markets. The resulting damage from such events could include loss of life, severe injury and property damage or site closure. Any of these matters could adversely impact our results of operations, financial position and cash flows.
While Innospec maintains business continuity plans that are intended to allow it to continue operations or mitigate the effects of events that could disrupt its business, Innospec cannot provide assurances that its plans would fully protect it from all such events. In addition, insurance maintained by Innospec to protect against property damage, loss of business and other related consequences resulting from catastrophic events is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of Innospec’s damages or damages to others in the event of a catastrophe. In addition, insurance related to these types of risks may not be available now or, if available, may not be available in the future at commercially reasonable rates.
We may be exposed to certain regulatory and financial risks related to climate change
The outcome of new or potential legislation or regulation in the U.S. and other jurisdictions in which we operate may result in new or additional requirements, additional charges to fund energy efficiency activities, fees or restrictions on certain activities. Compliance with these initiatives may also result in additional costs to us, including, among other things, increased production costs, additional taxes, reduced emission allowances or additional restrictions on production or operations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Even without such regulation, increased public awareness and adverse publicity about potential impacts on climate change emanating from us or our industry could harm us. We may not be able to recover the cost of compliance with new or more stringent laws and regulations, which could adversely affect our business and negatively impact our growth. Furthermore, the potential impacts of climate change and related regulation on our customers are highly uncertain and may adversely affect us.

Item 1B

Unresolved Staff Comments

None.

23

None.
17
Table of Contents
Item 2

Properties

General

A summary of the Company’s principal properties is shown in the following table. Each of these properties is owned by the Company except where otherwise noted:

Location Reporting Segment Operations
Location
Englewood, Colorado (1) 
Reporting Segment
Fuel Specialties		 
Operations

Corporate Headquarters/

Business Teams/

Sales/Administration

Newark, Delaware (1) Fuel Specialties Research & Development
Englewood, Colorado
(1)
Herne, Germany 
Fuel Specialties

Sales/Manufacturing/Administration/

Research & Development

Vernon, FranceFuel Specialties

Sales/Manufacturing/Administration/

Research & Development

Moscow, Russia (1)Fuel SpecialtiesSales/Administration
Leuna, GermanyFuel Specialties

Sales/Manufacturing/Administration/

Research & Development

Ellesmere Port, United KingdomFuel Specialties, Performance Chemicals

European Headquarters

Business Teams/

Sales/Manufacturing/Administration/

Research & Development/

Fuel Technology Center

Beijing, China (1)Fuel Specialties and Performance Chemicals 
Corporate Headquarters
Business Teams
Sales/Administration
Singapore, Singapore (1) 
Newark, Delaware
(1)
Fuel Specialties
Research & Development
Herne, Germany
Fuel Specialties
Sales/Manufacturing/Administration
Research & Development
Vernon, France
Fuel Specialties
Sales/Manufacturing/Administration
Research & Development
Moscow, Russia
(1)
Fuel Specialties
Sales/Administration
Leuna, Germany
Fuel Specialties
Sales/Manufacturing/Administration
Research & Development
Ellesmere Port, United Kingdom
Fuel Specialties, Performance Chemicals and Octane Additives
European Headquarters
Business Teams
Sales/Manufacturing/Administration
Research & Development
Fuel Technology Center
Beijing, China
(1)
Fuel Specialties and Performance Chemicals
 

Asia-Pacific Headquarters/

Business Teams/

Sales/Administration

Milan, Italy (1) 
Singapore
(1)
Fuel Specialties and Performance Chemicals
 
Asia-Pacific Headquarters
Business Teams
Sales/Administration
Milan, Italy
(1)
Fuel Specialties and Performance Chemicals
Sales/Administration
Rio de Janeiro, Brazil
(1)
 
Fuel Specialties, Performance Chemicals and Oilfield Services
 
Sales/Administration
High Point, North Carolina
 
Performance Chemicals
 

Manufacturing/Administration

Administration/

Research & Development

Salisbury, North Carolina Performance Chemicals 

Manufacturing/Administration/

Research & Development

Salisbury, North Carolina
Chatsworth, California (1) 
Performance Chemicals
 
Sales/Manufacturing/Administration
Research & Development
Saint Mihiel, France Performance Chemicals 
Chatsworth, California
(1)
Performance Chemicals
Sales/Manufacturing/Administration
Saint Mihiel, France
Performance Chemicals
Manufacturing/Administration/Research & Development
Castiglione, Italy Performance Chemicals 
Castiglione, Italy
Performance Chemicals
Manufacturing/Administration/Research & Development

24

Location Reporting Segment Operations
Barcelona, Spain
(1)
 
Performance Chemicals
 
Manufacturing/Administration/Research & Development
Oklahoma City, Oklahoma Oilfield Services Sales/Manufacturing/Administration
Oklahoma City, Oklahoma
Midland, Texas 
Oilfield Services
 
Sales/Manufacturing/Administration
Pleasanton, Texas Oilfield Services Sales/Manufacturing/Administration
Midland,
Sugar Land, Texas(1) 
Oilfield Services
 
Sales/Manufacturing/Administration
Pleasanton, Texas
Oilfield Services
Sales/Manufacturing/Administration
18
Table of Contents
Location
Reporting Segment
Operations
Sugar Land, Texas
(1)
Oilfield Services
Sales/Administration/Research & Development
The Woodlands, Houston, Texas
(1)
 
Oilfield Services
 
Sales/Administration/Research & Development
Williston, North Dakota Oilfield Services Sales/Warehouse
Williston, North Dakota
Casper, Wyoming (1) 
Oilfield Services
 
Sales/Warehouse
Casper, Wyoming
(1)
Oilfield Services
Warehouse
Zug, Switzerland
(1)
Octane Additives
Sales/Administration

(1)

Leased property

Manufacturing Capacity

We believe that our plants and supply agreements are sufficient to meet current sales levels. Operating rates of the plants are generally flexible and varied with product mix and normal sales demand swings. We believe that all of our facilities are maintained to appropriate levels and in sufficient operating condition though there remains an ongoing need for maintenance and capital investment.

Item 3

Legal Proceedings

Legal matters

While we are involved from time to time in claims and legal proceedings that result from, and are incidental to, the conduct of our business including business and commercial litigation, employee and product liability claims, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party, or of which any of the Company’s property is subject. It is possible, however, that an adverse resolution of an unexpectedly large number of such individual claims or proceedings could in the aggregate have a material adverse effect on results of operations for a particular year or quarter.

Item 4

Mine Safety Disclosures

Not applicable.

25

19
Table of Contents

PART II

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Holders

The Company’s common stock is listed on the NASDAQ under the symbol “IOSP.” As of February 12, 202015, 2023 there were 793670 registered holders of the common stock.

Unregistered Sales of Equity Securities

There were no unregistered sales of equity securities during the fourth quarter of 2019.

2022.

Issuer Purchases of Equity Securities

During 2019 the Company made no open market repurchases of our common stock.
On November 6, 2018 the Company announced that its board of directors had approved a share repurchase program for the repurchase of up to $100 million of Innospec’s common stock over the following three years. During the year ended December 31, 2019, no shares of our common stock were repurchased by the Company under this share repurchase program.

During the quarter ended December 31, 20192022, the company hasCompany purchased its common stock as part of a share repurchase program and in connection with the exercising of stock options by employees.

The following table provides information about our repurchases of equity securities in the period.

quarter ended December 31, 2022.

Issuer Purchases of Equity Securities

         
Period
 
Total number
of shares
purchased
  
Average price
paid per share
 
November 1, 2019 through November 30, 2019
  
2,820
  $
99.31
 
Total
  
2,820
  $
99.31
 

Period

  Total number
of shares
purchased		   Average price
paid per share		   Total number
of shares
purchased as
part of
publicly
announced
plans or
programs1		   Approximate
dollar value
of shares
that may yet
be purchased
under the
plans or
programs		 

October 1, 2022 through October 31, 2022

   8,302   $90.39    8,302   $44.3 million 

November 1, 2022 through November 30, 2022

   1,059   $106.49    212   $44.2 million 

December 1, 2022 through December 31, 2022

   0   $0.00    0   $44.2 million 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   9,361   $92.21    8,514   $44.2 million 
  

 

 

   

 

 

   

 

 

   

 

 

 

1 On February 15, 2022 the Company announced a repurchase plan for up to $50 million of the Company’s common stock over a three-year period commencing on February 16, 2022.

Stock Price Performance Graph

The graph below compares the cumulative total return to stockholders on the common stock of the Corporation, S&P 500 Index, NASDAQ CompositeS&P 1500 Specialty Chemicals Index and Russell 2000

26

Index since December 31, 2014,2017, assuming a $100 investment and the

re-investment
of any dividends thereafter.
20
Table Historical stock price performance should not be relied upon as an indication of Contents
future stock price performance.

For the year ended December 31, 2022, we have changed one of the comparative indices from the NASDAQ Composite to the S&P 1500 Specialty Chemicals Index which we believe provides an improved peer group comparative. The total return to stockholders of the new and the old comparative indices is shown in the table below the following graph.

LOGO

Value of $100 Investment made December 31, 2014*

                         
 
2014
  
2015
  
2016
  
2017
  
2018
  
2019
 
Innospec Inc.
 $
100.00
  $
128.62
  $
163.81
  $
170.67
  $
151.45
  $
256.17
 
S&P 500 Index
  
100.00
   
99.27
   
108.74
   
129.86
   
121.76
   
156.93
 
NASDAQ Composite Index
  
100.00
   
105.73
   
113.66
   
145.76
   
140.10
   
189.46
 
Russell 2000 Index
 $
100.00
  $
94.29
  $
112.65
  $
127.46
  $
111.94
  $
138.46
 
2017*

   2017   2018   2019   2020   2021   2022 

Innospec Inc.

  $100.00   $88.74   $150.09   $133.16   $134.29   $154.80 

S&P 500 Index

   100.00    95.62    125.72    148.85    191.58    156.88 

S&P 1500 Specialty Chemicals Index

   100.00    93.97    111.15    129.30    165.17    124.09 

NASDAQ Composite

   100.00    96.41    133.31    192.48    235.16    158.65 

Russell 2000 Index

  $100.00   $88.99   $111.70   $134.00   $153.85   $122.41 

* Excludes purchase commissions.

27

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Table of Contents
Item 6Selected Financial Data
FINANCIAL HIGHLIGHTS
                     
(in millions, except financial ratios, share and
per share data) 
 
2019
  
2018
  
2017
  
2016
  
2015
 
Summary of performance:
               
Net sales
 $
1,513.3
  $
1,476.9
  $
1,306.8
  $
883.4
  $
1,012.3
 
Operating income
  
149.9
   
133.5
   
125.0
   
98.2
   
156.3
 
Income before income taxes
  
150.4
   
131.6
   
128.1
   
103.1
   
152.3
 
Income taxes
  
(38.2
)  
(46.6
)  
(66.3
)  
(21.8
)  
(32.8
)
Net income
  
112.2
   
85.0
   
61.8
   
81.3
   
119.5
 
Net income attributable to Innospec Inc.
  
112.2
   
85.0
   
61.8
   
81.3
   
119.5
 
Net cash provided by operating activities
 $
161.6
  $
104.9
  $
82.7
  $
105.5
  $
118.2
 
Financial position at year end:
               
Total assets
 $
1,468.8
  $
1,473.4
  $
1,410.2
  $
1,181.4
  $
1,028.6
 
Long-term debt including finance leases
(including current portion)
  
60.1
   
210.9
   
224.3
   
273.3
   
134.7
 
Cash, cash equivalents, and short-term investments
  
75.7
   
123.1
   
90.2
   
101.9
   
141.7
 
Total equity
 $
918.9
  $
825.5
  $
794.3
  $
653.8
  $
605.3
 
Financial ratios:
               
Net income attributable to Innospec Inc. as a percentage of net sales
  
7.4
   
5.8
   
4.7
   
9.2
   
11.8
 
Effective tax rate as a percentage
(1)
  
25.4
   
35.4
   
51.8
   
21.1
   
21.5
 
Current ratio
(2)
  
2.1
   
2.2
   
2.1
   
2.4
   
2.2
 
Share data:
               
Earnings per share attributable to Innospec Inc.
               
– Basic
 $
4.58
  $
3.48
  $
2.56
  $
3.39
  $
4.96
 
– Diluted
 $
4.54
  $
3.45
  $
2.52
  $
3.33
  $
4.86
 
Dividend paid per share
 $
1.02
  $
0.89
  $
0.77
  $
0.67
  $
0.61
 
Shares outstanding (basic, thousands)
               
– At year end
  
24,507
   
24,434
   
24,350
   
24,071
   
24,101
 
– Average during year
  
24,482
   
24,401
   
24,148
   
23,998
   
24,107
 
(1)
The effective tax rate is calculated as income taxes as a percentage of income before income taxes. Income taxes are impacted in 2017 by the provisional estimates recorded in respect of the Tax Cuts and Jobs Act of 2017 (“Tax Act”), and in 2018 by the finalization and recording of additional taxes due as a consequence of the Tax Act. Income taxes in 2019 are calculated under the new legislation of the Tax Act.
(2)
Current ratio is defined as current assets divided by current liabilities.
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Table of Contents
QUARTERLY SUMMARY
                 
(in millions, except per share data)
 
First
Quarter
  
Second
Quarter
  
Third
Quarter
  
Fourth
Quarter
 
2019
            
                 
Net sales
 $
388.3
  $
362.4
  $
371.9
  $
390.7
 
Gross profit
  
117.8
   
111.1
   
119.1
   
118.2
 
Operating income
  
36.2
   
31.7
   
38.2
   
43.8
 
Net income
  
28.7
   
22.3
   
30.1
   
31.1
 
Net cash provided by operating activities
 $
13.2
  $
50.0
  $
40.0
  $
58.4
 
Per common share:
            
Earnings – basic
 $
1.17
  $
0.91
  $
1.23
  $
1.27
 
– diluted
 $
1.17
  $
0.90
  $
1.22
  $
1.26
 
2018
            
                 
Net sales
 $
360.7
  $
358.1
  $
363.1
  $
395.0
 
Gross profit
  
104.5
   
102.8
   
111.0
   
116.7
 
Operating income
  
28.9
   
28.3
   
33.4
   
42.9
 
Net income
  
22.2
   
21.8
   
20.6
   
20.4
 
Net cash (used in)/provided by operating activities
 $
(2.0
) $
0.3
  $
35.1
  $
71.5
 
Per common share:
            
Earnings – basic
 $
0.91
  $
0.89
  $
0.84
  $
0.84
 
– diluted
 $
0.90
  $
0.89
  $
0.84
  $
0.83
 
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Item 6

[Reserved]

28

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with our consolidated financial statementsConsolidated Financial Statements and the notesNotes thereto.

EXECUTIVE OVERVIEW

In 2019, we continued to focus on the organic2022 Innospec delivered double-digit sales and operating income growth with expanded margins, and each of our portfoliobusinesses contributed meaningfully to our results. We benefited from our balanced end-market exposure in late 2022 as the negative impact of year-end customer destocking in Performance Chemicals was offset by continued growth in Oilfield Services and thisFuel Specialties.

In Performance Chemicals, despite aggressive customer destocking which drove lower volumes and margins in the fourth quarter, full-year operating income increased by 34 percent, and operating margin improved for the fifth consecutive year. Our industry-leading personal care technologies drove the majority of operating income growth in 2022.

Fuel Specialties delivered double-digit operating income growth for the full year. Gross margins remained below our expected range, but improvement continues to be a key focus and opportunity for our business in line with2023. We believe there is potential for gross margin expansion once inflation normalizes and demand for our expectations. Sales revenuehigher margin jet fuel additives recovers.

Oilfield Services achieved significant sales and operating income growth acrossover the group has been driven by new product developmentprior year. In 2023, we anticipate that a portion of our sales will moderate versus the extremely strong third and customer adoptionfourth quarters of 2022. However, we expect potential for further improvement in the strong product portfolio inother markets within our strategic businesses.

Octane Additives continued to supply the one remaining customer in motor gasoline, albeit at reduced levels, consistent with the customer’s transition to unleaded fuel.
oilfield business.

CRITICAL ACCOUNTING ESTIMATES

Note 2 of the Notes to the Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Environmental Liabilities

Plant Closure Provisions

We are subject to environmental laws in the countries in which we conduct business. OurEllesmere Port in the United Kingdom is our principal site giving rise to environmental remediation liabilities isasset retirement obligations, associated with the Octane Additives manufacturing site at Ellesmere Port in the United Kingdom.production of TEL. There are also asset retirement obligations and environmental remediation liabilities on a much smaller scale in respect of our other manufacturing sites in the U.S. and Europe.sites. At Ellesmere Port there is a continuing asset retirement program related to certain manufacturing units that have been closed.

Remediation

Plant closure provisions at December 31, 20192022 amounted to $49.3$57.2 million and relate principally to our Ellesmere Port site in the United Kingdom. We recognize environmental

29

remediation liabilities when they are probable and costs can be reasonably estimated, and asset retirement obligations when there is a legal obligationrequirement, including those arising from a Company promise, and the costs can be reasonably estimated. The Company has to anticipate the program of work required and the associated future expected costs, and comply with environmental legislation in the countries in which it operates or has operated in. We develop these assumptions utilizing the latest information available together with recent costs. While we believe our assumptions for environmental liabilitiesplant closure provisions are reasonable, they are subjective judgementsestimates and it is possible that variations in any of the assumptions will result in materially different calculations to the liabilities we have reported.

Income Taxes

We are subject to income and other taxes in the U.S., the U.K., and a number of other jurisdictions. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied.

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Table of Contents

The calculation of our tax liabilities involves evaluating uncertainties in the application of accounting principles and complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be required. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary.

We also recognize tax benefits to the extent that it is more likely than not that our positions will be sustained, based on technical merits of the position, when challenged by the taxing authorities. To the extent that we prevail in matters for which liabilities have been established or are required to pay amounts in excess of the liabilities recorded in our liabilities,financial statements, our effective tax rate in a given period may be materially affected. An unfavourableunfavorable tax settlement may require cash payments and result in an increase in our effective tax rate in the year of resolution. We report interest and penalties related to uncertain tax positions as income taxes. For additional information regarding uncertain income tax positions, see Note 1011 of the Notes to the Consolidated Financial Statements.

Pensions

The Company maintains a defined benefit pension plan covering a number of itscertain current and former employees in the United Kingdom.Kingdom (“UK Plan”). The Company also has other smaller pension arrangements in the U.S. and overseas as disclosed in Note 9 of the Notes to the Consolidated Financial Statements. The United Kingdom planUK Plan is closed to future service accrual but has a large number of deferred and current pensioners. The Company also has other smaller pension arrangements in the U.S. and overseas.

In May 2022, the Trustees of the UK Plan entered into an agreement with Legal and General Assurance Society Limited to acquire an insurance policy that operates as an investment asset, with the intent of matching the remaining uninsured part of the UK Plan’s future cash outflow arising from the accrued pension liabilities of members. Such an arrangement is commonly termed as a “buy-in”. The benefit obligation was not transferred to the insurer, and the Company remains responsible for paying pension benefits. The initial value of the asset associated with this contract was equal to the premium paid to secure the contract and is

30

adjusted each reporting period to reflect the estimated fair value of the premium that would be paid for such a contract at that time. The buy-in reduces the UK Plan’s value at risk in relation to key risks associated with improved longevity, inflation and interest rate movements while improving the security to the UK Plan and its members. The Company consequently benefits from the buy-in as it reduces the UK Plan’s potential reliance on the Company for future cash funding requirements.

Movements in the underlying plan asset value andUK Plan’s Projected Benefit Obligation (“PBO”) are dependent on actual return on investments as well as our assumptions in respect of the discount rate, annual member mortality rates, future return on assets and future inflation. A change in any one of these assumptions could impact the plan asset value, PBO and pension charge recognized in the income statement. Such changes could adversely impact our results of operations and financial position. For example, a 0.25% change in the discount rate assumption would change the PBO at December 31, 2022 by approximately $24$10.3 million whileand the net pension credit for 20202023 would change by approximately $0.1 million. A 0.25% change in the level of price inflation assumption would change the PBO at December 31, 2022 by approximately $18$6.5 million and the net pension credit for 2020 would change2022 by approximately $1.1$0.6 million.

Further information is provided in Note 910 of the Notes to the Consolidated Financial Statements.

Goodwill

The Company’s reporting units, the level at which goodwill is assessed for potential impairment, are consistent with the reportable segments. The components in each segment (including products, markets and competitors) have similar economic characteristics and the segments, therefore, reflect the lowest level at which operations and cash flows can be sufficiently distinguished, operationally and for financial reporting purposes, from the rest of the Company.

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To test for impairment the Company performs a qualitative step zero assessment to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a segment is less than the carrying amount prior to performing the quantitative goodwill impairment test. Factors utilized in the qualitative assessment process include macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and Company specific events.

If a quantitative test is required, we assess the fair value based on projected

post-tax
cash flows discounted at the Company’s weighted average cost of capital. These fair value techniques require management judgment and estimates including revenue growth rates, projected operating margins, changes in working capital and discount rates. We would develop these assumptions by considering recent financial performance and trends and industry growth estimates. While we believe our assumptions for impairment assessments are reasonable, they are subjective judgments, and it is possible that variations in any of the assumptions will result in materially different calculations of any potential impairment charges.

31

At December 31, 20192022 we had $363.0$358.8 million of goodwill relating to our Performance Chemicals, Fuel Specialties Performance Chemicals and Oilfield Services segments. Our step zero impairment assessment concluded that there had beenreview at December 31, 2022 indicated the fair value of each segment is, more likely than not, higher than the carrying value, meaning no step one impairment of goodwill in respect of those reporting segments.

review was required to be performed.

Property, Plant and Equipment and Other Intangible Assets (Net of Depreciation and Amortization, respectively)

As at December 31, 20192022 we had $198.7$220.9 million of property, plant and equipment and $113.5$45.0 million of other intangible assets (net of depreciation and amortization, respectively), that are discussed in Notes 56 and 89 of the Notes to the Consolidated Financial Statements, respectively. These long-lived assets relate to all of our reporting segments and are being amortized or depreciated straight-line over periods of up to 17 years in respect of the other intangible assets and up to 25 years in respect of the property, plant and equipment.

We continually assess the markets and products related to these long-lived assets, as well as their specific carrying values, and have concluded that these carrying values, and amortization and depreciation periods, remain appropriate.

32

26
Table of Contents

RESULTS OF OPERATIONS

The following table provides sales, gross profit and operating income by reporting segment:

(in millions)

      2022          2021          2020     

Net sales:

    

Performance Chemicals

  $639.7  $525.3  $425.4 

Fuel Specialties

   730.2   618.3   512.7 

Oilfield Services

   593.8   339.8   255.0 
  

 

 

  

 

 

  

 

 

 
  $1,963.7  $1,483.4  $1,193.1 
  

 

 

  

 

 

  

 

 

 

Gross profit:

    

Performance Chemicals

  $150.0  $125.2  $103.8 

Fuel Specialties

   221.9   193.2   160.3 

Oilfield Services

   214.8   116.5   80.8 

Octane Additives

   —     —     (2.2) 
  

 

 

  

 

 

  

 

 

 
  $586.7  $434.9  $342.7 
  

 

 

  

 

 

  

 

 

 

Operating income:

    

Performance Chemicals

  $95.3  $70.9  $54.8 

Fuel Specialties

   121.7   104.6   84.5 

Oilfield Services

   41.7   10.4   (9.5) 

Octane Additives

   —     —     (2.8) 

Corporate costs

   (71.4)   (55.6)   (52.2) 

Restructuring charge

   —     —     (21.3) 

Impairment of intangible assets

   —     —     (19.8) 

Profit on disposal

   —     1.8   —   
  

 

 

  

 

 

  

 

 

 

Total operating income

  $187.3  $132.1  $33.7 
  

 

 

  

 

 

  

 

 

 

Other income/(expense), net

  $(1.6)  $3.8  $7.8 

Interest expense, net

   (1.1)   (1.5)   (1.8) 
  

 

 

  

 

 

  

 

 

 

Income before income taxes

   184.6   134.4   39.7 

Income taxes

   (51.6)   (41.3)   (11.0) 
  

 

 

  

 

 

  

 

 

 

Net income

  $133.0  $93.1  $28.7 
  

 

 

  

 

 

  

 

 

 

33

             
(
in millions
)
 
    2019    
  
    2018    
  
    2017    
 
Net sales:
         
Fuel Specialties
 $
583.7
  $
574.5
  $
523.8
 
Performance Chemicals
  
428.7
   
468.1
   
419.5
 
Oilfield Services
  
479.9
   
400.6
   
304.4
 
Octane Additives
  
21.0
   
33.7
   
59.1
 
             
 $
1,513.3
  $
1,476.9
  $
1,306.8
 
             
Gross profit:
         
Fuel Specialties
 $
204.5
  $
195.0
  $
188.2
 
Performance Chemicals
  
100.1
   
97.5
   
75.8
 
Oilfield Services
  
159.9
   
130.4
   
109.3
 
Octane Additives
  
1.7
   
12.1
   
30.0
 
             
 $
466.2
  $
435.0
  $
403.3
 
             
Operating income:
         
Fuel Specialties
 $
116.6
  $
116.3
  $
107.7
 
Performance Chemicals
  
48.7
   
44.7
   
32.6
 
Oilfield Services
  
39.7
   
22.1
   
9.5
 
Octane Additives
  
(0.7
)  
9.9
   
26.7
 
Corporate costs
  
(54.4
)  
(52.4
)  
(48.8
)
Restructuring charge
  
0.0
   
(7.1
)  
0.0
 
Loss on disposal of subsidiary
  
0.0
   
0.0
   
(0.9
)
Foreign exchange loss on liquidation of subsidiary
  
0.0
   
0.0
   
(1.8
)
             
Total operating income
 $
149.9
  $
133.5
  $
125.0
 
             
Other income, net
 $
5.3
  $
5.0
  $
11.3
 
Interest expense, net
  
(4.8
)  
(6.9
)  
(8.2
)
             
Income before income taxes
  
150.4
   
131.6
   
128.1
 
Income taxes
  
(38.2
)  
(46.6
)  
(66.3
)
             
Net income
 $
112.2
  $
85.0
  $
61.8
 
             

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Results of Operations – Fiscal 20192022 compared to Fiscal 2018:

                 
(
in millions, except ratios
)
 
2019
  
2018
  
Change
   
Net sales:
            
Fuel Specialties
 $
583.7
  $
574.5
  $
9.2
   
+2
%
Performance Chemicals
  
428.7
   
468.1
   
(39.4
)  
-8
%
Oilfield Services
  
479.9
   
400.6
   
79.3
   
+20
%
Octane Additives
  
21.0
   
33.7
   
(12.7
)  
-38
%
                 
 $
1,513.3
  $
1,476.9
  $
36.4
   
+2
%
                 
Gross profit:
            
Fuel Specialties
 $
204.5
  $
195.0
  $
9.5
   
+5
%
Performance Chemicals
  
100.1
   
97.5
   
2.6
   
+3
%
Oilfield Services
  
159.9
   
130.4
   
29.5
   
+23
%
Octane Additives
  
1.7
   
12.1
   
(10.4
)  
-86
%
                 
 $
466.2
  $
435.0
  $
31.2
   
+7
%
                 
Gross margin (%):
            
Fuel Specialties
  
35.0
   
33.9
   
+1.1
    
Performance Chemicals
  
23.3
   
20.8
   
+2.5
    
Oilfield Services
  
33.3
   
32.6
   
+0.7
    
Octane Additives
  
8.1
   
35.9
   
-27.8
    
Aggregate
 
 
30.8
 
 
 
29.5
 
 
 
+1.3
 
   
                 
Operating expenses:
            
Fuel Specialties
 $
(87.9
) $
(78.7
) $
(9.2
)  
+12
%
Performance Chemicals
  
(51.4
)  
(52.8
)  
1.4
   
-3
%
Oilfield Services
  
(120.2
)  
(108.3
)  
(11.9
)  
+11
%
Octane Additives
  
(2.4
)  
(2.2
)  
(0.2
)  
+9
%
Corporate costs
  
(54.4
)  
(52.4
)  
(2.0
)  
+4
%
Restructuring charge
  
0.0
   
(7.1
)  
7.1
   
-100
%
                 
 $
(316.3
) $
(301.5
) $
(14.8
)  
+5
%
                 
2021:

(in millions, except ratios)

  2022  2021  Change    

Net sales:

     

Performance Chemicals

  $639.7  $525.3  $114.4   +22% 

Fuel Specialties

   730.2   618.3   111.9   +18% 

Oilfield Services

   593.8   339.8   254.0   +75% 
  

 

 

  

 

 

  

 

 

  
  $1,963.7  $1,483.4  $480.3   +32% 
  

 

 

  

 

 

  

 

 

  

Gross profit:

     

Performance Chemicals

  $150.0  $125.2  $24.8   +20% 

Fuel Specialties

   221.9   193.2   28.7   +15% 

Oilfield Services

   214.8   116.5   98.3   +84% 
  

 

 

  

 

 

  

 

 

  
  $586.7  $434.9  $151.8   +35% 
  

 

 

  

 

 

  

 

 

  

Gross margin (%):

     

Performance Chemicals

   23.4   23.8   -0.4  

Fuel Specialties

   30.4   31.2   -0.8  

Oilfield Services

   36.2   34.3   +1.9  

Aggregate

   29.9   29.3   +0.6  

Operating expenses:

     

Performance Chemicals

  $(54.7)  $(54.3)  $(0.4)   +1% 

Fuel Specialties

   (100.2)   (88.6)   (11.6)   +13% 

Oilfield Services

   (173.1)   (106.1)   (67.0)   +63% 

Corporate costs

   (71.4)   (55.6)   (15.8)   +28% 

Profit on disposal

   —     1.8   (1.8)   +100% 
  

 

 

  

 

 

  

 

 

  

 

 

 
  $(399.4)  $(302.8)  $(96.6)   +32% 
  

 

 

  

 

 

  

 

 

  

 

 

 

Financial information with respect to our domestic and foreign operations is contained in Note 3 of the Notes to the Consolidated Financial Statements.

28
Table of Contents
Fuel Specialties

Performance Chemicals

Net sales:

the table below details the components which comprise the year onover year change in net sales spread across the markets in which we operate:
                     
Change (%)
 
Americas
  
EMEA
  
ASPAC
  
AvTel
  
Total
 
Volume
  
-8
   
+4
   
+3
   
+52
   
+3
 
Price and product mix
  
+6
   
+4
   
+8
   
-37
   
+3
 
Exchange rates
  
0
   
-8
   
-1
   
0
   
-4
 
                     
  
-2
   
0
   
+10
   
+15
   
+2
 
                     
Lower

Change (%)

  Americas   EMEA   ASPAC   Total 

Volume

   +20    -9    +7    +2 

Price and product mix

   +20    +33    +18    +28 

Exchange rates

   —      -14    -7    -8 
  

 

 

   

 

 

   

 

 

   

 

 

 
   +40    +10    +18    +22 
  

 

 

   

 

 

   

 

 

   

 

 

 

Higher sales volumes infor the Americas were primarily driven by a specific issue in the second half of 2019 related to disruption from one supplier. Volumes in EMEA and ASPAC were higher,primarily driven by increased demand for our personal care products. Lower sales volumes for EMEA were due to

34

reductions in demand for our home care products and technology. Pricewhen compared to strong sales volumes in the prior year. All our regions benefited from a favorable price and product mix indue to increased sales of higher priced products together with the Americas,impact of increased raw materials pricing being passed on through higher selling prices. EMEA and ASPAC benefitedwere adversely impacted by exchange rate movements year over year, due to a strengthening of the U.S. dollar against the British pound sterling and the European Union euro.

Gross margin: the year over year decrease of 0.4 percentage points was primarily due to adverse manufacturing variances and higher raw materials costs in the fourth quarter of 2022, being partly offset by a favorable sales mix from increased sales of higher margin products. AvTel

Operating expenses: the year over year increase of $0.4 million was due to higher selling expenses to support our increased sales and higher personnel-related expenses, including higher share-based compensation accruals and higher performance-related remuneration accruals; being partly offset by lower provisions for doubtful debts.

Fuel Specialties

Net sales: the table below details the components which comprise the year over year change in net sales spread across the markets in which we operate:

Change (%)

  Americas   EMEA   ASPAC   AvGas   Total 

Volume

   +10    -11    +11    +4    —   

Price and product mix

   +28    +32    +14    -7    +26 

Exchange rates

   —      -17    -4    —      -8 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   +38    +4    +21    -3    +18 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Americas and ASPAC sales volumes have increased year over year as the global demand for refined fuel products has increased. EMEA sales volumes were lower year over year primarily due to a reduction for the sales of higher volume lower margin products. Price and product mix was favorable in all our regions due to a favorable sales mix with an increased proportion of sales of higher margin products, together with the impact of increased raw materials pricing being passed on through higher selling prices. AvGas volumes were higher than the prior year due to variations in the demand from customers, partlybeing offset by an adverse price and product mix.mix with a higher proportion of sales being made to lower margin customers. EMEA and ASPAC were negativelyadversely impacted by exchange rate movements year over year, driven bydue to a weakeningstrengthening of the U.S. dollar against the British pound sterling and the European Union euro against the U.S. dollar.

euro.

Gross margin:

the year on year increase of 1.1 percentage points benefitted from an improvement in the mix of product sales.
Operating expenses:
the year on year increase of $9.2 million was driven by increased selling expenses including higher agents’ commissions and higher personnel related performance-based remuneration due to increased share-based compensation accruals.
Performance Chemicals
Net sales:
the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate:
                 
Change (%)
 

Americas
  

EMEA
  

ASPAC
  

Total
 
Volume
  
-3
   
-4
   
+16
   
-3
 
Price and product mix
  
+4
   
-4
   
-9
   
-2
 
Exchange rates
  
0
   
-5
   
-3
   
-3
 
                 
  
+1
   
-13
   
+4
   
-8
 
                 
Lower volumes in the Americas and EMEA were driven by a customer taking some volume
in-house.
Higher volumes in ASPAC were driven by increased demand for our Personal Care products, partly offset by an adverse price and product mix. Price and product mix in the Americas benefitted from increased sales of higher margin products, while EMEA was adversely impacted by lower raw material prices driving lower selling prices for certain products. EMEA and ASPAC were negatively impacted by exchange rate movements year
29
Table of Contents
over year, due to a weakening of the British pound sterling and the European Union euro against the U.S. dollar.
Gross margin:
the year on year increase of 2.5 percentage points was driven by an improved sales mix, lower raw material prices and the continued benefit of several improvement projects.
Operating expenses:
the year on year decrease of $1.4 million was primarily due to the benefit of a weaker European Union euro against the U.S. dollar and lower costs as a result of the closure of our operation in Belgium in the prior year.
Oilfield Services
Net sales:
the year on year increase of $79.3 million, or 20 percent, was due to improved customer activity in stimulation and production driving increased demand for our technology and customer service. Sales of higher margin products have benefited the price and product mix.
Gross margin:
the year on year increase of 0.70.8 percentage points was due to an improved customer and product mix leadingthe impact of the time lag for passing higher raw material costs through to increased sales of higher margin products.
selling prices.

Operating expenses:

the year onover year increase of $11.9$11.6 million was due to higher personnel-related expenses, including higher share-based compensation accruals, higher travel expenses, increased sales promotions and increased provisions for doubtful debts.

35

Oilfield Services

Net sales: have increased year over year by $254.0 million, or 75 percent, with the majority of our customer activity being concentrated in the Americas region. Customer demand has increased through each quarter in 2022, which we believe represents a positive sign for further sales growth going into 2023.

Gross margin: the year over year increase of 1.9 percentage points was due to a favorable sales mix, while management are continuing to maintain prices in a competitive market.

Operating expenses: the year over year increase of $67.0 million was driven by higher selling and technicalcustomer service costs which are necessary to support expenses required to deliver the increase in customer demand.

Octane Additives
Net sales:
were $21.0 million for 2019 compared to $33.7 million in 2018. Reduced sales are in linedemand, together with our expectations as the one remaining customer moves closer to completing their transition to unleaded fuel.
Gross margin:
the year on year decrease of 27.8 percentage points was due to lower production volumes spread over the predominantly fixed cost of manufacturing operations.
Operating expenses:
the year on year increase of $0.2 million was principally due to higher
year-end
provisions for personnel related performance-based remuneration.
Other Income Statement Captions
Corporate costs:
the year on year increase of $2.0 million primarily relates to higher personnel related performance-based remunerationpersonnel-related expenses, including higher share-based compensation accruals; partly offsetaccruals and higher performance-related remuneration accruals, and increased provisions for doubtful debts.

Other Income Statement Captions

Corporate costs: the year over year increase of $15.8 million was driven by a reduction for the amortization of our internally developed software following the completed amortization of our first deployment to the Americas which ended in the third quarter of 2018,higher personnel-related expenses, including higher share-based compensation accruals and higher performance-related remuneration accruals, together with the benefit of a weakening of the British pound sterling against the U.S. dollarincreased maintenance expenditure for our United Kingdom cost base.

Restructuring charge:
there was no charge in 2019 compared to a charge of $7.1 million information technology infrastructure.

Profit on disposal: in the prior year there was a profit on disposal of $1.8 million, which principally related to the closure costs, including redundancies and onerous leases, forsale of land within our operationoilfield services business in Belgium.

30
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the U.S..

Other net income/(expense):

for 20192022 and 2018,2021, includes the following:
             
(in millions)
 
2019
  
2018
  
Change
 
United Kingdom pension credit
 $
7.7
  $
6.3
  $
1.4
 
German pension charge
  
(0.5
)  
(0.6
)  
0.1
 
Foreign exchange losses on translation
  
(1.3
)  
(5.9
)  
4.6
 
Foreign currency forward contracts (losses)/gains
  
(0.6
)  
5.2
   
(5.8
)
             
 $
5.3
  $
5.0
  $
0.3
 
             

(in millions)

  2022  2021  Change 

Net pensions credit

  $4.8  $5.4  $(0.6) 

Foreign exchange gains/(losses) on translation

   (7.1)   (2.6)   (4.5) 

Foreign currency forward contracts gains/(losses)

   0.7   1.0   (0.3) 
  

 

 

  

 

 

  

 

 

 
  $(1.6)  $3.8  $(5.4) 
  

 

 

  

 

 

  

 

 

 

Interest expense, net:

was $4.8$1.1 million for 2019in 2022 compared to $6.9$1.5 million in 2021. Interest expense includes a commitment fee to retain the prior year, driven by lower average net debt asCompany’s revolving credit facility for the business generated cash inflows.
term of the agreement.

Income taxes:

The effective tax rate was 25.4%28.0% and 35.4%30.7% in 20192022 and 2018,2021, respectively. The adjusted effective tax rate, once adjusted for the items set out in the following table, was 22.6%27.0% in 20192022 compared with 23.7%22.7% in 2018.2021. The Company believes that this adjusted effective tax rate, a
non-GAAP
financial measure, provides useful information to investors and may assist them in evaluating the Company’s underlying performance and identifying operating trends. In addition, management uses this
non-GAAP
financial measure internally to evaluate the performance of the Company’s operations and for planning and forecasting in subsequent periods.

36

         
(
in millions, except ratios
)
 
2019
  
2018
 
Income before income taxes
 $
150.4
  $
131.6
 
Adjustment for stock compensation
  
6.6
   
4.8
 
Indemnification asset regarding tax audit
  
(1.6
)  
(1.2
)
Site closure provision
  
0.0
   
6.8
 
         
 $
155.4
  $
142.0
 
         
Income taxes
 $
38.2
  $
46.6
 
Adjustment of income tax provisions
  
(2.5
)  
(1.8
)
Tax on stock compensation
  
0.9
   
0.2
 
Tax Cuts & Jobs Act 2017 impact
  
0.0
   
(12.3
)
Tax on site closure provision
  
(0.7
)  
1.9
 
Tax loss on distribution
  
1.2
   
0.0
 
Other discrete items
  
(2.0
)  
(0.9
)
         
 $
35.1
  $
33.7
 
         
GAAP effective tax rate
  
25.4
%  
35.4
%
         
Adjusted effective tax rate
  
22.6
%  
23.7
%
         

(in millions, except ratios)

  2022  2021 

Income before income taxes

  $184.6   134.4 

Adjustment for stock compensation

   6.7   4.4 

Indemnification asset regarding tax audit

   0.1   0.1 

Legacy cost of closed operations

   3.5   3.4 

Acquisition costs

   —     0.8 
  

 

 

  

 

 

 

Adjusted income before income taxes

  $194.9   143.1 
  

 

 

  

 

 

 

Income taxes

  $51.6   41.3 

Adjustment of income tax provisions

   —     (0.5) 

Tax on stock compensation

   0.6   1.3 

Tax loss / (gain) on distribution

   —     (0.2) 

Change in UK statutory tax rate

   —     (7.3) 

Tax on legacy cost of closed operations

   0.7   (1.5) 

Tax on acquisition costs

   —     0.2 

Other discrete items

   (0.3)   (0.8) 
  

 

 

  

 

 

 

Adjusted income taxes

  $52.6   32.5 
  

 

 

  

 

 

 

GAAP effective tax rate

   28.0%   30.7% 
  

 

 

  

 

 

 

Adjusted effective tax rate

   27.0%   22.7% 
  

 

 

  

 

 

 

The most significant factors impacting on ourGAAP effective tax rate and adjusted effective tax rate in 2019 are explained2022 have been negatively impacted by foreign income inclusions, net of foreign tax credits, which arise each year from certain types of income earned overseas being taxable under U.S. tax regulations.

As a consequence of the Company having operations outside of the U.S., it is exposed to foreign currency fluctuations. These have also had a negative impact on the GAAP effective tax rate and adjusted effective tax rate in 2022.

The adjusted effective tax rate is lower than the GAAP effective tax rate, primarily due to elimination of stock compensation activity to better reflect the Company’s underlying business performance.

The most significant factor impacting our adjusted effective tax rate in 2021 is the elimination of the impact of the increase in the U.K. statutory income tax rate.

For additional information regarding the GAAP effective tax rate in 2022, see Note 1011 of the Notes to the Consolidated Financial Statements.

37

31
Table of Contents

Results of Operations – Fiscal 20182021 compared to Fiscal 2017:

                 
(
in millions, except ratios
)
 
2018
  
2017
  
Change
   
Net sales:
            
Fuel Specialties
 $
574.5
  $
523.8
  $
50.7
   
+10
%
Performance Chemicals
  
468.1
   
419.5
   
48.6
   
+12
%
Oilfield Services
  
400.6
   
304.4
   
96.2
   
+32
%
Octane Additives
  
33.7
   
59.1
   
(25.4
)  
-43
%
                 
 $
1,476.9
  $
1,306.8
  $
170.1
   
+13
%
                 
Gross profit:
            
Fuel Specialties
 $
195.0
  $
188.2
  $
6.8
   
+4
%
Performance Chemicals
  
97.5
   
75.8
   
21.7
   
+29
%
Oilfield Services
  
130.4
   
109.3
   
21.1
   
+19
%
Octane Additives
  
12.1
   
30.0
   
(17.9
)  
-60
%
                 
 $
435.0
  $
403.3
  $
31.7
   
+8
%
                 
Gross margin (%):
            
Fuel Specialties
  
33.9
   
35.9
   
-2.0
    
Performance Chemicals
  
20.8
   
18.1
   
+2.7
    
Oilfield Services
  
32.6
   
35.9
   
-3.3
    
Octane Additives
  
35.9
   
50.8
   
-14.9
    
Aggregate
 
 
29.5
 
 
 
30.9
 
 
 
-1.4
 
   
                 
Operating expenses:
            
Fuel Specialties
 $
(78.7
) $
(80.5
) $
1.8
   
-2
%
Performance Chemicals
  
(52.8
)  
(43.2
)  
(9.6
)  
+22
%
Oilfield Services
  
(108.3
)  
(99.8
)  
(8.5
)  
+9
%
Octane Additives
  
(2.2
)  
(3.3
)  
1.1
   
-33
%
Corporate costs
  
(52.4
)  
(48.8
)  
(3.6
)  
+7
%
Restructuring charge
  
(7.1
)  
0.0
   
(7.1
)  
n/a
 
Loss on disposal of subsidiary
  
0.0
   
(0.9
)  
0.9
   
-100
%
Foreign exchange loss on liquidation of subsidiary
  
0.0
   
(1.8
)  
1.8
   
-100
%
                 
 $
(301.5
) $
(278.3
) $
(23.2
)  
-8
%
                 
2020:

(in millions, except ratios)

  2021  2020  Change    

Net sales:

     

Performance Chemicals

  $525.3  $425.4  $99.9   +23% 

Fuel Specialties

   618.3   512.7   105.6   +21% 

Oilfield Services

   339.8   255.0   84.8   +33% 
  

 

 

  

 

 

  

 

 

  
  $1,483.4  $1,193.1  $290.3   +24% 
  

 

 

  

 

 

  

 

 

  

Gross profit:

     

Performance Chemicals

  $125.2  $103.8   21.4   +21% 

Fuel Specialties

   193.2   160.3   32.9   +21% 

Oilfield Services

   116.5   80.8   35.7   +44% 

Octane Additives

   —     (2.2)   2.2   -100% 
  

 

 

  

 

 

  

 

 

  
  $434.9  $342.7   92.2   +27% 
  

 

 

  

 

 

  

 

 

  

Gross margin (%):

     

Performance Chemicals

   23.8   24.4   -0.6  

Fuel Specialties

   31.2   31.3   -0.1  

Oilfield Services

   34.3   31.7   +2.6  

Aggregate

   29.3   28.7   +0.6  

Operating expenses:

     

Performance Chemicals

  $(54.3)  $(49.0)  $(5.3)   +11% 

Fuel Specialties

   (88.6)   (75.8)   (12.8)   +17% 

Oilfield Services

   (106.1)   (90.3)   (15.8)   +17% 

Octane Additives

   —     (0.6)   0.6   -100% 

Corporate costs

   (55.6)   (52.2)   (3.4)   +7% 

Restructuring charge

   —     (21.3)   21.3   -100% 

Impairment of intangible assets

   —     (19.8)   19.8   -100% 

Profit on disposal

   1.8   —     1.8   +100% 
  

 

 

  

 

 

  

 

 

  
  $(302.8)  $(309.0)  $6.2   -2% 
  

 

 

  

 

 

  

 

 

  

Financial information with respect to our domestic and foreign operations is contained in Note 3 of the Notes to the Consolidated Financial Statements.

32
Table of Contents
Fuel Specialties

Performance Chemicals

Net sales:

the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate:

Change (%)

AmericasEMEAASPACTotal

Volume

+33+1-11+10

Price and product mix

+12+10+8+10

Exchange rates

—  +4+2+3

+45+15-1+23

38

                     
Change (%)
 
Americas
  
EMEA
  
ASPAC
  
AvTel
  
Total
 
Volume
  
+15
   
+3
   
+1
   
+1
   
+7
 
Price and product mix
  
+1
   
0
   
0
   
0
   
0
 
Exchange rates
  
0
   
+6
   
+1
   
0
   
+3
 
                     
  
+16
   
+9
   
+2
   
+1
   
+10
 
                     

Volumes in all our regions

Higher volumes for the Americas were higher, driven by increased demand for our product technology and customer service. Pricepersonal care products. Volumes in EMEA were favorable including the continued recovery of demand across several markets which have been adversely impacted by the pandemic. Lower volumes in ASPAC were primarily driven by a reduction in demand for our personal care products. All our regions benefited from a favorable price and product mix in the Americas benefited fromdue to increased sales of higher margin products. AvTel volumes werepriced products and increased raw materials pricing being passed on through higher than the prior year due to variations in the timing and level of demand from customers.selling prices. EMEA and ASPAC benefited from favorable exchange rate movements year over year, driven bydue to a strengthening of the British pound sterling and the European Union euro against the U.S. dollar.

Gross margin:

the year onover year decrease of 2.00.6 percentage points was adversely affected bydue to adverse manufacturing variances as activity slowed over the mix of product sales when compared to a strong prior year comparative.
holiday season in the fourth quarter, together with some one-off provisions.

Operating expenses:

the year onover year decreaseincrease of $1.8$5.3 million was driven by a reductiondue to increased spending on research and development, an increase in the provisionsallowance for doubtful debts and lowerhigher personnel-related expenses including higher share-based compensation accruals for agents’ commissions, partly offset by increased other expenses to support the business growth.
Performance Chemicals
and higher performance related remuneration accruals.

Fuel Specialties

Net sales:

the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate:
                 
Change (%)
 

Americas
  

EMEA
  

ASPAC
  

Total
 
Volume
  
+14
   
+4
   
+9
   
+7
 
Price and product mix
  
+4
   
0
   
-1
   
+1
 
Exchange rates
  
0
   
+5
   
+2
   
+4
 
                 
  
+18
   
+9
   
+10
   
+12
 
                 
Increased

Change (%)

AmericasEMEAASPACAvGasTotal

Volume

+22+6+4-32+9

Price and product mix

+5+8+7+36+9

Exchange rates

—  +7+1—  +3

+27+21+12+4+21

Volumes in all our regions have increased year over year, as the global demand for Personal Care ledrefined fuel products has returned to significantlynear the pre-pandemic levels. Price and product mix was favorable in all our regions due to increased sales of higher margin products and increased raw materials pricing being passed on through higher selling prices. AvGas volumes were lower than the prior year due to variations in the Americas, together withdemand from customers, being offset by a favorable price and product mix from increasedwith a higher proportion of sales ofto higher margin products. EMEA benefited from higher volumes in both Personal Care and Home Care, while ASPAC volumes were higher due to increased demand for Personal Care being partly offset by lower demand for Home Care. ASPAC was impacted by adverse price and product mix due to lower sales of higher margin products.customers. EMEA and ASPAC benefited from favorable exchange rate movements year over year, driven bydue to a strengthening of the British pound sterling and the European Union euro against the U.S. dollar.

33
Table of Contents

Gross margin:

the year onover year decrease of 0.1 percentage points was impacted by the time lag for passing higher raw material costs through to selling prices in the second half of the year.

Operating expenses: the year over year increase of 2.7 percentage points was driven by the benefit of several improvement projects and favorable manufacturing variances due to higher production volumes.

Operating expenses:
the year on year increase of $9.6 million is due to additional personnel-related expenses to support the business growth, including increased performance-related compensation accruals, together with additional amortization for our new information system platform and the adverse impact of exchange rate movements year over year.
Oilfield Services
Net sales:
the year on year increase of $96.2 million was due to increased customer activity in stimulation and completion, following the rise in crude oil prices in the first nine months of the year. Overall volumes increased by 26 percent year on year, together with a favorable price and product mix of 6 percent.
Gross margin:
the year on year decrease of 3.3 percentage points, was due to the mix of customer activity, adverse raw material pricing and higher transportation and labor costs.
Operating expenses:
the year on year increase of $8.5$12.8 million was due to higher selling expenses to support the increased sales, together with higher research and technical supportdevelopment costs

39

and higher personnel-related expenses requiredincluding higher share-based compensation accruals and higher performance related remuneration accruals.

Oilfield Services

Net sales: have increased year over year by $84.8 million, or 33 percent, with the majority of our customer activity continuing to deliverbe in the increaseAmericas region. Customer demand has increased throughout the year as the pandemic recovery has continued. We expect to see continued growth in customer demand partly offset by a reduction in other expenses. The reduction in other expenses is driven by lower general and administration costs due to effective cost control, together with lower amortization of acquisition related intangible assets as some of the acquired assets have become fully amortized.

Octane Additives
Net sales:
decreased by $25.4 million compared to the prior year, due to the expected reduction in the demand from our one remaining refinery customer.
into 2022.

Gross margin:

the year onover year decreaseincrease of 14.92.6 percentage points was due to higher manufacturing costs as a result of lower production volumesfavorable sales mix compared to align with reduced customer demand.
a prior year comparative which was adversely impacted by the pandemic, while management have successfully maintained prices in a competitive market.

Operating expenses:

the year onover year decreaseincrease of $1.1$15.8 million was driven by our continuing customer service flexibility which allows us to support the release of historic provisions which areincrease in demand as the pandemic recovery has continued, together with higher personnel-related expenses including higher share-based compensation accruals and higher performance related remuneration accruals.

Octane Additives

The Octane Additives business ceased trading and is no longer required, either duea reporting segment from July 1, 2020 as the production of TEL for use in motor gasoline has finished. Legacy costs related to these operations have now been recorded as operating expenses within corporate costs.

Prior to the settlementbusiness ceasing trade there were no sales in 2020, together with a gross loss of disputed liabilities or to the passing$2.2 million and operating expenses of the relevant time limit under statute of limitations.

$0.6 million.

Other Income Statement Captions

Corporate costs:

the year onover year increase of $3.6$3.4 million relates towas driven by higher personnel-related expenses including higher share-based compensation accruals including a new long-term incentive plan and higher costs for the additional corporate services required to support our enlarged group following our growth through acquisitions in recent years. There has also beenperformance related remuneration accruals, together with the adverse effectimpact of the foreign currency translation of our costs at Ellesmere Port in the United Kingdom due to a strongerstrengthening of the British pound sterling against the U.S. dollardollar.

Profit on disposal: there has been a profit on disposal of assets for our United Kingdom cost base.

34
Table of Contents
Restructuring charge:
a charge of $7.1$1.8 million primarilyin 2021, which principally relates to the closure costs including redundancies and onerous leases forsale of land within our operation in Belgium.
Loss on disposal of subsidiary:
there was a lossoilfield services business in the prior year of $0.9 million for an indemnity claim in relation to residual testing in the Aroma Chemicals business which was sold in 2015.U.S..

40

Foreign exchange loss on liquidation of subsidiary:
the $1.8 million loss in the prior year related to the reclassification of historic foreign exchange translations of net assets from accumulated other comprehensive losses, for our captive insurance company which was liquidated. There has been no corresponding charge in the current year.

Other net income/(expense):

for 20182021 and 2017,2020, includes the following:
             
(in millions)
 
2018
  
2017
  
Change
 
United Kingdom pension credit
 $
6.3
  $
5.3
  $
1.0
 
German pension charge
  
(0.6
)  
(0.6
)  
0.0
 
Foreign exchange (losses)/gains on translation
  
(5.9
)  
7.5
   
(13.4
)
Foreign currency forward contracts gains/(losses)
  
5.2
   
(0.9
)  
6.1
 
             
 $
5.0
  $
11.3
  $
(6.3
)
             

(in millions)

  2021  2020  Change 

United Kingdom pension credit

  $6.5  $6.2  $0.3 

German pension charge

   (1.1)   (0.9)   (0.2) 

Foreign exchange gains/(losses) on translation

   (2.6)   4.0   (6.6) 

Foreign currency forward contracts gains/(losses)

   1.0   (1.5)   2.5 
  

 

 

  

 

 

  

 

 

 
  $3.8  $7.8  $(4.0) 
  

 

 

  

 

 

  

 

 

 

Interest expense, net:

was $6.9$1.5 million in 20182021 compared to $8.2$1.8 million in 20172020, driven by lower average net debt as the business generated cash inflows.
repayment in full of our revolving credit facility in the second half of 2020. Interest expense includes a commitment fee to retain the Company’s revolving credit facility for the term of the agreement.

Income taxes:

The effective tax rate was 35.4%30.7% and 51.8%27.7% in 20182021 and 2017,2020, respectively. The adjusted effective tax rate, once adjusted for the items set out in the following table, was 23.7%22.7% in 20182021 compared with 20.2%23.5% in 2017.2020. The Company believes that this adjusted effective tax rate, a
non-GAAP
financial measure, provides useful information to investors and may assist them in evaluating the Company’s underlying performance and identifying operating trends. In addition, management uses this
non-GAAP
financial measure internally to evaluate the performance of the Company’s operations and for planning and forecasting in subsequent periods.

41

35
Table of Contents
         
(
in millions, except ratios
)
 
2018
  
2017
 
Income before income taxes
 $
131.6
  $
128.1
 
Adjustment to acquisition accounting for inventory fair valuation
  
0.0
   
1.7
 
Loss on disposal of subsidiary
  
0.0
   
0.9
 
Foreign exchange loss on liquidation of subsidiary
  
0.0
   
1.8
 
Adjustment for stock compensation
  
4.8
   
4.0
 
Indemnification asset regarding tax audit
  
(1.2
)  
0.0
 
Site closure provision
  
6.8
   
0.0
 
         
 $
142.0
  $
136.5
 
         
Income taxes
 $
46.6
  $
66.3
 
Adjustment of income tax provisions
  
(1.8
)  
0.5
 
Tax on stock compensation
  
0.2
   
3.1
 
Tax on adjustment to fair value accounting
  
0.0
   
0.3
 
Tax Cuts & Jobs Act 2017 impact
  
(12.3
)  
(40.6
)
Tax on site closure provision
  
1.9
   
0.0
 
Other discrete items
  
(0.9
)  
(2.0
)
         
 $
33.7
  $
27.6
 
         
GAAP effective tax rate
  
35.4
%  
51.8
%
         
Adjusted effective tax rate
  
23.7
%  
20.2
%
         

(in millions, except ratios)

  2021  2020 

Income before income taxes

  $134.4  $39.7 

Adjustment for stock compensation

   4.4   5.8 

Indemnification asset regarding tax audit

   0.1   0.2 

Restructuring charge

   —     21.3 

Impairment of acquired intangible assets

   —     19.8 

Legacy cost of closed operations

   3.4   2.5 

Acquisition costs

   0.8   4.2 
  

 

 

  

 

 

 

Adjusted income before income taxes

  $143.1  $93.5 
  

 

 

  

 

 

 

Income taxes

  $41.3  $11.0 

Adjustment of income tax provisions

   (0.5)   0.7 

Tax on stock compensation

   1.3   1.7 

Tax on restructuring charge

   —     4.3 

Tax on impairment of acquired intangible asset

   —     4.6 

Tax loss / (gain) on distribution

   (0.2)   0.4 

Change in U.K. statutory tax rate

   (7.3)   (2.7) 

Tax on legacy cost of closed operations

   (1.5)   0.5 

Tax on acquisition costs

   0.2   0.9 

Other discrete items

   (0.8)   0.6 
  

 

 

  

 

 

 

Adjusted income taxes

  $32.5  $22.0 
  

 

 

  

 

 

 

GAAP effective tax rate

   30.7%   27.7% 
  

 

 

  

 

 

 

Adjusted effective tax rate

   22.7%   23.5% 
  

 

 

  

 

 

 

The most significant factor impacting our adjusted effective tax rate in 2018 and 20172021 is the recognized implicationselimination of the Tax Act.

On December 22, 2017, the same date the Tax Act was enacted, SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete their accounting under ASC 740, Income Taxes. Our accounting for the impact of the Tax Act under SAB 118 is now complete.
increase in the statutory income tax rate in the U.K..

The deemed repatriation transitionmost significant factors impacting our adjusted effective tax (“Transition Tax”) is a tax on certain previously untaxed accumulated earningsrate in 2020 are the restructuring charge relating to the cessation of production and profits (“E&P”)sales of TEL for use in motor gasoline, the impairment of acquired intangible assets in our Oilfield Services segment, and the elimination of the Company’s

non-U.S.
subsidiaries. At December 31, 2017, we were able to reasonably estimateimpact of the Transition Tax and recorded a provisional Transition Tax obligation of $47.7 million. Onincrease in the basis of revised E&P computations that were completed during the reporting period, we adjusted our Transition Tax estimate to $61.1 million. Net of related consequential impacts recorded in our 2017 U.S. federalstatutory income tax return, we recorded an additional $12.3 million income tax expenserate in the fourth quarter of 2018. Our accounting in relation to the Transition Tax is now complete.
36
Table of Contents
U.K..

LIQUIDITY AND FINANCIAL CONDITION

Working Capital

In 2022 our working capital increased by $75.3 million, while our adjusted working capital increased by $88.7 million. The difference is primarily due to the exclusion of the increase in our cash and cash equivalents, together with the movements for income taxes.

The Company believes that adjusted working capital, a

non-GAAP
financial measure, provides useful information to investors in evaluating the Company’s underlying performance and identifying operating trends. Management uses this
non-GAAP
financial measure internally to allocate resources and evaluate the performance of the Company’s operations. Items excluded from the adjusted working capital calculation are listed in the table below and

42

represent factors which do not fluctuate in line with the day to day working capital needs of the business.

         
(
in millions
)
 
2019
  
2018
 
Total current assets
 $
630.3
  $
663.9
 
Total current liabilities
  
(303.5
)  
(296.6
)
         
Working capital
  
326.8
   
367.3
 
Less cash and cash equivalents
  
(75.7
)  
(123.1
)
Less prepaid income taxes
  
(2.5
)  
(1.5
)
Less other current assets
  
(0.8
)  
0.0
 
Add back current portion of accrued income taxes
  
10.3
   
8.6
 
Add back current portion of long-term debt
  
0.0
   
21.4
 
Add back current portion of finance leases
  
1.0
   
1.8
 
Add back current portion of plant closure provisions
  
5.6
   
5.9
 
Add back current portion of operating lease liabilities
  
10.6
   
0.0
 
         
Adjusted working capital
 $
275.3
  $
280.4
 
         
In 2019 our working capital decreased by $40.5 million, while

(in millions)

  2022  2021 

Total current assets

  $872.6  $728.1 

Total current liabilities

   (405.8)   (336.6) 
  

 

 

  

 

 

 

Working capital

   466.8   391.5 

Less cash and cash equivalents

   (147.1)   (141.8) 

Less prepaid income taxes

   (3.3)   (5.8) 

Less other current assets

   (0.4)   (0.4) 

Add back current portion of accrued income taxes

   18.4   3.7 

Add back current portion of finance leases

   —     0.1 

Add back current portion of plant closure provisions

   5.3   5.2 

Add back current portion of operating lease liabilities

   13.9   12.4 
  

 

 

  

 

 

 

Adjusted working capital

  $353.6  $264.9 
  

 

 

  

 

 

 

The movements in our adjusted working capital decreased by $5.1 million. The difference is primarily due to changes in cash and cash equivalents and long-term debt, together with the exclusion of the current portion of operating lease liabilities from our adjusted working capital.

are explained as follows:

We had a $12.3$50.1 million increase in trade and other accounts receivable primarily driven by higher sales inincreased trading activity across our Oilfield Services segment.reporting segments. Days’ sales outstanding in our Performance Chemicals segment decreased from 64 days to 60 days; increased in our Fuel Specialties segment remained unchanged at 52 days; decreased in our Performance Chemicals segment from 6553 days to 6454 days; and increased from 5652 days to 6654 days in our Oilfield Services segment.

We had a $3.4$95.5 million decreaseincrease in inventories, followingnet of a $1.7 million increase in allowances, as we managed inventory levels to support future demand, with the expected high demand inintention of mitigating the fourth quarter, in particularrisk of potential supply chain disruption for our Oilfield Services segment.certain key raw materials. Days’ sales in inventory in our Fuel SpecialtiesPerformance Chemicals segment increased from 9059 days to 9778 days; increased in our Performance ChemicalsFuel Specialties segment from 59108 days to 66138 days; and decreased from 8276 days to 7158 days in our Oilfield Services segment.

Prepaid expenses increased $3.1decreased $3.9 million, from $11.6$18.0 million to $14.7$14.1 million principally due to the timing of invoices received for new prepayments.

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reduction in prepaid customer marketing arrangements.

We had a $17.1$53.0 million increase in accounts payable and accrued liabilities primarily due to the timing of supplier payments and higher accruals for share-based payments linked to the increase in the Innospec share price during the year.increased activity across all our reporting segments. Creditor days (including GRNI) in our Fuel Specialties segment increased from 43 days to 52 days; increasedgoods received not invoiced) decreased in our Performance Chemicals segment from 5247 days to 42 days; decreased in our Fuel Specialties segment from 50 days to 45 days; and increased from 48 days to 54 days; and decreaseddays in our Oilfield Services segment from 49 days to 43 days.

segment.

Operating Cash Flows

We generated cash from operating activities of $161.6$81.7 million in 20192022 compared to cash inflows of $104.9$93.2 million in 2018. Year over year2021. The reduction in cash generated from operating activities has benefitted from

43

was primarily related to the increases for our effective control of working capital acrossbeing partly offset by the improvements in our business, in particular our Oilfield Services segment has controlled inventory levels while sales have significantly increased year over year. There has also been a favorable cash flow from the timing of income tax payments.

earnings before depreciation and amortization.

Cash

At December 31, 20192022 and 2018,2021, we had cash and cash equivalents of $75.7$147.1 million and $123.1$141.8 million, respectively, of which $57.9$76.4 million and $101.4$55.1 million, respectively, were held by

non-U.S.
subsidiaries principally in the United Kingdom.

The decrease$5.3 million increase in cash and cash equivalents in 2019 of $47.4 million2022 was driven by the repaymentcash inflows from operating activities, while being partly offset by increased working capital levels, continued investments in capital projects and the payment of $66.0 millionour semi-annual dividends.

Debt

As at December 31, 2022 and December 31, 2021 the Company had repaid all of ourits borrowings under the revolving credit facility and as a result, the $82.5related deferred finance costs of $0.6 million repayment(December 31, 2021 – $1.0 million) are now included within other current and non-current assets at the balance sheet date.

On September 16, 2020, Innospec and certain of ourits subsidiaries agreed to extend the term of its revolving credit facility, as described below, until September 25, 2024. The costs of $0.3 million for extending the term have been capitalized on the balance sheet, which are being amortized over the expected life of the facility.

On September 30, 2019 the Company repaid its pre-existing term loan and revolving credit facility that had been amended and restated on December 14, 2016, and replaced this borrowing with the new credit facility. As a result, refinancing costs of $1.5 million were capitalized which are being partly offset by our strong operating cash flows includingamortized over the effective controlexpected life of working capital, net of capital investment and dividend payments.

Debt
the facility.

On September 26, 2019, Innospec and certain of its subsidiaries entered into a new agreement for a $250.0 million revolving credit facility until September 25, 2023 with an option to request an extension to the facility for a further year. The facility also contains an accordion feature whereby the Company may elect to increase the total available borrowings by an aggregate amount of up to $125.0 million.

On September 30, 2019 the Company repaid its
pre-existing
term loan and revolving credit facility that had been amended and restated on December 14, 2016, and replaced this borrowing with the new credit facility.
As a result, refinancing costs of $1.5 million were capitalized which are being amortized over the expected life of the facility.

The new revolving credit facility contains terms which, if breached, would result in it becoming repayable on demand. It requires, among other matters, compliance with the following financial covenant ratios measured on a quarterly basis: (1) our ratio of net debt to EBITDA must not be greater than 3.0:1.0 and (2) our ratio of EBITDA to net interest must not be less than 4.0:1.0 Management has determined that the Company has not breached these covenants and does not expect to breach these covenants for the next 12 months.

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The currentrevolving credit facility contains restrictions which may limit our activities andas well as operational and financial flexibility. We may not be able to borrow if an event of default is outstanding, which includes a material adverse change to our assets, operations or financial

44

condition. The credit facility contains a number of restrictions that limit our ability, among other things, and subject to certain limited exceptions, to incur additional indebtedness, pledge our assets as security, guarantee obligations of third parties, make investments, effect a merger or consolidation, dispose of assets, or materially change our line of business.

At December 31, 2019,2022, we had $60.0 million ofno debt outstanding under the revolving credit facility and $1.5 million ofno obligations under finance leases relating to certain fixed assets within our Fuel Specialties and Oilfield Services segments.

At December 31, 2019, our maturity profile of long-term debt and finance leases is set out below (net of deferred finance costs capitalized of $1.4 million):
     
(
in millions
)
  
2020
 $
1.0
 
2021
  
0.4
 
2022
  
0.1
 
2023
  
58.6
 
     
Total debt
  
60.1
 
Current portion of long-term debt and finance leases
  
(1.0
)
     
Long-term debt and finance leases, net of current portion
 $
59.1
 
     
Outlook
During 2019, we have focused on consolidating and strengthening our enlarged business and on several very promising organic growth projects which will support future growth.
We have continued to deliver a strong financial performance and we believe our long-term strategy is very much in line with our expectations. The current year was successful financially and, notably, we ended the year in a net cash position on our balance sheet.
Organic growth through new product development was a key feature of 2019 and we intend this to continue to be a key focus in the coming years.
While we have had a successful year, there are issues of global trade disputes which are beyond our control and give us some cause for caution when we consider the prospects for 2020. We plan on maintaining our existing strategy to grow the business based on our twin competencies of technology and customer service and our continued investment in R&D, which will require continued investment in new product development.
The latter part of 2019 suggested that market conditions will be challenging in 2020 in all our strategic businesses. However, we feel confident that our organic growth projects and potential further acquisitions will support continued growth.
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We expect the possible conclusion of revenues from our Octane Additives segment in the early part of 2020.
leases.

Contractual Commitments

The following represents contractual commitments at December 31, 20192022 and the effect of those obligations on future cash flows:

                     
(
in millions
)
 
Total
  
2020
  
2021-22
  
2023-24
  
Thereafter
 
Operating activities
               
Remediation payments
  
49.3
   
5.6
   
7.8
   
4.2
   
31.7
 
Operating lease commitments
  
32.5
   
10.6
   
14.1
   
5.9
   
1.9
 
Raw material purchase obligations
  
21.3
   
6.3
   
7.3
   
7.7
   
0.0
 
Interest payments on debt
  
9.0
   
2.4
   
4.8
   
1.8
   
0.0
 
                     
Investing activities
               
Capital commitments
  
4.0
   
4.0
   
0.0
   
0.0
   
0.0
 
                     
Financing activities
               
Long-term debt obligations
  
58.6
   
0.0
   
0.0
   
58.6
   
0.0
 
Finance leases
  
1.5
   
1.0
   
0.5
   
0.0
   
0.0
 
                     
Total
 $
176.2
  $
29.9
  $
34.5
  $
78.2
  $
33.6
 
                     

(in millions)

  Total   2023   2024-25   2026-27   Thereafter 

Operating activities

          

Operating lease liabilities

   45.3    13.9    13.8    5.6    12.0 

Operating lease future commitments

   2.7    0.9    1.8    —      —   

Interest payments on debt

   1.6    0.9    0.7    —      —   

Investing activities

          

Capital commitments

   37.7    30.6    7.1    —      —   

Internally developed software

   25.0    20.5    4.5    —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $112.3   $66.8   $27.9   $5.6   $12.0 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating activities

Remediation payments represent those cash flows that the Company is currently obligated to pay in respect of environmental remediation of current and former facilities. It does not include any discretionary remediation costs that the Company may choose to incur.

Operating lease commitments relate primarily to

right-of-use
assets at third party manufacturing facilities, office space, motor vehicles and various items of computer and office equipment which are expected to be renewed and replaced in the normal course of business.
Raw material purchase obligations relate to certain long-term raw material contracts which stipulate fixed or minimum quantities to be purchased; fixed, minimum or variable cost provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancellable without penalty.

The estimated payments included inon debt are the table above reflect the variable interest charge on long-term debt obligations. Estimated commitment fees are also included andfor our $250.0 million revolving credit facility. Any interest income ishas been excluded.

Due to the uncertainty regarding the nature of tax audits, particularly those which are not currently underway, it is not meaningful to predict the outcome of obligations related to unrecognized tax benefits. Further disclosure is provided in Note 1011 of the Notes to the Consolidated Financial Statements.

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Investing activities

Capital commitments relate to certain capital projects that the Company has committed to undertake.

Financing activities
On September 26, 2019, Innospec and certain of its subsidiaries entered into a new agreement for a $250.0 million revolving credit facility until September 25, 2023 with an option to request an extension

Internally developed software relates to the facilityplanned completion costs for a further year. The facility also contains an accordion feature whereby the Company may electimplementation of our new Enterprise Resource Planning system for EMEA and ASPAC, including the acquisition costs for the software as well as the external and internal costs of the development.

45

Outlook

Despite the general recessionary outlook for 2023, we continue to increaseanticipate technology-based organic growth opportunities across all our businesses. Over the total available borrowings by an aggregate amount of upmedium to $125.0 million.

On September 30, 2019 the Company repaid its
pre-existing
term loan and revolving credit facility that had been amended and restated on December 14, 2016, and replaced this borrowing with the new credit facility.
Finance leases relate to the financing of certain fixed assetslong-term, we do not expect any change in our Fuel Specialtiescustomers’ drive towards cleaner formulations, lower carbon footprint and Oilfield Services segments.
operational efficiency. We plan to continue our investment in R&D to improve our products and technology. Our innovative chemistries and highly-responsive technical service directly support our customers’ priorities.

Our strong balance sheet gives us the flexibility to move in parallel on all of our capital allocation priorities. In 2023, we expect to substantially complete our $70 million Performance Chemicals expansion while continuing dividend growth and, based on our assessment of market conditions, share repurchases. In parallel, we intend to continue to pursue potential acquisitions that complement and expand our geographic, technology and end-market footprint.

Environmental Matters and Plant Closures

Under certain environmental laws the Company is responsible for the environmental remediation of hazardous substances or wastes at currently or formerly owned or operated properties.

As most of our manufacturing operations have been conducted outside the U.S., we expect that liability pertaining to the investigation and environmental remediation of contaminated properties is likely to be determined under

non-U.S.
law.

We evaluate costs for environmental remediation, decontamination and demolition projects on a regular basis. Full provision is made for those costs to which we are committed under environmental laws amounting to $49.3$57.2 million at December 31, 2019. Remediation expenditure2022. See Note 13 of the Notes to the Consolidated Financial Statements for further details. Expenditure utilizing these provisions was $4.4$4.2 million, $3.1$5.3 million and $2.4$4.1 million in the years 2019, 20182022, 2021 and 2017,2020, respectively.

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Item 7A

Quantitative and Qualitative Disclosures about Market Risk

The Company uses floating rate debt to finance its global operations. The Company is subject to business risks inherent in

non-U.S.
activities, including political and economic uncertainty, import and export limitations, and market risk related to changes in interest rates and foreign currency exchange rates. The political and economic risks are mitigated by the stability of the countries in which the Company’s largest operations are located. Credit limits, ongoing credit evaluation and account monitoring procedures are used to minimize bad debt risk. Collateral is not generally required.

From time to time, the Company uses derivatives, including interest rate swaps, commodity swaps and foreign currency forward exchange contracts, in the normal course of business to manage market risks. The derivatives used in hedging activities are considered risk management tools and are not used for trading purposes. In addition, the Company enters into derivative instruments with a diversified group of major financial institutions in order to manage the exposure to

non-performance
of such instruments. The Company’s objective in managing the exposure to changes in interest rates is to limit the impact of such changes on earnings and cash flows and to lower overall borrowing costs. The Company’s objective in managing the exposure to changes in foreign currency exchange rates is to reduce volatility on earnings and cash flows associated with such changes.

The Company offers fixed prices for some long-term sales contracts. As manufacturing and raw material costs are subject to variability the Company may use commodity swaps to hedge the cost of some raw materials thus reducing volatility on earnings and cash flows. The derivatives are considered risk management tools and are not used for trading purposes. The Company’s objective is to manage its exposure to fluctuating costs of raw materials.

Interest Rate Risk

From time to time, the Company uses interest rate swaps to manage interest rate exposure. As at December 31, 2019 theThe Company had cash and cash equivalents of $75.7 million, and long-term debt and finance leases of $60.1 million (including current portion). Long-term debt comprisesretains a $250.0 million revolving credit facility which is available to the Company.draw down as required. The credit facilities carryfacility carries an interest rate based on U.S. dollar LIBOR plus a margin of between 1.05% and 2.30% which is dependent on the Company’s ratio of net debt to EBITDA. Net debt and EBITDA are

non-GAAP
measures of liquidity defined in the credit facility.

At December 31, 2019, $60.02022, $0.0 million was drawn under the revolving credit facility.

The Company previously entered into interest rate swap contracts to reduce interest rate risk on its core debt. As at December 31, 2019,2022 and December 31, 2021, there were no interest rate swaps in place with all swaps having been settled during the year. As at December 31, 2018, there were interest rate swaps with a notional value of $132.5 million in place. Interest rate swaps were in placehave previously been used to hedge interest rate risk on thea term loan for a notional value that matched the repayment profile of the term loan.

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The

As at December 31, 2022, the Company has $60.1 million long-termhad no debt andor finance leases (including the current portion) which is offset by $75.7and $147.1 million cash and cash equivalents. TheAssuming variable interest payable on long-term debt (excluding the margin) exceeds the interest receivable on positive cash balances. On a gross basis, assuming no additional interestreturns on the cash balances, and after deducting interest rate hedging, a hypothetical absolute changeincrease or decrease of 1% in U.S. base interest rates for a

one-year
period would impactincrease or decrease net income and cash flows by approximately $0.6$1.5 million before tax. On a net basis, assuming additional interest on the cash balances, a hypothetical absolute change of 1% in U.S. base interest rates for a
one-year

47

period would impact net income and cash flows by approximately $0.2 million before tax.

The above does not consider the effect of interest or exchange rate changes on overall activity nor management action to mitigate such changes. As at December 31, 2019, Innospec did not have any interest rate swaps to mitigate the risk identified above.

Exchange Rate Risk

The Company generates an element of its revenues and incurs some operating costs in currencies other than the U.S. dollar. The reporting currency of the Company is the U.S. dollar.

The Company evaluates the functional currency of each reporting unit according to the economic environment in which it operates. Several major subsidiaries of the Company operating outside of the U.S. have the U.S. dollar as their functional currency due to the nature of the markets in which they operate. In addition, the financial position and results of operations of some of our overseas subsidiaries are reported in the relevant local currency and then translated to U.S. dollars at the applicable currency exchange rate for inclusion in our consolidated financial statements.

Consolidated Financial Statements.

The primary foreign currencies in which we have exchange rate fluctuation exposure are the European Union euro, British pound sterling and Brazilian Real. Changes in exchange rates between these foreign currencies and the U.S. dollar will affect the recorded levels of our assets and liabilities, to the extent that such figures reflect the inclusion of foreign assets and liabilities which are translated into U.S. dollars for presentation in our consolidated financial statements,Consolidated Financial Statements, as well as our results of operations.

The Company’s objective in managing the exposure to foreign currency fluctuations is to reduce earnings and cash flow volatility associated with foreign currency exchange rate changes. Accordingly, the Company enters into various contracts that change in value as foreign currency exchange rates change to protect the U.S. dollar value of its existing foreign currency denominated assets, liabilities, commitments, and cash flows. The Company also uses foreign currency forward exchange contracts to offset a portion of the Company’s exposure to certain foreign currency denominated revenues so that gains and losses on these contracts offset changes in the U.S. dollar value of the related foreign currency denominated revenues. The objective of the hedging program is to reduce earnings and cash flow volatility related to changes in foreign currency exchange rates.

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The trading of our Performance Chemicals, Fuel Specialties Performance Chemicals and Oilfield Services segments is inherently naturally hedged and accordingly changes in exchange rates would not be material to our earnings or financial position. The cost base of our Octane Additives reporting segment and corporate costs, however, are largely denominated in British pound sterling. A 5% strengthening in the U.S. dollar against British pound sterling would increase reported operating income by approximately $2.2$1.6 million for a

one-year
period excluding the impact of any foreign currency forward exchange contracts. Where a 5% strengthening of the U.S. dollar has been used as an illustration, a 5% weakening would be expected to have the opposite effect on operating income.

48

Raw Material Cost Risk

We use a variety of raw materials, chemicals and energy in our manufacturing and blending processes. Many of the raw materials that we use are derived from petrochemical-based and vegetable-based feedstocks which can be subject to periods of rapid and significant cost instability. These fluctuations in cost can be caused by political instability in oil producing nations and elsewhere, or other factors influencing global supply and demand of these materials, over which we have nolittle or littleno control. We use long-term contracts (generally with fixed or formula-based costs) and advance bulk purchases to help ensure availability and continuity of supply, and to manage the risk of cost increases. From time to time we enter into hedging arrangements for certain raw materials, but do not typically enter into hedging arrangements for all raw materials, chemicals or energy costs. Should the costs of raw materials, chemicals or energy increase, and should we not be able to pass on these cost increases to our customers, then operating margins and cash flows from operating activities would be adversely impacted. Should raw material costs increase significantly, then the Company’s need for working capital could similarly increase. Any of these risks could adversely impact our results of operations, financial position and cash flows.

49

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Item 8
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the
Board of Directors and ShareholdersStockholders of Innospec Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheetsheets of Innospec Inc. and its subsidiaries
(the (the “Company”) as of December 31, 2019,
2022, and 2021, and the related consolidated statements of income, comprehensive income, equity
and cash flows
for each of the year thenthree years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).
We also have audited the Company’s internal control over financial reporting as of December 31, 2019,2022, based on criteria established in
Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019
,
2022 and 2021, and the results of its operations and its cash flows for each of the year thenthree years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, based on criteria established in
Internal Control – Integrated Framework
(2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated
financial statements and on the Company’s internal control over financial reporting based on our audit.audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
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Our auditaudits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to
50
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error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Plant Closure ProvisionProvisions
As described in Notes 2 and 1213 to the consolidated financial statements, at December 31, 20192022, the Company has recognized plant closure provisions of $57.2 million, the majority of which relates to asset retirement obligations. The Company recognizes asset retirement obligations when there is an obligation based on a provision in place for $49.3 million relating tolegal requirement, including those arising from Company promises, and the Company’s legal responsibility for the remediation of hazardous substances or wastes at currently or formerly owned or operated properties, with the principal site giving rise to environmental remediation liabilities being the manufacturing site at Ellesmere Port in the United Kingdom.
costs can be reasonably estimated. The Company must comply with environmental legislation in the countries in which it operates or has operated in and annually reassesses the program of work required. This included management developing estimatesincludes estimating the credit-adjusted risk free rate and assumptions relating to the costtiming and timingcost of performing the remediation work. Management usedreceives input from specialists to develop these estimates. Costsestimates and assumptions utilizing the latest information available together with experience of future obligations are discounted to their present values using the Company’s credit-adjusted risk-free rate.recent costs.
The principal considerations for our determination that performing procedures relating to the plant closure provisionprovisions is a critical audit matter are that there wereare: (i) the significant estimates and assumptionsjudgment made by management overwhen developing the valuation of the plant closure provision. This, in turn led toestimate; (ii) a high degree of auditor judgment and subjectivity in applying procedures relating to the recognition and measurement of the asset retirement obligations; (iii) the audit effort involved the use of professionals with specialized skill and knowledge; and (iv) the significant audit effort in evaluating management’sthe significant assumptions including (i)related to: the program of work requiredrequired; and the costs of performing that work; (ii) the timing and cost of performing the remediation work; and (iii) the credit-adjusted risk-free rate used to discount the future obligations. Professionals with specialized skill and knowledge were used to assist in performing procedures (i) and (ii) and evaluating the audit evidence obtained.work.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuationrecognition and measurement of the plant closure provision.
provisions. These procedures also included, among others,others: (i) the use of professionals with specialized skill and knowledge to assist in testing management’s process for determiningto recognize and measure the plant closure provision. This includedestimate; (ii) evaluating the appropriateness of the valuation method andmethod; (iii) testing the data used in the calculation of the estimate; (iv) evaluating the reasonableness of significant assumptions including the assessment of the program of work required,required; the timing and cost of performing the remediation work; and timing assumptions developed by management’s specialists; (ii)the credit-adjusted risk-free rate; and (iv) evaluating the scope, competency, and objectivity of management’s specialists based on the work they were engaged to perform;perform. Professionals with specialized skill and (iii)knowledge were used to assist in evaluating management’s method and the credit-adjusted risk-free rate applied to calculate the present valuereasonableness of the future obligations.significant assumptions in respect of the program of the work required and the timing and cost of performing the remediation work.
/s/ PricewaterhouseCoopers LLP (signed)
Manchester, United Kingdom
February 19, 2020
22, 2023.
We have served as the Company’s auditor since 2019
.
2019.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Innospec Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Innospec, Inc. and subsidiaries (the Company) as of December 31, 2018, the related consolidated statements of income, comprehensive income, accumulated other comprehensive loss, cash flows and equity for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
KPMG LLP
Manchester, United Kingdom
February 20, 2019
We served as the Company’s auditor from 2011 to 2019.
48
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Innospec Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of income, comprehensive income, accumulated other comprehensive loss, cash flows and equity of Innospec, Inc. and subsidiaries (the Company) for the year ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of the operations of the Company and its cash flows for the year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
KPMG Audit Plc
Manchester, United Kingdom
February 15, 2018
We served as the Company’s auditor from 2011 to 2018
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CONSOLIDATED STATEMENTS OF INCOME
(
in millions, except share and per share data
)
             
 
Years ended December 31
 
 
2019
  
2018
  
2017
 
Net sales
 $
1,513.3
  $
1,476.9
  $
1,306.8
 
Cost of goods sold
  
(1,047.1
)  
(1,041.9
)  
(903.5
)
             
Gross profit
  
466.2
   
435.0
   
403.3
 
             
             
Operating expenses:
         
Selling, general and administrative
  
(280.9
)  
(261.0
)  
(244.2
)
Research and development
  
(35.4
)  
(33.4
)  
(31.4
)
Restructuring charge
  
0.0
   
(7.1
)  
0.0
 
Loss on disposal of subsidiary
  
0.0
   
0.0
   
(0.9
)
Foreign exchange loss on liquidation of subsidiary
  
0.0
   
0.0
   
(1.8
)
             
Total operating expenses
  
(316.3
)  
(301.5
)  
(278.3
)
             
Operating income
  
149.9
   
133.5
   
125.0
 
Other income, net
  
5.3
   
5.0
   
11.3
 
Interest expense, net
  
(4.8
)  
(6.9
)  
(8.2
)
             
Income before income tax expense
  
150.4
   
131.6
   
128.1
 
Income tax expense
  
(38.2
)   
(46.6
)  
(66.3
)
             
Net income
 $
112.2
  $
85.0
  $
61.8
 
             
Earnings per share:
         
Basic
 $
4.58
  $
3.48
  $
2.56
 
             
Diluted
 $
4.54
  $
3.45
  $
2.52
 
             
Weighted average shares outstanding (in thousands):
         
Basic
  
24,482
   
24,401
   
24,148
 
             
Diluted
  
24,728
   
24,603
   
24,486
 
             
 
   
Years ended December 31
 
   
2022
  
2021
  
2020
 
Net sales  $1,963.7  $1,483.4  $1,193.1 
Cost of goods sold   (1,377.0)   (1,048.5)   (850.4) 
              
Gross profit   586.7   434.9   342.7 
              
Operating expenses:             
Selling, general and administrative   (360.7)   (267.2)   (237.0) 
Research and development   (38.7)   (37.4)   (30.9) 
Restructuring charge   —     —     (21.3) 
Impairment of intangible assets   —     —     (19.8) 
Profit on disposal   —     1.8   —   
              
Total operating expenses   (399.4)   (302.8)   (309.0) 
              
Operating income   187.3   132.1   33.7 
Other (expense)/income, net   (1.6)   3.8   7.8 
Interest expense, net   (1.1)   (1.5)   (1.8) 
              
Income before income tax expense   184.6   134.4   39.7 
Income tax expense   (51.6)   (41.3)   (11.0) 
              
Net income  $133.0  $93.1  $28.7 
              
Earnings per share:             
Basic  $5.37  $3.78  $1.17 
              
Diluted  $5.32  $3.75  $1.16 
              
Weighted average shares outstanding (in thousands):             
Basic   24,787   24,647   24,563 
              
Diluted   24,982   24,854   24,779 
              
The
accompanying notes are an integral part of these statements.
 
5
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(
in millions
)
Total comprehensive income for the years ended
December 
31
  
    
   
2022
  
2021
  
2020
 
Net income       $133.0  $93.1  $28.7 
Changes in cumulative translation adjustment, net of tax of $5.5 million, $2.0 million and $3.9 million, respectively        (29.2)   (20.2)   23.7 
Amortization of prior service cost/(credit), net of tax of $(0.1) million, $(0.1) million and $0.1 million, respectively        0.4   0.2   (0.4) 
Amortization of actuarial net losses, net of tax of $(0.1) million, $(0.4) million and $(0.2) million, respectively        0.4   2.2   1.5 
Actuarial net gains/(losses) arising during the year, net of tax of $24.0 million, $(9.0) million and $1.9 million, respectively        (69.9)   28.2   (7.7) 
                   
Total comprehensive
income
       $34.7  $103.5  $45.8 
                   
The
accompanying notes are an integral part of these statements.
 
5
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CONSOLIDATED BALANCE SHEETS
(
in millions, except share and per share data
)
   
At December 31
 
   
2022
  
2021
 
Assets
         
Current assets:         
Cash and cash equivalents  $147.1  $141.8 
Trade and other accounts receivable (less allowances of $7.7 million and $5.1 million, respectively)   334.6   284.5 
Inventories (less allowances of $27.1 million and $25.4 million, respectively):         
Finished goods   259.3   188.3 
Raw materials   113.8   89.3 
          
Total inventories   373.1   277.6 
Prepaid expenses   14.1   18.0 
Prepaid income taxes   3.3   5.8 
Other current assets   0.4   0.4 
          
Total current assets   872.6   728.1 
Net property, plant and equipment   220.9   214.4 
Operating leases
right-of-use
assets
   45.3   35.4 
Goodwill   358.8   364.3 
Other intangible assets   45.0   57.5 
Deferred tax assets   5.9   6.4 
Pension asset   48.1   159.8 
Other
non-current
assets
   7.1   5.0 
          
Total assets  $1,603.7  $1,570.9 
          
Liabilities and Equity
         
Current liabilities:         
Accounts payable  $165.3  $148.7 
Accrued liabilities   202.9   166.5 
Current portion of finance leases   —     0.1 
Current portion of operating lease liabilities   13.9   12.4 
Current portion of plant closure provisions   5.3   5.2 
Current portion of accrued income taxes   18.4   3.7 
          
Total current liabilities   405.8   336.6 
Operating lease liabilities, net of current portion   31.4   23.1 
Plant closure provisions, net of current portion   51.9   51.3 
Accrued income taxes, net of current portion   21.0   30.6 
Unrecognized tax benefits, net of current portion   13.4   16.3 
Deferred tax liabilities   26.2   60.8 
Pension liabilities and post-employment benefits   12.2   17.8 
Other
non-current
liabilities
   1.4   1.4 
          
Total liabilities   563.3   537.9 
Equity:         
Common stock, $0.01 par value, authorized 40,000,000 shares, issued 29,554,500 shares   0.3   0.3 
Additional
paid-in
capital
   354.1   346.7 
Treasury stock (4,788,966 and 4,780,806 shares at cost, respectively)   (95.4)   (90.6) 
Retained earnings   924.2   822.9 
Accumulated other comprehensive loss   (145.2)   (46.9) 
          
Total Innospec stockholders’ equity   1,038.0   1,032.4 
Non-controlling
interest
   2.4   0.6 
          
Total equity   1,040.4   1,033.0 
          
Total liabilities and equity  $1,603.7  $1,570.9 
          
The
accompanying notes are an integral part of these statements.
 
5
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(
in millions
)
 
   
Years ended December 31
 
   
    2022    
  
    2021    
  
    2020    
 
Cash Flows from Operating Activities
             
Net income  $133.0  $93.1  $28.7 
Adjustments to reconcile net income to net cash provided by
operating activities:		             
Depreciation and amortization   40.1   42.7   46.0 
Impairment of intangible assets   —     —     19.8 
Impairment of tangible assets   —     —     2.0 
Deferred taxes   (5.5)   6.4   (2.5) 
Profit on disposal   —     (1.8)   —   
Non-cash
income of defined benefit pension plans
   (2.5)   (3.5)   (4.0) 
Stock option compensation   6.7   4.4   5.8 
Changes in assets and liabilities, net of effects of acquired and divested companies:             
Trade and other accounts receivable   (55.5)   (70.3)   74.4 
Inventories   (98.5)   (62.0)   25.5 
Prepaid expenses   4.6   (3.5)   (1.0) 
Accounts payable and accrued liabilities   54.2   90.2   (45.9) 
Plant closure provisions   1.1   (1.4)   8.5 
Accrued income taxes   9.4   (3.2)   (10.3) 
Unrecognized tax benefits   (2.9)   0.3   (0.4) 
Other assets and liabilities   (2.5)   1.8   (0.7) 
              
Net cash provided by operating activities   81.7   93.2   145.9 
    
Cash Flows from Investing Activities
             
Capital expenditures   (39.6)   (39.1)   (29.7) 
Proceeds on disposal of property, plant and equipment   0.2   2.9   —   
Internally developed software   (2.7)   —     —   
              
Net cash used in investing activities   (42.1)   (36.2)   (29.7) 
    
Cash Flows from Financing Activities
             
Non-controlling
interest
   1.8   0.1   0.1 
Proceeds from revolving credit facility   —     —     15.0 
Repayments of revolving credit facility   —     —     (75.0) 
Repayment of finance leases   (0.1)   (0.6)   (1.1) 
Refinancing costs   —     —     (0.3) 
Dividend paid   (31.7)   (28.8)   (25.6) 
Issue of treasury stock   2.2   10.1   2.2 
Repurchase of common stock   (5.9)   (0.8)   (2.1) 
              
Net cash used in financing activities   (33.7)   (20.0)   (86.8) 
Effect of foreign currency exchange rate changes on cash   (0.6)   (0.5)   0.2 
              
Net change in cash and cash equivalents   5.3   36.5   29.6 
Cash and cash equivalents at beginning of year   141.8   105.3   75.7 
              
Cash and cash equivalents at end of year  $147.1  $141.8  $105.3 
              
The accompanying notes are an integral part of these statements.
5
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
EQUITY
(
in millions
)
                 
Total comprehensive income for the years ended December 31
   
2019
  
2018
  
2017
 
Net income
    $
112.2
  $
85.0
  $
61.8
 
Changes in cumulative translation adjustment, net of tax of $(0.3
)
 million, $2.7 million and $(3.3) million, respectively
     
(6.0
)  
(22.6
)  
44.0
 
R
ealized
(losses)
/gains on derivative instruments, net of tax of $0.4 million, $(0.1) million and $(0.2) million, respectively
     
(1.5
)  
0.3
   
0.9
 
Amortization of prior service credit, net of tax of $0.2 million,
$
0.2 million and $0.2 million, respectively
     
(0.7
)  
(0.9
)  
(0.8
)
Amortization of actuarial net losses, net of tax of $0.0 million, $(0.3) million and $(0.9) million, respectively
     
0.0
   
1.7
   
4.1
 
Actuarial net gains/(losses) arising during the year, net of tax of $
(
2.2
)
million, $3.3 million and $(8.8) million, respectively
     
9.5
   
(15.7
)  
39.5
 
                 
Total comprehensive income
    $
113.5
  $
47.8
  $
149.5
 
                 
 
The accompanying notes are an integral part of these statements.
  
Common

Stock
  
Additional

Paid-In

Capital
  
Treasury

Stock
  
Retained

Earnings
  
Accumulated
Other

Comprehensive
Loss
  
Non-
controlling
Interest
  

Total
Equity
 
Balance at December 31, 2019 $0.3  $330.4  $(93.3)  $755.5  $(74.4)  $0.4  $918.9 
Net income              28.7           28.7 
Dividend paid ($1.04 per share)              (25.6)           (25.6) 
Changes in cumulative translation adjustment, net of tax                  23.7       23.7 
Share of net income                      0.1   0.1 
Treasury stock
re-issued
      (0.1)   2.1               2.0 
Treasury stock repurchased          (2.1)               (2.1) 
Stock option compensation      5.8                   5.8 
Amortization of prior service credit, net of tax                  (0.4)       (0.4) 
Amortization of actuarial net losses, net of tax                  1.5       1.5 
Actuarial net
losses
arising during the year, net of tax
                  (7.7)       (7.7) 
                             
Balance at December 31, 2020 $0.3  $336.1  $(93.3)  $758.6  $(57.3)  $0.5  $944.9 
Net income              93.1           93.1 
Dividend paid ($1.16 per share)              (28.8)           (28.8) 
Changes in cumulative translation adjustment, net of tax                  (20.2)       (20.2) 
Share of net income                      0.1   0.1 
Treasury stock
re-issued
      6.2   3.5               9.7 
Treasury stock repurchased          (0.8)               (0.8) 
Stock option compensation      4.4                   4.4 
Amortization of prior service cost, net of tax                  0.2       0.2 
Amortization of actuarial net losses, net of tax                  2.2       2.2 
Actuarial net gains arising during the year, net of tax                  28.2       28.2 
                             
Balance at December 31 2021 $0.3  $346.7  $(90.6)  $822.9  $(46.9)  $0.6  $1,033.0 
Net income              133.0           133.0 
Dividend paid ($1.28 per share)              (31.7)           (31.7) 
Changes in cumulative translation adjustment, net of tax                  (29.2)       (29.2) 
Non-controlling
interest investment
                      1.8   1.8 
Treasury stock
re-issued
      0.7   1.0               1.7 
Treasury stock repurchased          (5.8)               (5.8) 
Stock option compensation      6.7                   6.7 
Amortization of prior service cost, net of tax                  0.4       0.4 
Amortization of actuarial net losses, net of tax                  0.4       0.4 
Actuarial net
losses
arising during the year, net of tax
                  (69.9)       (69.9) 
                             
Balance at December 31 2022 $0.3  $354.1  $(95.4)  $924.2  $(145.2)  $2.4  $1,040.4 
5The
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Table of Contents
CONSOLIDATED BALANCE SHEETS
(
in millions, except share and per share data
)
         
 
At December 31
 
 
2019
 
 
2018
 
Assets
      
Current assets:
      
Cash and cash equivalents
 $
75.7
  $
123.1
 
Trade and other accounts receivable (less allowances of $3.8
million and $2.9
million, respectively)
  
292.0
   
279.7
 
Inventories (less allowances of $14.5
million and $13.6
 million, respectively):
      
Finished goods
  
173.9
   
180.2
 
Raw materials
  
70.7
   
67.8
 
Total inventories
  
244.6
   
248.0
 
Prepaid expenses
  
14.7
   
11.6
 
Prepaid income taxes
  
2.5
   
1.5
 
Other current assets
  
0.8
   
0.0
 
Total current assets
  
630.3
   
663.9
 
Net property, plant and equipment
  
198.7
   
196.4
 
Operating leases
right-of-use
assets
  
32.4
   
0.0
 
Goodwill
  
363.0
   
364.9
 
Other intangible assets
  
113.5
   
136.3
 
Deferred tax assets
  
9.1
   
8.8
 
Pension asset
  
115.9
   
95.9
 
Other
non-current
assets
  
5.9
   
7.2
 
Total assets
 $
1,468.8
  $
1,473.4
 
Liabilities and Equity
      
Current liabilities:
      
Accounts payable
 $
122.0
  $
126.8
 
Accrued liabilities
  
154.0
   
132.1
 
Current portion of long-term debt
  
0.0
   
21.4
 
Current portion of finance leases
  
1.0
   
1.8
 
Current portion of plant closure provisions
  
5.6
   
5.9
 
Current portion of accrued income taxes
  
10.3
   
8.6
 
Current portion of operating lease liabilities
  
10.6
   
0.0
 
Total current liabilities
  
303.5
   
296.6
 
Long-term debt, net of current portion
  
58.6
   
186.2
 
Finance leases, net of current portion
  
0.5
   
1.5
 
Operating lease liabilities, net of current portion
  
21.9
   
0.0
 
Plant closure provisions, net of current portion
  
43.7
   
43.6
 
Accrued income taxes, net of current portion
  
36.2
   
40.0
 
Unrecognized tax benefits, net of current portion
  
16.4
   
14.0
 
Deferred tax liabilities
  
49.6
   
48.2
 
Pension liabilities and post-employment benefits
  
17.8
   
15.7
 
Other
non-current
liabilities
  
1.7
   
2.1
 
 
 
 
 
 
 
 
 
 
Equity:
      
Common stock, $0.01
par value, authorized 40,000,000
shares, issued 29,554,500
shares
  
0.3
   
0.3
 
Additional
paid-in
capital
  
330.4
   
324.9
 
Treasury stock (
5,047,278
and 5,120,799
shares at cost, respectively)
  
(93.3
)  
(92.8
)
Retained earnings
  
755.5
   
668.3
 
Accumulated other comprehensive loss
  
(74.4
)  
(75.7
)
Total Innospec stockholders’ equity
  
918.5
   
825.0
 
Non-controlling
interest
  
0.4
   
0.5
 
Total equity
  
918.9
   
825.5
 
Total liabilities and equity
 $
1,468.8
  $
1,473.4
 
The accompanying notes are an integral part of these statements.
5
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(
in millions
)
             
 
Years ended December 31
 
 
    2019
    
 
 
    2018
    
 
 
    2017
    
 
Cash Flows from Operating Activities
         
Net income
 $
112.2
  $
85.0
  $
61.8
 
Adjustments to reconcile net income to net cash provided by operating activities:
         
Depreciation and amortization
  
47.6
   
49.6
   
50.4
 
Loss on disposal of subsidiary
  
0.0
   
0.0
   
0.9
 
Foreign exchange loss on liquidation of subsidiary
  
0.0
   
0.0
   
1.8
 
Deferred tax (benefit)/expense
  
(0.8
)
 
  
5.5
   
(6.7
)
Cash contributions to defined benefit pension plans
  
(0.4
)
 
  
(1.0
)  
(1.0
)
Non-cash
income of defined benefit pension plans
  
(6.1
)
 
  
(4.3
)  
(3.6
)
Stock option compensation
  
6.6
   
4.9
   
4.1
 
Changes in assets and liabilities, net of effects of acquired and divested companies:
         
Trade and other accounts receivable
  
(18.2
)
 
  
(40.1
)  
(83.2
)
Inventories
  
2.4
   
(42.2
)  
(30.8
)
Prepaid expenses
  
(3.1
)
 
  
0.5
   
(6.8
)
Accounts payable and accrued liabilities
  
23.2
   
38.4
   
48.6
 
Accrued income taxes
  
(2.4
)
 
  
(6.1
)  
47.5
 
Plant closure provisions
  
0.0
   
3.6
   
3.8
 
Unrecognized tax benefits
  
2.5
   
11.5
   
(0.5
)
Other assets and liabilities
  
(1.9
)
 
  
(0.4
)  
(3.6
)
Net cash provided by operating activities
  
161.6
   
104.9
   
82.7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Flows from Investing Activities
         
Capital expenditures
  
(29.9
)
 
  
(28.9
)  
(23.3
)
Business combinations, net of cash acquired
  
0.0
   
(5.4
)  
2.6
 
Acquisition of intangible asset
  
0.0
   
0.0
   
(4.2
)
Internally developed software
  
(1.1
)
 
  
(1.2
)  
(4.7
)
Net cash used in investing activities
  
(31.0
)
 
  
(35.5
)  
(29.6
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash Flows from Financing Activities
         
Proceeds from revolving credit facility
  
105.5
   
10.0
   
10.0
 
Repayments of revolving credit facility
  
(171.5
)
 
  
(5.0
)  
(50.0
)
Repayment of term loans
  
(82.5
)
 
  
(16.5
)  
(11.0
)
Repayment of finance leases and term loans
  
(1.7
)
 
  
(2.7
)  
(2.5
)
Refinancing costs
  
(1.5
)
 
  
0.0
   
0.0
 
Dividend paid
  
(25.0
)
 
  
(21.7
)  
(18.6
)
Issue of treasury stock
  
1.2
   
1.1
   
6.8
 
Repurchase of common stock
  
(2.4
)
 
  
(1.4
)  
(1.1
)
Net cash used in financing activities
  
(177.9
)
 
  
(36.2
)  
(66.4
)
Effect of foreign currency exchange rate changes on cash
  
(0.1
)
 
  
(0.3
)  
1.6
 
Net change in cash and cash equivalents
  
(47.4
)
 
  
32.9
   
(11.7
)
Cash and cash equivalents at beginning of year
  
123.1
   
90.2
   
101.9
 
Cash and cash equivalents at end of year
 $
75.7
  $
123.1
  $
90.2
 
Amortization of deferred finance costs of $
1.0
 million (2018 – $
0.7
 million, 2017 – $
0.6
million) for the year are included in depreciation and amortization in the cash flow statement but in interest expense in the income statement. Cash payments/receipts in respect of income taxes and interest are disclosed in Note 10 and Note 11, respectively, of the Notes to the Consolidated Financial Statements.
The accompanying notes are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF EQUITY
(
in millions
)
                             
 
Common
Stock
 
 
Additional
Paid-In
Capital
 
 
Treasury
Stock
 
 
Retained
Earnings
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Non-
controlling
Interest
 
 
Total
Equity
 
Balance at December 31, 2016
 $
0.3
  $
315.1
  $
(97.5
) $
561.8
  $
(126.2
) $
0.3
  $
653.8
 
Net income
           
61.8
         
61.8
 
Dividend paid ($0.77 per share)
           
(18.6
)        
(18.6
)
Changes in cumulative translation adjustment, net of tax
              
44.0
      
44.0
 
Share of net income
                 
0.1
   
0.1
 
Unrealized gains on derivative instruments, net of tax
              
0.9
      
0.9
 
Treasury stock
re-issued
     
1.1
   
5.3
            
6.4
 
Treasury stock repurchased
        
(1.1
)           
(1.1
)
Stock option compensation
     
4.2
               
4.2
 
Amortization of prior service credit, net of tax
              
(0.8
)     
(0.8
)
Amortization of actuarial net losses, net of tax
              
4.1
      
4.1
 
Actuarial net gains arising during the year, net of tax
              
39.5
      
39.5
 
                             
Balance at December 31, 2017
 $
0.3
  $
320.4
  $
(93.3
) $
605.0
  $
(38.5
) $
0.4
  $
794.3
 
Net income
           
85.0
         
85.0
 
Dividend paid ($0.89 per share)
           
(21.7
)        
(21.7
)
Changes in cumulative translation adjustment, net of tax
              
(22.6
)     
(22.6
)
Share of net income
                 
0.1
   
0.1
 
Unrealized gains on derivative instruments, net of tax
              
0.3
      
0.3
 
Treasury stock
re-issued
     
(0.4
)  
1.9
            
1.5
 
Treasury stock repurchased
        
(1.4
)           
(1.4
)
Stock option compensation
     
4.9
               
4.9
 
Amortization of prior service credit, net of tax
              
(0.9
)     
(0.9
)
Amortization of actuarial net losses, net of tax
              
1.7
      
1.7
 
Actuarial net losses arising during the year, net of tax
              
(15.7
)     
(15.7
)
                             
Balance at December 31, 2018
 $
0.3
  $
324.9
  $
(92.8
) $
668.3
  $
(75.7
) $
0.5
  $
825.5
 
Net income
           
112.2
         
112.2
 
Dividend paid ($1.02 per share)
           
(25.0
)        
(25.0
)
Changes in cumulative translation adjustment, net of tax
              
(6.0
)     
(6.0
)
Share of net income
                 
(0.1
)  
(0.1
)
Realized losses on derivative instruments, net of tax
              
(1.5
)     
(1.5
)
Treasury stock
re-issued
     
(1.1
)  
1.9
            
0.8
 
Treasury stock repurchased
        
(2.4
)           
(2.4
)
Stock option compensation
     
6.6
               
6.6
 
Amortization of prior service credit, net of tax
              
(0.7
)     
(0.7
)
Actuarial net gains arising during the year, net of tax
              
9.5
      
9.5
 
                             
Balance at December 31, 2019
 $
0.3
  $
330.4
  $
(93.3
) $
755.5
  $
(74.4
) $
0.4
  $
918.9
 
The accompanying notes are an integral part of these statements
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1.     Nature of Operations
Innospec develops, manufactures, blends, markets and supplies a wide range of specialty chemicals to markets in the Americas, Europe, the Middle East, Africa and Asia-Pacific. Our Performance Chemicals business creates innovative technology-based solutions for our customers in the personal care, home care, agrochemical, mining and industrial markets. Our Fuel Specialties business specializes in manufacturing and supplying fuel additives oilfield chemicals, personal care products and other specialty chemicals. Our products are sold primarily to oil and gas exploration and production companies, oil refineries, personal care and home care companies, formulators of agrochemical and metal extraction preparations and other chemical and industrial companies throughout the world. Our fuel additives helpthat improve fuel efficiency, boost engine performance and reduce harmful emissions. Our Performance Chemicals business provides effective technology-based solutions for our customers’ processes or products focused in the Personal Care, Home Care, Agrochemical and Metal Extraction markets. Our Oilfield Services business supplies drilling, completion and production chemicals which make exploration and production more effective, cost-efficient and more environmentally friendly. Our Octane Additives business manufactures a fuel additive for use in automotive gasoline and provides services in respect of environmental remediation. Our principal reportable segments are Fuel Specialties, Performance Chemicals, Oilfield Services and Octane Additives.
Note 2.     Accounting Policies
Basis of preparation:
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America on a going concern basis and include all subsidiaries of the Company where the Company has a controlling financial interest. All significant intercompany accounts and balances have been eliminated upon consolidation. In accordance with GAAP in the United States of America, the results of operations of an acquired or disposed business are included or excluded from the consolidated financial statements from the date of acquisition or disposal.
Use of estimates:
The preparation of the consolidated financial statements, in accordance with GAAP in the United States of America, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue recognition:
Our revenues are primarily derived from the manufacture and sale of specialty chemicals. We recognize revenue when control of the product is transferred to our customer and for an amount that reflects the consideration we expect to collect from the customer. Control is generally transferred to the customer when title transfers (which may include physical possession by the customer), we have a right to payment from the customer, the customer has accepted the product, and the customer has assumed the risks and rewards of ownership. We have supplier managed inventory arrangements with some of our customers to facilitate
on-demand
product availability. In some cases, the inventory resides at a customer site, although title has not transferred, we are not entitled to payment, and we have not invoiced for the product. We have evaluated the contract terms under these arrangements and have determined that control transfers when the customer uses the product, at which time
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
revenue is recognized. Our contracts generally include one performance obligation, which is providing specialty chemicals. The performance obligation is satisfied at a point in time when products are shipped, delivered, or consumed by the customer, depending on the underlying contracts.
While some of our customers have payment terms beyond 30 days, we do not provide extended payment terms of a year or more, nor do our contracts include a financing component. Some of our contracts include variable consideration in the form of rebates. We
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8
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
record rebates at the point of sale as a reduction in sales when we can reasonably estimate the amount of the rebate. The estimates are based on our best judgment at the time of sale, which includes anticipated as well as historical performance.
Taxes assessed by a governmental authority which are concurrent with sales to our customers, including sales, use, value-added, and revenue-related excise taxes, are collected by us from the customer and are not included in net sales, but are reflected in accrued liabilities until remitted to the appropriate governmental authority. When we are responsible for shipping and handling costs after title has transferred, we account for those as fulfilment costs and include them in cost of goods sold.
Components of net sales:
All amounts billed to customers relating to shipping and handling are classified as net sales. Shipping and handling costs incurred by the Company are classified as cost of goods sold.
Components of cost of goods sold:
Cost of goods sold is comprised of raw material costs including inbound freight, duty and
non-recoverable
taxes, inbound handling costs associated with the receipt of raw materials, packaging materials, manufacturing costs including labor costs, maintenance and utility costs, plant and engineering overheads, amortization expense for certain other intangible assets, warehousing and outbound shipping costs and handling costs. Inventory losses and provisions and the costs of customer claims are also recognized in the cost of goods line item.
Components of selling, general and administrative expenses:
Selling expenses comprise the costs of the direct sales force, and the sales management and customer service departments required to support them. It also comprises commission charges, the costs of sales conferences and trade shows, the cost of advertising and promotions, amortization expense for certain other intangible assets, and the cost of bad and doubtful debts. General and administrative expenses comprise the cost of support functions including accounting, human resources, information technology and the cost of group functions including corporate management, finance, tax, treasury, investor relations and legal departments. Provision of management’s best estimate of legal and settlement costs for litigation in which the Company is involved is accounted for in the administrative expense line item.
Research and development expenses:
Research, development and testing costs are expensed to the income statement as incurred.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Earnings per share:
Basic earnings per share is based on the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the effect of options that are dilutive and outstanding during the period.
Foreign currencies:
The Company’s policy is that foreign exchange differences arising on the translation of the balance sheets of entities that have functional currencies other than the U.S. dollar are taken to a separate equity reserve, the cumulative translation adjustment. In entities
5
9
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
where the U.S. dollar is the functional currency no gains or losses on translation occur, and gains or losses on monetary assets relating to currencies other than the U.S. dollar are taken to the income statement in other income/(expense), net. Gains and losses on intercompany foreign currency loans which are long-term in nature, which the Company does not intend to settle in the foreseeable future, are also recorded in accumulated other comprehensive loss. Other foreign exchange gains or losses are also included in other income, net in the income statement.
Stock-basedShare
-based compensation plans:
The Company accounts for employee stock options and stock equivalent units under the fair value method. Stock options are fair valued at the grant date and the fair value is recognized straight-line over the vesting period of the option. Stock equivalent units are fair valued at each balance sheet date and the fair value is spread over the remaining vesting period of the unit.
Business combinations:
The acquisition method of accounting requires that we recognize the assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of consideration transferred over the acquisition date net fair values of the assets acquired and the liabilities assumed.
The determination of the fair values of certain assets and liabilities are usually based on significant estimates provided by management, such as forecast revenue or profit. In determining the fair value of intangible assets, an income approach is generally used and may incorporate the use of a discounted cash flow method. In applying the discounted cash flow method, the estimated future cash flows and residual values for each intangible asset are discounted to a present value using a discount rate appropriate to the business being acquired. These cash flow projections are based on management’s estimates of economic and market conditions including revenue growth rates, operating margins, capital expenditures and working capital requirements.
Cash equivalents:
Investment securities with maturities of three months or less when purchased are considered to be cash equivalents.
Trade and other accounts receivable:
The Company records trade and other accounts receivable at net realizable value and maintains allowances for customers not making required payments. The Company determines the adequacy of allowances by periodically evaluating each customer receivable considering our customer’s financial condition, credit history and current economic conditions.
The Company is exposed to credit losses primarily through sales of products. The Company’s expected loss allowance methodology for trade and other accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers’ receivables. Due to the short-term nature of such receivables, the estimate of accounts receivable amounts that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers.
 
5
760

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Additionally, a further allowance is included to account for the Company’s historic track record of credit losses, for balances which are not aged sufficiently to be considered under the aging based approach
.
Inventories:
Inventories are stated at the lower of cost (FIFO method) or market value. Cost includes materials, labor and an appropriate proportion of plant overheads. The Company accrues volume discounts where it is probable that the required volume will be attained and the amount can be reasonably estimated. The discounts are recorded as a reduction in the cost of materials based on projected purchases over the period of the agreement. Inventories are adjusted for estimated obsolescence and written down to market value based on estimates of future demand and market conditions.
Property, plant and equipment:
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets using the straight-line method and is allocated between cost of goods sold and operating expenses. The cost of additions and improvements are capitalized. Maintenance and repairs are charged to expenses as incurred. When assets are sold or retired the associated cost and accumulated depreciation are removed from the consolidated financial statements and any related gain or loss is included in earnings. The estimated useful lives of the major classes of depreciable assets are as follows:
Buildings   7 to 25 years 
Buildings
Equipment		   
7 to 25 years
Equipment
3 to 10 years
 
Goodwill:
Goodwill is deemed to have an indefinite life and is subject to at least annual impairment assessments at the reporting unit level. The Company considers that its reporting units are consistent with its reportable segments. The components in each segment (including products, markets and competitors) have similar economic characteristics and the segments, therefore, reflect the lowest level at which operations and cash flows can be sufficiently distinguished, operationally and for financial reporting purposes, from the rest of the Company.
Initially we perform a qualitative assessment to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reportable segment is less than the carrying amount prior to performing a quantitative goodwill impairment test. The annual measurement date for impairment assessment of the goodwill relating to the Performance Chemicals, Fuel Specialties Performance Chemicals and Oilfield Services segments is December 31 each year. Factors utilized in the qualitative assessment process include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and Company specific events.
If a quantitative test is required, we assess the fair value based on projected
post-tax
cash flows discounted at the Company’s weighted average cost of capital. These fair value techniques require management judgment and estimates including revenue growth rates,
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
projected operating margins, changes in working capital and discount rates. We would develop these assumptions by considering recent financial performance and industry growth estimates.
O
5
8
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Otherther intangible assets:
Other intangible assets are deemed to have finite lives and are amortized using the straight-line method over their estimated useful lives. The Company capitalizes software development costs as intangible assets, including licenses, subsequent to the establishment of technological feasibility. These assets are tested for potential impairment when events occur or circumstances change, which suggest an impairment may have occurred.occurred
.
In order to facilitate testing for potential impairment the Company groups together assets at the lowest possible level for which cash flow information is available. Undiscounted future cash flows expected to result from the asset groups are compared with the carrying value of the assets and, if such cash flows are lower, an impairment loss may be recognized. The amount of the impairment loss is the difference between the fair value and the carrying value of the assets. Fair values are determined using
post-tax
cash flows discounted at the Company’s weighted average cost of capital. If events occur or circumstances change it may cause a reduction in the periods over which the assets are amortized, or result in a
non-cash
impairment of their carrying value. A reduction in the amortization periods would have no impact on cash flows.
The estimated useful lives of the major classes of assets are as follows:
Technology   10 to 17 years 
Technology
Customer lists		   
10 to 1715 years
 
Customer lists
Brand names		   
5 to 10 to 15 years
 
Brand names
Product rights		   
59 to 10 years
 
Product rights
Internally developed software		   
93 to 10 years
 
Internally developed software
Marketing related		   
3 to 5 years
Marketing related
11 years
 
Leases:
With an effective date of January 1, 2019 we have applied Accounting Standards Update (ASU)
2016-02,
Revision to Lease Accounting, ASC Topic 842 which replaces ASC Topic 840, Leases. ASU
2016-02
requires lessees to recognize a
right-of-use
(“ROU”) asset and a lease liability for all of their leases (other than leases that meet the definition of a short-term lease).
The standard was adopted using a modified retrospective transition method, with the Company electing not to adjust comparative periods. We have taken the election not to apply the requirements to short-term leases and have taken the election not to separate related
non-lease
components from lease components.
The standard had a material impact on our consolidated balance sheet as at December 31, 2019, but did not have an impact on our consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities and the related deferred taxes thereon for operating leases, while our accounting for finance leases remained substantially unchanged. Operating lease liabilities recognized under the new standard are not considered to be debt.
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Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We determine if an arrangement is a lease at inception. The present value of the future lease payments for operating leases is included in operating lease ROU
right-of-use
(“ROU”) assets, and operating lease liabilities (current and
non-current)
on our consolidated balance sheet at December 31, 2019.the reporting date. The carrying value of assets under finance leases is included in property, plant and equipment and finance lease liabilities (current and
non-current)
on our consolidated balance sheet at December 31, 2019.the reporting date.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of future lease payments over the remaining lease term. Very few of our leases have renewal options or early termination break clauses, but where they do we have assessed the term of the lease based on any options being exercised only if they are reasonably certain. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at point of recognition in determining the present value of future payments.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The operating lease ROU asset excludes lease incentives and initial direct costs incurred. Lease expense for lease payments is recognized on a straight-line basis over the lease term unless payments are variable per the agreement. We do not separate related
non-lease
components from lease components. Where we have lease payments linked to an index or inflationary rate, this rate has been used to value the asset and liability at the inception of the lease. If the payments are not linked to a specific index or inflationary rate, but can vary during the term of the agreement, they have been included at their actual value for each future period. In some circumstances the future expected payments may be dependent on other factors, for example production volumes, in which case we have used the minimum future expected payments to value the asset.
We do not recognize a ROU asset or operating lease liability for short-term leases (with a length of one year or less), and any associated cost is recognized, as incurred, through the income statement.statement
.
Deferred finance costs:
The costs relating to debt financing are capitalized offset against long-term debt in the consolidated balance sheets and amortized using the effective interest method over the expected life of the debt financing facility. The amortization charge is included in interest expense in the income statement. See Note 11 of the Notes to the Consolidated Financial Statements.
Impairment of long-lived assets:
The Company reviews the carrying value of its long-lived assets, including buildings and equipment, whenever changes in circumstances suggest that the carrying values may be impaired. In order to facilitate this test the Company groups together assets at the lowest possible level for which cash flow information is available. Undiscounted future cash flows expected to result from the asset groups are compared with the carrying value of the asset groups and if they are lower an impairment loss may be recognized. The amount of the impairment loss is the difference between the fair value and the carrying value of the asset groups. Fair values are determined using
post-tax
cash flows discounted at the Company’s weighted average cost of capital.
6
0
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Derivative instruments:
From
From time to time,
the Company uses various derivative instruments including forward currency contracts, options, interest rate swaps and commodity swaps to manage certain exposures. These instruments are entered into under the Company’s corporate risk management policy to minimize exposure and are not for speculative trading purposes. The Company recognizes all derivatives as either current or
non-current
assets or liabilities in the consolidated balance sheet and measures those instruments at fair value. Changes in the fair value of derivatives that are not designated as hedges, or do not meet the requirements for hedge accounting, are recognized in earnings. Derivatives which are designated as hedges are tested for effectiveness on a quarterly basis, and marked to market. The ineffective portion of the derivative’s change in value is recognized in earnings. The effective portion is recognized in other comprehensive income until the hedged item is recognized in
earnings.
EnvironmentalPlant closure provisions:
This
includes both environmental compliance and remediation:
remediation costs. Environmental compliance costs include ongoing maintenance, monitoring and similar costs.costs
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3
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
and extend to environmental liabilities that result from other-than-normal operation of long-lived assets, for example pollution. Remediation costs relate to asset retirement obligations at our current and former manufacturing sites following retirement of the long-lived assets, linked to their normal operation. We recognize environmental liabilities when they are probable and the costs can be reasonably estimated, and asset retirement obligations when there is an obligation based on a legal obligationrequirement
, including those arising from a
Company promise, and the costs can be reasonably estimated. The vast majority of our plant closure provision relates to our Ellesmere Port site in the United Kingdom.
The Company must comply with environmental legislation in the countries in which it operates or has operated in and annually reassesses the program of work required. This includes estimating the credit-adjusted risk free rate and the timing and cost of performing the remediation work. Management usereceives input from specialists to develop these estimates and assumptions utilizing the latest information available together with experience of recent costs. While we believe our assumptions for environmentalthe liabilities are reasonable, they are subjective judgementsestimates and it is possible that variations in any of the assumptions will result in materially different calculations to the liabilities we have reported. Costs of future obligations are discounted to their present values using the Company’s credit-adjusted risk-free rate.
Pension plans and other post-employment benefits:
The Company recognizes the funded status of defined benefit post-retirement plans on the consolidated balance sheets and changes in the funded status in comprehensive income. The measurement date of the plan’s funded status is the same as the Company’s fiscal
year-end.
The service costs are recognized as employees render the services necessary to earn the post-employment benefits. Prior service costs and credits and actuarial gains and losses are amortized over the average remaining life expectancy of the inactive participants using the corridor method. The insurance contracts are adjusted each reporting period to reflect the estimated fair value of the premium that would be paid for such contracts at that time.
In May 2022, the Trustees of the United Kingdom defined benefit pension plan (“UK Plan”) entered into an agreement with Legal and General Assurance Society Limited to acquire an insurance policy that operates as an investment asset, with the intent of matching the remaining uninsured part of the UK Plan’s future cash outflow arising from the accrued pension liabilities of members. Such an arrangement is commonly termed as a
“buy-in”.
The benefit obligation was not transferred to the insurer, and the Company remains responsible for paying pension benefits. The initial value of the asset associated with this contract was equal to the premium paid to secure the contract and is adjusted each reporting period to reflect the estimated fair value of the premium that would be paid for such a contract at that time. The
buy-in
reduces the UK Plan’s value at risk in relation to key risks associated with improved longevity, inflation and interest rate movements while improving the security to the UK Plan and its members. The Company consequently benefits from the
buy-in
as it reduces the UK Plan’s potential reliance on the Company for future cash funding requirements.
6
4
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Movements in the underlying plan asset value and Projected Benefit Obligation (“PBO”) are dependent on actual return on investments as well as our assumptions in respect of the discount rate, annual member mortality rates, future return on assets and future inflation.
Income taxes:
The Company provides for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the
6
1
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
financial statement carrying amounts and the relevant tax bases of the assets and liabilities. Then theThe Company then evaluates the need for a valuation allowance to reduce deferred tax assets to the amount more likely than not to be realized. The effect on deferred taxes of a change in tax rates is recognized in the period that includes the enactment date. The Company recognizes the tax benefit from a tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes accrued interest and penalties associated with unrecognized tax benefits as part of income taxes in our consolidated statements of income.
Note 3.     Segment Reporting and Geographical Area Data
The Performance Chemicals, Fuel Specialties Performance Chemicals and Oilfield Services segments operate in markets where we actively seek growth opportunities although their ultimate customers are different. The Octane Additives segment revenues may concludeceased trading and is no longer a reporting segment from July 1, 2020.
Our Performance Chemicals segment provides effective technology-based solutions for our customers’ processes or products focused in the early part of 2020 as our one remaining refinery customer transitions to unleaded fuel.personal care, home care, agrochemical, mining and other industrial markets.
Our Fuel Specialties segment develops, manufactures, blends, markets and supplies a range of specialty chemicals products used as additives to a wide range of fuels.
Our Performance Chemicals segment provides effective technology-based solutions for our customers’ processes or products focused in the Personal Care, Home Care, Agrochemical and Metal Extraction markets.
Our Oilfield Services segment develops and markets products to prevent loss of mud in drilling operations, chemical solutions for fracturing, drilling, stimulation and stimulationcompletion operations, and products for oil and gas production and transport which aid flow assurance and maintain asset integrity.
OurThe Octane Additives business has ceased trading and is no longer a reporting segment which we believe isfrom July 1, 2020 as the world’s only producer of tetra ethyl lead (“TEL”), comprises salesproduction of TEL for use in automotivemotor gasoline and provides serviceshas finished. Legacy costs related to these operations are now being recorded as operating expenses within corporate costs.
In 2022, the Company had a significant customer in respect of environmental remediation.
There are no significant customers with sales greater than 10%the Oilfield Services segment which accounted for $222.2 million (11.3%) of our net group sales in the last three financial years.sales.
 
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company evaluates the performance of its segments based on operating income. The following table analyzes sales and other financial information by the Company’s reportable segments:
             
(in millions)
  
2019
 
   
2018
 
   
2017
 
 
Net Sales:
         
Refinery and Performance
 $
427.9
  $
432.1
  $
397.0
 
Other
  
155.8
   
142.4
   
126.8
 
             
Fuel Specialties
  
583.7
   
574.5
   
523.8
 
             
Personal Care
  
228.0
   
241.4
   
206.5
 
Home Care
  
93.4
   
109.1
   
103.4
 
Other
  
107.3
   
117.6
   
109.6
 
             
Performance Chemicals
  
428.7
   
468.1
   
419.5
 
             
Oilfield Services
  
479.9
   
400.6
   
304.4
 
Octane Additives
  
21.0
   
33.7
   
59.1
 
             
 $
1,513.3
  $
1,476.9
  $
1,306.8
 
             
             
(
in millions
)
 
2019
  
2018
  
2017
 
Gross profit:
         
Fuel Specialties
 $
204.5
  $
195.0
  $
188.2
 
Performance Chemicals
  
100.1
   
97.5
   
75.8
 
Oilfield Services
  
159.9
   
130.4
   
109.3
 
Octane Additives
  
1.7
   
12.1
   
30.0
 
             
 $
466.2
  $
435.0
  $
403.3
 
             
Operating income/(expense):
         
Fuel Specialties
 $
116.6
  $
116.3
  $
107.7
 
Performance Chemicals
  
48.7
   
44.7
   
32.6
 
Oilfield Services
  
39.7
   
22.1
   
9.5
 
Octane Additives
  
(0.7
)  
9.9
   
26.7
 
Corporate costs
  
(54.4
)  
(52.4
)  
(48.8
)
Restructuring charge
  
0.0
   
(7.1
)  
0.0
 
Loss on disposal of subsidiary
  
0.0
   
0.0
   
(0.9
)
Foreign exchange loss on liquidation of subsidiary
  
0.0
   
0.0
   
(1.8
)
             
Total operating income
 $
149.9
  $
133.5
  $
125.0
 
             
Identifiable assets at year end:
         
Fuel Specialties
 $
499.7
  $
470.5
  $
437.0
 
Performance Chemicals
  
383.3
   
463.9
   
480.8
 
Oilfield Services
  
316.8
   
296.1
   
256.6
 
Octane Additives
  
24.2
   
39.6
   
41.7
 
Corporate
  
244.8
   
203.3
   
194.1
 
             
 $
1,468.8
  $
1,473.4
  $
1,410.2
 
             
Identifiable assets relating to the TEL operations are included within our Octane Additives segment in the table above, as they cannot be separately reported for the periods shown. Our TEL operations produce TEL for automotive gasoline, which is reported in our Octane Additives segment, and produce TEL for our AvTel product line, which is reported in our Fuel Specialties segment.
6
3
 
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions)
  
2022
   
2021
   
2020
 
Net Sales:
               
Personal Care
  $393.3   $296.1   $231.4 
Home Care
   94.2    93.0    87.0 
Other
   152.2    136.2    107.0 
                
Performance Chemicals   639.7    525.3    425.4 
                
Refinery and Performance
   552.6    445.3    372.9 
Other
   177.6    173.0    139.8 
                
Fuel Specialties   730.2    618.3    512.7 
                
Oilfield Services   593.8    339.8    255.0 
                
   $1,963.7   $1,483.4   $1,193.1 
                
Operating income/(expense):
             
Performance Chemicals  $95.3  $70.9  $54.8 
Fuel Specialties   121.7   104.6   84.5 
Oilfield Services   41.7   10.4   (9.5) 
Octane Additives   —     —     (2.8) 
Corporate costs   (71.4)   (55.6)   (52.2) 
Restructuring charge   —     —     (21.3) 
Impairment of intangible assets   —     —     (19.8) 
Profit on disposal   —     1.8   —   
              
Total operating income  $187.3  $132.1  $33.7 
              
Identifiable assets at
year-end:
             
Performance Chemicals  $610.4  $469.5  $391.5 
Fuel Specialties   500.6   571.3   509.7 
Oilfield Services   297.8   230.8   210.8 
Corporate   194.9   299.3   285.4 
              
   $1,603.7  $1,570.9  $1,397.4 
              
The Company includes within the corporate costs line item the costs of:
managing the Groupgroup as a company with securities listed on the NASDAQ and registered with the SEC;
the President/CEO’s office, group finance, group human resources, group legal and compliance counsel, and investor relations;
running the corporate offices in the U.S. and Europe;
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
the corporate development function since they do not relate to the current trading activities of our other reporting segments; and
the corporate share of the information technology, productionproduct technology, safety, health, environment, accounting and human resources departments.
The following tables analyze sales and other financial information by location:
(
in millions
)
 
2019
  
2018
  
2017
 
Net sales by source:
         
United States & North America
 $
897.2
  $
803.1
  $
615.7
 
United Kingdom
  
810.9
   
797.5
   
730.9
 
Rest of Europe
  
115.7
   
143.7
   
143.4
 
Rest of World
  
47.8
   
29.5
   
39.2
 
Sales between areas
  
(358.3
)  
(296.9
)  
(222.4
)
             
 $
1,513.3
  $
1,476.9
  $
1,306.8
 
             
Income before income taxes:
         
United States & North America
 $
53.9
  $
37.1
  $
11.5
 
United Kingdom
  
67.0
   
59.5
   
51.9
 
Rest of Europe
  
27.2
   
32.8
   
63.1
 
Rest of World
  
2.3
   
2.2
   
1.6
 
             
 $
150.4
  $
131.6
  $
128.1
 
             
Long-lived assets at year end:
         
United States & North America
 $
156.0
  $
148.6
  $
149.7
 
United Kingdom
  
70.4
   
71.6
   
45.7
 
Rest of Europe
  
116.6
   
112.2
   
163.5
 
Rest of World
  
0.3
   
0.3
   
0.3
 
             
 $
343.3
  $
332.7
  $
359.2
 
             
Identifiable assets at year end:
         
United States & North America
 $
419.5
  $
402.5
  $
452.2
 
United Kingdom
  
487.2
   
504.7
   
258.4
 
Rest of Europe
  
163.2
   
173.1
   
317.5
 
Rest of World
  
35.9
   
28.2
   
20.3
 
Goodwill
  
363.0
   
364.9
   
361.8
 
             
 $
1,468.8
  $
1,473.4
  $
1,410.2
 
             
 
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions)
  
2022
  
2021
  
2020
 
Net sales by source:
    
United States & North America  $1,244.9  $821.6  $642.4 
United Kingdom   932.5   811.9   689.1 
Rest of Europe   116.9   115.6   83.4 
Rest of World   67.7   66.4   45.6 
Sales between areas   (398.3)   (332.1)   (267.4) 
             
  $1,963.7  $1,483.4  $1,193.1 
             
Income before income taxes:
    
United States & North America  $109.1  $54.6  $—   
United Kingdom   42.9   46.1   16.9 
Rest of Europe   25.5   26.4   19.7 
Rest of World   7.1   7.3   3.1 
             
  $184.6  $134.4  $39.7 
             
Long-lived assets at
year-end:
    
United States & North America  $147.0  $137.3  $141.0 
United Kingdom   50.6   55.4   61.3 
Rest of Europe   112.4   112.0   123.2 
Rest of World   0.2   0.2   0.2 
             
  $310.2  $304.9  $325.7 
       ��     
Identifiable assets at
year-end:
    
United States & North America  $570.9  $464.9  $368.8 
United Kingdom   462.3   533.7   455.8 
Rest of Europe   164.0   164.7   171.0 
Rest of World   47.7   43.3   30.6 
Goodwill   358.8   364.3   371.2 
             
  $1,603.7  $1,570.9  $1,397.4 
             
Sales by geographical area are reported by source, being where the transactions originated. Intercompany sales are priced using an appropriate pricing methodology and are eliminated in the consolidated financial statements.
Identifiable assets are those directly associated with the operations of the geographical area.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Goodwill has not been allocated by geographical location on the grounds that it would be impracticable to do so.
Note 4.     Earnings per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the effect of options that are dilutive and outstanding during the period. Per share amounts are computed as follows:
             
 
2019
  
2018
  
2017
 
Numerator (in millions):
 
 
  
 
  
 
 
Net income available to common stockholders
 $
112.2
   $
85.0
   $
61.8
 
             
Denominator (in thousands):
 
 
  
 
  
 
 
             
Weighted average common shares outstanding
  
24,482
   
24,401
   
24,148
 
Dilutive effect of stock options and awards
  
246
   
202
   
338
 
             
Denominator for diluted earnings per share
  
24,728
   
24,603
   
24,486
 
             
Net income per share, basic:
 $
4.58
  $
3.48
  $
2.56
 
             
Net income per share, diluted:
 $
4.54
  $
3.45
  $
2.52
 
             
 
   
2022
   
2021
   
2020
 
Numerator (in millions):
               
Net income available to common stockholders  $133.0   $93.1   $28.7 
                
Denominator (in thousands):
               
Weighted average common shares outstanding   24,787    24,647    24,563 
Dilutive effect of stock options and awards   195    207    216 
                
Denominator for diluted earnings per share   24,982    24,854    24,779 
                
Net income per share, basic:
  $5.37   $3.78   $1.17 
                
Net income per share, diluted:
  $5.32   $3.75   $1.16 
                
In 2019, 20182022, 2021 and 20172020 the average number of anti-dilutive options excluded from the calculation of diluted earnings per share were 6,270, 079,145, 18,378 and 9,42217,980 respectively.
Note 5.     Restructuring
During 2020, the Company recorded a charge of $21.3 million for the restructuring of its Octane Additives segment in line with the end of the manufacturing and sale of TEL for use in motor gasoline. As a result, the Octane Additives segment ceased trading and is no longer a reporting segment from July 1, 2020. Production of TEL will continue for sales of our AvGas product line, as reported within our Fuel Specialties segment.
The restructuring charge comprised the future committed costs of environmental monitoring of $2.0 million, remediation of facilities of $7.5 million, contract termination costs of $7.2 million, impairment of tangible assets of $2.0 million and costs of redundancy due to the
down-sizing
of the TEL operations of $2.6 million. During the years ended December 31, 2022 and December 31, 2021 the utilization and the unwinding of the discounting was not material.
6
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 5.6.     Property, Plant and Equipment
Property, plant and equipment consists of the following:
         
(
in millions
)
 
2019
  
2018
 
Land
 $
19.8
  $
18.6
 
Buildings
  
60.0
   
57.0
 
Equipment
  
330.7
   
311.7
 
Work in progress
  
19.0
   
16.0
 
         
  
429.5
   
403.3
 
Less accumulated depreciation
  
(230.8
)  
(206.9
)
         
 $
198.7
  $
196.4
 
         
 

(in millions)
  
2022
  
2021
 
Land  $20.6  $20.7 
Buildings   68.7   69.5 
Equipment   377.5   371.5 
Work in progress   45.7   23.7 
          
Total gross cost   512.5   485.4 
Less accumulated depreciation and impairment   (291.6)   (271.0) 
          
Total net book value  $220.9  $214.4 
          
Of the total net book value of equipment at December 31, 2019 $1.82022, $0.0 million (2018 – $3.6 million) are in respect of assets held under finance leases.leases (2021 – $0.5 million).
Depreciation charges were $23.6$25.7 million, $22.6$26.3 million and $21.4$24.7 million in 2019, 20182022, 2021 and 2017,2020, respectively.
6
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 6.7.     Leases
We have operating and finance leases for toll manufacturing facilities, warehouse storage, land, buildings, plant and equipment. Our leases have remaining lease terms of up to 1123 years, some of which include options to terminate the leases within 1 year.
The components of lease expense were as follows:
  
(in millions)
 
Twelve Months
Ended December 31
   
Twelve Months
Ended December 31
   
Twelve Months
Ended December 31
 
 
2019
 
  
2022
   
2021
 
Finance lease cost:
         
Amortization of
right-of-use
assets
 $
1.7
   $—     $0.5 
Interest on lease liabilities
  
0.0
    —      —   
            
Total finance lease cost
  
1.7
    —      0.5 
Operating lease cost
  
12.1
    15.6    13.8 
Short-term lease cost
  
2.5
    7.2    3.8 
Variable lease cost
  
0.3
    0.3    0.3 
            
Total lease cost
 $
16.6
   $23.1   $18.4 
            
 
6
9
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
Supplemental cash flow information related to leases is as follows:
     
(in millions)
 
Twelve Months
Ended December 31
 
 
2019
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
 $
14.3
 
Operating cash flows from finance leases
  
2.1
 
Finance cash flows from finance leases
  
0.0
 
Right-of-use
assets obtained in exchange for new lease obligations:
 
 
 
Operating leases
 $
4.3
 
Finance leases
  
0.0
 
 
6
6
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions)
  
Twelve Months
Ended December 31
   
Twelve Months
Ended December 31
 
   
2022
   
2021
 
Cash paid for amounts included in the measurement of lease liabilities:
          
Operating cash flows from operating leases  $23.1   $18.1 
Operating cash flows from finance leases   0.1    0.5 
Finance cash flows from finance leases   —      —   
   
Right-of-use
assets obtained in exchange for new lease obligations:
          
Operating leases  $14.9   $5.2 
Finance leases   —      —   
Supplemental balance sheet information related to leases is as follows:
     
(in millions except lease term and discount rate)
 
December 31
 
 
 
2019
 
Operating leases:
   
Operating lease
right-of-use
assets
 $
32.4
 
     
Current portion of operating lease liabilities
 $
10.6
 
Operating lease liabilities, net of current portion
  
21.9
 
     
Total operating lease liabilities
 $
32.5
 
     
Finance leases:
   
Property, plant and equipment at cost
 $
9.9
 
Accumulated depreciation
  
(8.1
) 
     
Net property, plant and equipment, net
 $
1.8
 
     
Current portion of finance leases
 $
1.0
 
Finance leases, net of current portion
  
0.5
 
     
Total finance lease liabilities
 $
1.5
 
     
Weighted average remaining lease term:
   
Operating leases
  
3.3
 years
 
Finance leases
  
1.7
 years
 
Weighted average discount rate:
   
Operating leases
  
3.1
%
Finance leases
  
2.4
%
 
(in millions except lease term and discount rate)
  
December 31
2022
   
December 31
2021
 
Operating leases:
          
Operating lease
right-of-use
assets
  $45.3   $35.4 
           
Current portion of operating lease liabilities  $13.9   $12.4 
Operating lease liabilities, net of current portion   31.4    23.1 
           
Total operating lease liabilities  $45.3   $35.5 
           
   
Finance leases:
          
Property, plant and equipment at cost  $—     $5.0 
Accumulated depreciation   —      (4.5) 
           
Net property, plant and equipment  $—     $0.5 
           
Current portion of finance leases
  $—     $0.1 
Finance leases, net of current portion   —      —   
           
Total finance lease liabilities  $—     $0.1 
           
 
Maturities of lease liabilities were as follows as at December 31, 2019:70
         
(
in millions
)
 
Operating
Leases
  
Finance
Leases
 
Within one year
 $
10.8
  $
1.1
 
Year two
  
9.1
   
0.4
 
Year three
  
5.8
   
0.1
 
Year four
  
4.4
   
0.0
 
Year five
  
2.1
   
0.0
 
Thereafter
  
2.5
   
0.0
 
         
Total lease payments
  
34.7
   
1.6
 
Less imputed interest
  
(2.2
)  
(0.1
)
         
Total
 $
32.5
  $
1.5
 
         
As of December 31, 2019, additional operating and finance leases that have not yet commenced are $0.0 million.
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7

Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions except lease term and discount rate)
  
December 31
2022
  
December 31
2021
 
   
Weighted average remaining lease term:
         
Operating leases   5.5 years   4.9 years 
Finance leases   —     0.5 years 
Weighted average discount rate:
         
Operating leases   2.6%   2.5% 
Finance leases   —     2.5% 
Maturities of lease liabilities were as follows as at December 31, 2022:
(in millions)
  
Operating
Leases
 
Within one year  $14.3 
Year two   8.9 
Year three   6.4 
Year four   5.2 
Year five   1.5 
Thereafter   13.5 
      
Total lease payments   49.8 
Less imputed interest   (4.5) 
      
Total  $45.3 
      
As of December 31, 2022, additional operating and finance leases that have not yet commenced are $2.7 million.
Future lease payment for all non
-non-cancellable
cancel
l
able operating and finance leases as of December 31, 2018
2021 were
as follows, as accounted for under the previous lease standard, ASC 840. As such the amounts are not directly comparable to those included above.
         
(
in millions
)
 
Operating
Leases
  
Finance
Leases
 
Within one year
 $
6.5
  $
1.8
 
Year two
  
4.5
   
1.0
 
Year three
  
3.2
   
0.4
 
Year four
  
2.3
   
0.1
 
Year five
  
2.1
   
0.0
 
Thereafter
  
4.4
   
0.0
 
         
Total lease payments
 $
23.0
  $
3.3
 
         
follows:
 
(in millions)
  
Operating
Leases
  
Finance
Leases
 
Within one year  $12.5  $0.1 
Year two   9.0   —   
Year three   6.0   —   
Year four   3.9   —   
Year five   3.1   —   
Thereafter   3.2   —   
          
Total lease payments   37.7   0.1 
Less imputed interest   (2.2)   —   
          
Total  $35.5  $0.1 
          
As of December 31, 2021, additional operating and finance leases that have not yet commenced are $8.8 million.
 
Note 7.    Goodwill71

Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 8.     Goodwill
The following table analyzes goodwill movement for 20192022 and 2018.
                     
(
in millions
)
 
Fuel
Specialties
  
Performance
Chemicals
  
Oilfield
Services
  
Octane
Additives
  
Total
 
At December 31, 2017
               
Gross cost
(1)
 $
207.9
  $
116.6
  $
37.3
  $
236.5
  $
598.3
 
Accumulated impairment losses
  
0.0
   
0.0
   
0.0
   
(236.5
)  
(236.5
)
                     
Net book amount
 $
207.9
  $
116.6
  $
37.3
  $
0.0
  $
361.8
 
                     
Exchange effect
  
0.0
   
(4.4
)  
0.0
   
0.0
   
(4.4
)
Acquisition
  
0.0
   
0.0
   
7.5
   
0.0
   
7.5
 
At December 31, 2018
               
Gross cost
(1)
 $
207.9
  $
112.2
  $
44.8
  $
236.5
  $
601.4
 
Accumulated impairment losses
  
0.0
   
0.0
   
0.0
   
(236.5
)  
(236.5
)
                     
Net book amount
 $
207.9
  $
112.2
  $
44.8
  $
0.0
  $
364.9
 
                     
Exchange effect
  
(0.2
)  
(1.7
)  
0.0
   
0.0
   
(1.9
)
At December 31, 2019
               
Gross cost
(1)
 $
207.7
  $ 
110.5
  $
44.8
  $
236.5
  $
599.5
 
Accumulated impairment losses
  
0.0
   
0.0
   
0.0
   
(236.5
)  
(236.5
)
                     
Net book amount
 $
207.7
  $
110.5
  $
44.8
  $
0.0
  $
363.0
 
                     
2021.
 
(1)
Gross cost is net of $8.7
 million, $0.3
 million and $289.5
 million of historical accumulated amortization in respect of the Fuel Specialties, Performance Chemicals and Octane Additives reporting segments, respectively
.
(in millions)
  
Performance
Chemicals
  
Fuel
Specialties
  
Oilfield
Services
   
Total
 
At December 31, 2020                  
Gross cost  $118.5  $207.9  $44.8   $371.2 
Accumulated impairment losses   —     —     —      —   
                   
Net book amount  $118.5  $207.9  $44.8   $371.2 
                   
Exchange effect   (6.6)   (0.3)   —      (6.9) 
At December 31, 2021                  
Gross cost  $111.9  $207.6  $44.8   $364.3 
Accumulated impairment losses   —     —     —      —   
                   
Net book amount  $111.9  $207.6  $44.8   $364.3 
                   
Exchange effect   (5.4)   (0.1)   —      (5.5) 
At December 31, 2022                  
Gross cost  $106.5  $207.5  $44.8   $358.8 
Accumulated impairment losses   —     —     —      —   
                   
Net book amount  $106.5  $207.5  $44.8   $358.8 
                   
The Company’s reporting units, the level at which goodwill is tested for impairment, are consistent with the reportable segments: Performance Chemicals, Fuel Specialties Performance Chemicals,and Oilfield
Services.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Services and Octane Additives. The components in each segment (including products, markets and competitors) have similar economic characteristics and the segments, therefore, reflect the lowest level at which operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.
The Company assesses goodwill for impairment on at least an annual basis, initially based on a qualitative assessment to determine whether it is more likely than not that the fair value of a segment is less than the carrying amount. If a potential impairment is identified then an impairment test is performed.
The Company performed its annual impairment assessment in respect of goodwill as at December 31, 2019, 20182022, 2021 and 2017.2020. Our impairment assessment concluded that there had been
0
no impairment of goodwill in respect of those reporting units.
We believe that where appropriate the assumptions used in our impairment assessments are reasonable, but that they are judgmental, and variations in any of the assumptions may result in materially different calculations of any potential impairment charges.
 
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 8.9.     Other Intangible Assets
OtherThe following table analyzes other intangible assets comprise the following:
         
(
in millions
)
 
2019
 
 
2018
 
Gross cost:
      
– Product rights
 $
34.0
  $
34.0
 
– Brand names
  
8.9
   
8.9
 
– Technology
  
55.1
   
55.1
 
– Customer and distributor relationships
  
124.7
   
125.6
 
– Patents
  
2.9
   
2.9
 
–
Non-compete
agreements
  
4.1
   
4.1
 
– Marketing related
  
22.1
   
22.1
 
– Internally developed software
  
43.0
   
41.9
 
         
  
294.8
   
294.6
 
         
Accumulated amortization:
      
– Product rights
  
(23.9
)  
(20.1
)
– Brand names
  
(6.0
)  
(5.4
)
– Technology
  
(22.5
)  
(19.1
)
– Customer and distributor relationships
  
(63.9
)  
(53.5
)
– Patents
  
(2.9
)  
(2.9
)
–
Non-compete
agreements
  
(4.1
)  
(4.1
)
– Marketing related
  
(22.1
)  
(22.1
)
– Internally developed software
  
(35.9
)  
(31.1
)
         
  
(181.3
)  
(158.3
)
         
 $
113.5
  $
136.3
 
         
movement for 2022 and 2021.
 
(in millions)
  
2022
   
2021
 
Gross cost at January 1  $295.2   $298.9 
Additions   2.7    0.0 
Written down in the year   (4.1)    0.0 
Exchange effect   (2.7)    (3.7) 
           
Gross cost at December 31   291.1    295.2 
           
Accumulated amortization at January 1   (237.7)    (223.6) 
Amortization expense   (14.0)    (16.0) 
Written down in the year   4.1    0.0 
Exchange effect   1.5    1.9 
           
Accumulated amortization at December 31   (246.1)    (237.7) 
           
Net book amount at December 31  $45.0   $57.5 
           
Amortization expense
The aggregate of other intangible asset amortization expense was $23.0$14.0 million, (excluding$16.0 million and $20.9 million in 2022, 2021 and 2020, respectively. Excluding the impact of foreign exchange translation on the balance sheet), $26.3sheet, $2.3 million, $2.3 million and $28.3$2.9 million in 2019, 2018 and 2017, respectively, of which $3.4 million, $3.4 million and $4.3 million,amortization, respectively, was recognized in cost of goods sold, and the remainder was recognized in selling, general and administrative expenses.
In
20
2
2,
we capitalized $2.7 
million in relation to our internally developed software for a new Enterprise Resource Planning (“ERP”) system covering our EMEA and ASPAC regions. The expenses capitalized include the acquisition costs for the software as well as the external and internal costs of the development. We are expecting to complete the project in the first half of 2024 with the additional completion costs currently planned to be approximately
$25.0 million. A timescale and plan for the further implementation of the new ERP system into our other regions has not been determined at this time.
Other intangible assets at December 31, 2022 were:
(in millions)
  
Gross
carrying
amount
   
Accumulated
amortization
 
Product rights  $34.0   $(34.0) 
Brand names   8.9    (7.8) 
Technology   55.1    (40.0) 
Customer relationships   122.9    (96.9) 
Internally developed software   45.2    (42.4) 
Other   25.0    (25.0) 
           
   $291.1   $(246.1) 
           
7
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other intangible assets at December 31, 2021 were:
(in millions)
  
Gross
carrying
amount
   
Accumulated
amortization
 
Product rights  $34.0   $(31.5) 
Brand names   8.9    (7.2) 
Technology   55.1    (37.7) 
Customer relationships   125.3    (90.7) 
Internally developed software   43.1    (41.8) 
Other   28.8    (28.8) 
           
   $295.2   $(237.7) 
           
Future amortization expense is estimated to be as follows for the next five years:
     
(in millions)
 
 
 
2020
 $
22.7
 
2021
 $
19.5
 
2022
 $
17.9
 
2023
 $
14.5
 
2024
 $
12.5
 
 
(in millions)
    
2023  $10.6 
2024  $9.9 
2025  $6.9 
2026  $6.8 
2027  $3.3 
7
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 9.10.     Pension and Post-Employment Benefits
United Kingdom plan
The Company maintains a defined benefit pension plan (the “Plan”) covering a number of itscertain current and former employees in the United Kingdom although it does also have other much smaller pension arrangements in the U.S. and overseas.(the “UK Plan”). The UK Plan is closed to future service accrual butand has a large number of deferred and current pensioners. The Projected Benefit Obligation (“PBO”) is based on final salary and years of credited service reduced by social security benefits according to a plan formula. Normal retirement age is 65 but provisions are made for early retirement. The Plan’s assets are invested by several investment management companies in funds holding United Kingdom and overseas equities, United Kingdom and overseas fixed interest securities, index linked securities, property unit trusts and cash or cash equivalents. The trustees’ investment policy is to seek to achieve specified objectives through investing in a suitable mixture of real and monetary assets. The trustees recognize that the returns on real assets, while expected to be greater over the long-term than those on monetary assets, are likely to be more volatile. A mixture across asset classes should nevertheless provide the level of returns required by the Plan to meet its liabilities at an acceptable level of risk for the trustees and an acceptable level of cost to the Company.
In 2019,May 2022, the Company contributed $0.4 million (2018 – $1.0 million) in cash toTrustees of the UK Plan in accordance withentered into an agreement with Legal and General Assurance Society Limited to acquire an insurance policy that operates as an investment asset, with the trustees.intent of matching the remaining uninsured part of the UK Plan’s future cash outflow arising from the accrued pension liabilities of members. Such an arrangement is commonly termed as a
“buy-in”.
The benefit obligation was not transferred to the insurer, and the Company remains responsible for paying pension benefits. The initial value of the asset associated with this contract was equal to the premium paid to secure the contract and is adjusted each reporting period to reflect the estimated fair value of the premium that would be paid for such a contract at that time. The
buy-in
reduces the UK Plan’s value at risk in relation to key risks associated with improved longevity, inflation and interest rate movements while
7
71
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
improving the security to the UK Plan and its members. The Company consequently benefits from the
buy-in
as it reduces the UK Plan’s potential reliance on the Company for future cash funding requirements.
In 2022, the Company contributed $0.0 million (2021 – $0.0 million) in cash to the UK Plan in accordance w
ith a
n agreement with the trustees. For the year ending December 31, 2023,
there
are no plans to make cash contributions to the UK Plan.
The net service cost forshown in the twelve months ended December 31, 2019 was $0.9 million (twelve months ended December 31, 2018 – $1.2 million and twelve months ended December 31, 2017 – $0.9 million) andtable below has been recognized in selling, general sel
ling, gen
eral
and administrativeadmi
nistrative expenses within
corporate costs. The following table shows
costs and the income statement effectother items recognized within other income, net:
             
(
in millions
)
 
2019
  
2018
  
2017
 
Plan net pension (credit)/charge:
         
Interest cost on PBO
 $
15.2
  $
15.0
  $
15.2
 
Expected return on plan assets
  
(22.0
)  
(22.2
)  
(24.5
)
Amortization of prior service credit
  
(0.9
)  
(1.1
)  
(1.0
)
Amortization of actuarial net losses
  
0.0
   
2.0
   
5.0
 
             
 $
(7.7
) $
(6.3
) $
(5.3
)
             
Plan assumptions at December 31, (%):
         
Discount rate
  
1.95
   
2.78
   
2.56
 
Inflation rate
  
2.25
   
2.25
   
2.20
 
Rate of return on plan assets – overall on
bid-value
  
2.50
   
3.05
   
2.75
 
 
         
Plan asset allocation by category (%):
         
Debt
securities
 and insura
nce contracts
  
86
   
83
   
53
 
Equity
securities
 
and real estate
  
10
   
12
   
38
 
Cash
  
4
   
5
   
9
 
             
  
100
   
100
   
100
 
             
net.
 

(in millions)
  
2022
  
2021
  
2020
 
Service cost  $2.2  $1.6  $1.2 
Interest cost on PBO
   10.1   7.6   11.2 
Expected return on plan assets
   (16.0)   (15.5)   (17.8) 
Amortization of prior service cost/(credit)   0.5   0.3   (0.5) 
Amortization of actuarial net losses   —     1.6   0.9 
Settlement event   —     (0.3)   —   
              
Net periodic benefit  $(3.2)  $(4.7)  $(5.0) 
              
    
Plan assumptions at December 31, (%):
   
20
22
   
2021
   
2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate   4.91   1.84   1.36 
Inflation rate   2.85   3.55   2.35 
Rate of return on plan assets – overall on
bid-value
   4.00   2.30   2.00 
    
Plan asset allocation by category (%):
   
2022
   
2021
   
2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities and insurance contracts   96   82   86 
Equity securities and real estate   —     5   10 
Cash   4   13   4 
              
    100   100   100 
              
Following the
buy-in,
the UK Plan does not need to follow an investment strategy. The discount rate used represents the annualized yield based on a cash flow matched methodology with reference to an AA corporate bond spot curve and having regard to the duration of the UK Plan’s liabilities.
The inflation rate is derived using a similar cash flow matched methodology as used for the discount rate but having regard to the difference between yields on fixed interest and index linked United Kingdom government
gilts.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A 0.25%
0.25
% change in the discount rate assumption would change the PBO at December 31, 2022 by approximately $24$
10.3
 million and the net pension credit for 2019
2023 would change by approximately $0.1$
0.1
 million.
A 0.25%
0.25
% change in the level of price inflation assumption would change the PBO at December 31, 2022 by approximately $18$
6.5
 million and the net pension credit for 2019
2022 by approximately $1.1$
0.6
 million.
Movements in PBO and fair value of UK Plan assets are as follows:
(in millions)
  
2022
  
2021
 
Change in PBO:         
Opening balance  $679.1  $758.7 
Interest cost   10.1   7.6 
Service cost   2.2   1.6 
Benefits paid   (45.6)   (37.3) 
Settlements   —     (10.6) 
Plan amendments   0.4   5.4 
Actuarial losses/(gains)   (174.2)   (40.5) 
Exchange effect   (68.0)   (5.8) 
          
Closing balance  $404.0  $679.1 
          
Fair value of plan assets:         
Opening balance  $838.9  $876.7 
Benefits paid   (45.6)   (37.3) 
Settlements   —     (10.6) 
Actual return on assets   (258.7)   17.5 
Exchange effect   (82.5)   (7.4) 
          
Closing balance  $452.1  $838.9 
          
Net pension asset  $48.1  $159.8 
          
Due to the UK Plan being closed to future accrual the PBO is equal to the Accumulated Benefit Obligation.
The
UK Plan holds approximately
1
% (December 31, 2021 –
10
%) of the
UK
Plan’s assets in debt securities issued by
non-U
.
S
.
governments and government agencies. No more than
5
% of the
UK
Plan’s assets were invested in any one individual company’s investment funds.
 million.Settlement
The 2021 settlement threshold for the total of interest cost and service cost was triggered in October 2021 by the level of transfers paid out of the UK Plan during the year. As a result, a settlement value of $10.6 million has been included for the PBO movements in
2021.
 
7
72
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Movements in PBO and fair value of Plan assets are as follows:
(
in millions
)
 
2019
  
2018
 
Change in PBO:
      
Opening balance
 $
643.2
  $
721.4
 
Interest cost
  
15.2
   
15.0
 
Service cost
  
0.9
   
1.2
 
Benefits paid
  
(42.1
)  
(43.7
)
Actuarial
losses/(
gains
)
  
57.7
   
(14.6
)
Plan amendments
  
0.0
   
3.3
 
Exchange effect
  
26.1
   
(39.4
)
         
Closing balance
 $
701.0
  $
643.2
 
         
Fair value of plan assets:
      
Opening balance
 $
739.1
  $
837.4
 
B
enefits paid
  
(42.1
)  
(43.7
)
Actual contributions by employer
  
0.4
   
1.1
 
Actual return on assets
  
89.1
   
(10.3
)
Exchange effect
  
30.4
   
(45.4
)
         
Closing balance
 $
816.9
  $
739.1
 
         
The current investment strategy of the Plan is to obtain an asset allocation of approximately 85% debt securities and
 insurance contracts and
 15% equity securities
a
nd real estate
in order to achieve a more predictable return on assets.
Due to the change in the Plan’s investment strategy in 2018 the Plan’s assets no longer include index-tracking funds (December 31, 2018 – NaN). The Plan holds approximately 12% (December 31, 2018 – 9%) of the Plan’s assets in debt securities issued by
non-US
governments and government agencies. No more than 5% of the Plan’s assets were invested in any one individual company’s investment funds.
For the vast majority of assets, a market approach is adopted to assess the fair value of the assets, with the inputs being the quoted market prices for the actual securities held in the relevant fund.
Debt
securities
FixedIn the prior year, fixed income securities are valued based on quotations received from independent pricing services or from dealers who make markets in such securities and are classified as Level 1.
Corporate debt securities are classified as Level 2 in line with the industry standard.
Equity backed securities
CommonIn the prior year, common and preferred stock for which market prices are readily available at the measurement date are valued at the last reported sale price or official closing price on the primary market or exchange on which they are actively traded. Other financial derivatives are classified as levelLevel 2 and certain investments that are measured at fair value using the net asset value per share (or its equivalent) have not been categorized with a
hierarchy
. hierarchy.
7
3
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other asset backed securities
The Company has invested in insurance contracts, known as
buy-in
contracts. The value of the insurance contract iscontracts are based on significant unobservable inputs including plan participant medical data, in addition to observable inputs which include expected return on assets and estimated value premium. Therefore, we have classified the contracts as Level 3 investments. Fair value estimates are provided by external parties and are subsequently reviewed and approved by management.
The Company also invests in real estate as a low risk asset backed security, classified as Level 1.
The fair values of pension assets by level of input were as follows:

(in millions)
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
 
Significant
Other
Observable
Inputs
(Level 2)
 
 
Significant
Unobservable
Inputs
(Level 3)
 
 
Total
 
  
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
   
Significant
Other
Observable
Inputs

(Level 2)
   
Significant
Unobservable
Inputs

(Level 3)
   
Total
 
At December 31, 2019
            
At December 31, 2022            
Debt
securities:
                        
Debt securities issued by
non-U.S.
governments and government agencies
 $
98.4
  $  $  $
98.4
   $4.3   $    $    $4.3 
Corporate debt securities
     
445.9
      
445.9
             —   
Equity backed securities:
                        
Other financial derivatives
     
(3.7
)     
(3.7
)            —   
Investments measured at net asset value
(1)
           
46.8
 
Other asset backed securities:
                        
Insurance contracts
        
157.9
   
157.9
          431.8    431.8 
Real estate
  41.7          41.7             
                            
Total assets at fair value
  
140.1
   
442.2
   
157.9
   
787.0
    4.3    —      431.8    436.1 
Cash
  
29.9
         
29.9
    16.0          16.0 
                            
Total plan assets
 $
170.0
  $
442.2
  $
157.9
  $
816.9
   $20.3   $—     $431.8   $452.1 
                            
At December 31, 2018
            
Debt
securities:
            
Debt securities issued by
non-U.S.
governments and government agencies
 $
67.2
  $  $  $
67.2
 
Corporate debt securities
     
406.4
      
406.4
 
Equity backed securities:
            
Other financial derivatives
     
0.5
      
0.5
 
Investments measured at net asset value
(1)
           
53.0
 
Other asset backed securities:
            
Insurance contracts
        
142.5
   
142.5
 
Real estate
  31.4          31.4 
            
Total assets at fair value
  
98.6
   
406.9
   
142.5
   
701.0
 
Cash
  
38.1
         
38.1
 
            
Total plan assets
 $
136.7
  $
406.9
  $
142.5
  $
739.1
 
            
7
7
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions)
  
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
   
Significant
Other
Observable
Inputs

(Level 2)
  
Significant
Unobservable
Inputs

(Level 3)
   
Total
 
At December 31, 2021                   
Debt securities:
                   
Debt securities issued by
non-U.S.
governments and government agencies
  $80.3   $   $    $80.3 
Corporate debt securities        445.7        445.7 
Equity backed securities:
                   
Other financial derivatives        (1.5)        (1.5) 
Other asset backed securities:
                   
Insurance contracts            162.2    162.2 
Real estate   47.0             47.0 
                    
Total assets at fair value   127.3    444.2   162.2    733.7 
Cash   105.2             105.2 
                    
Total plan assets  $232.5   $444.2  $162.2   $838.9 
                    
(1)
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) have not been categorized in the fair value
tab
le table with a
hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.
The reconciliation of the fair value of the
UK
Plan assets measured using significant unobservable inputs was as follows:
(in millions)
  
Other

Assets
 
Balance at December 31, 2020  $167.4 
      
Realized/unrealized gains/(losses):     
Relating to assets still held at the reporting date   3.3 
Purchases, issuances and settlements   (7.0) 
Exchange effect   (1.5) 
      
Balance at December 31, 2021  $162.2 
      
Realized/unrealized gains/(losses):     
Relating to assets still held at the reporting date   (206.6) 
Purchases, issuances and settlements   502.8 
Exchange effect   (26.6) 
      
Balance at December 31, 2022  $431.8 
      
7
8
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The projected net periodic benefit for the year ending December 31, 2023 is as follows:
(in millions)
    
Service cost  $3.4 
Interest cost on PBO   19.1 
Expected return on plan assets   (24.5) 
Amortization of prior service credit   0.5 
Amortization of actuarial net losses   (1.6) 
      
Net periodic benefit  $(3.1) 
      
The following benefit payments are expected to be made:
(in millions)
    
2023  $33.5 
2024  $33.4 
2025  $33.3 
2026  $32.8 
2027  $32.6 
2028-2032  $157.2 
German plan
The Company also maintains an unfunded defined benefit pension plan covering certain current and former employees in Germany (the “German plan”), which is reported within our Fuel Specialties segment. The German plan is closed to new entrants and has no assets.
The service cost shown in the table below has been recognized in selling, general and administrative expenses within corporate costs and the other items recognized within other income, net.
(in millions)
  
2022
   
2021
   
2020
 
Service cost  $0.1   $0.1   $0.1 
Interest cost on PBO   0.1    0.1    0.1 
Amortization of actuarial net loss   0.5    1.0    0.8 
                
Net periodic cost  $0.7   $1.2   $1.0 
                
Plan assumptions at December 31, (%):
Discount rate   3.70    0.90    0.40 
Inflation rate   2.25    2.00    1.50 
Rate of increase in compensation levels   2.75    2.75    2.75 
7
9
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Movements in PBO of the German plan are as follows:
(in millions)
  
2022
  
2021
 
Change in PBO:         
Opening balance  $13.2  $15.2 
Service cost   0.1   0.1 
Interest cost   0.1   0.1 
Benefits paid   (0.3)   (0.4) 
Actuarial losses/(gains)   (4.0)   (0.7) 
Exchange effect   (0.9)   (1.1) 
          
Closing balance  $8.2  $13.2 
          
Other plans
As at December 31, 2022, we have post-employment obligations in our Performance Chemicals European businesses with a liability of $4.1 million (December 31, 2021 – $4.6 million). For the year ended December 31, 2022 we have recognized an actuarial gain of $0.3 million in other comprehensive loss in relation to the Performance Chemicals pension in France (December 31, 2021 – $0.1 million).
Company contributions to defined contribution schemes during 2022 were $11.0 million (2021 – $10.9 million), across all our reporting segments.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 11.    Income Taxes
A roll-forward of unrecognized tax benefits and associated accrued interest and penalties is as follows:

(in millions)
  
Unrecognised

Tax Benefits
  
Interest
and
Penalties
  
Total
 
Opening balance at January 1, 2020  $14.4  $2.0  $16.4 
Reductions for tax positions of prior periods   (1.2)   (0.2)   (1.4) 
Additions for tax positions of prior periods   0.4   0.6   1.0 
              
Closing balance at 31 December, 2020   13.6   2.4   16.0 
Current   —     —     —   
              
Non-current
  $13.6  $2.4  $16.0 
              
Opening balance at January 1, 2021  $13.6  $2.4  $16.0 
Reductions for tax positions of prior periods   (1.3)   0.0   (1.3) 
Additions for tax positions of prior periods   0.9   0.7   1.6 
              
Closing balance at 31 December, 2021   13.2   3.1   16.3 
Current   —     —     —   
              
Non-current
  $13.2  $3.1  $16.3 
              
Opening balance at January 1, 2022  $13.2  $3.1  $16.3 
Reductions for tax positions of prior periods   (3.1)   —     (3.1) 
Additions for tax positions of prior periods   0.1   0.1   0.2 
              
Closing balance at 31 December, 2022   10.2   3.2   13.4 
Current   —     —     —   
              
Non-current
  $10.2  $3.2  $13.4 
              
All of the $13.4 million of

unrecognized tax benefits would impact our effective tax rate if recognized.
In 2021 a
non-U.S.
subsidiary, Innospec Limited, entered into a review by the U.K. tax authorities under the U.K.’s Profit Diversion Compliance Facility (“PDCF”) in relation to the period 2017 to 2020 inclusive. The Company determined that additional tax and interest totaling $1.0 million may arise as a result of the ongoing review. During 2022 the Company recorded an additional $0.1 million of tax which was offset by a $0.1 million reduction for foreign exchange movements.
A
non-U.S.
subsidiary, Innospec Performance Chemicals Italia Srl, is subject to an ongoing tax audit in relation to the period 2011 to 2014 inclusive. The Company has determined that additional tax, interest and penalties totaling $3.2 million may arise as a consequence of the tax audit. This includes additional interest accrued of $0.1 million which was offset by
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The reconciliation of the fair value of the Plan assets measured using significant unobservable inputs was as follows:
     
(in millions)
 
Other
Assets
 
Balance at December 31, 2017
  
162.8
 
Realized/unrealized gains/(losses):
   
Relating to assets still held at the reporting date
  
(4.8
)
Purchases, issuances and settlements
  
(6.7
)
Exchange effect
  
(8.8
)
     
Balance at December 31, 2018
 $
142.5
 
     
Realized/unrealized gains/(losses):
   
Relating to assets still held at the reporting date
  
16.0
 
Purchases, issuances and settlements
  
(6.5
)
Exchange effect
  
5.9
 
     
Balance at December 31, 2019
 $
157.9
 
     
 
The projected net service cost for the year ending December 31, 2020 is $
1.2
0.2 million and will be recognized in selling, general and administrative expenses.
The following net pension credit will be recognized in other income and expense:
     
(
in millions
)
  
Interest cost on PBO
 $
11.5
 
Expected return on plan assets
  
(18.3
)
Amortization of prior service credit
  
(0.9
)
Amortization of actuarial net losses
 
  0.9 
     
 $
(6.8
)
     
In total, there will be a net pension credit of $
5.6
 million to the Innospec’s net income for the year ending December 31, 2020.
The following benefit payments are expected to be made:
     
(
in millions
)
  
2020
 $
42.4
 
2021
 $
36.2
 
2022
 $
35.5
 
2023
 $
34.6
 
2024
 $
34.8
 
2025-2029
 $
167.1
 
75
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
German plan
The Company also maintains an unfunded defined benefit pension plan covering a number of its current and former employees in Germany (the “German plan”). The German plan is closed to new entrants and has no assets.
The net service cost for the German plan for the twelve months ended December 31, 2019 was $
0.1
 million (twelve months ended December 31, 2018 – $
0.2
 million and twelve months ended December 31, 2017 – $
0.2
million). The following table shows the income statement effect recognized within other income and expense:
(in millions)
 
2019
  
2018
  
2017
 
Plan net pension charge:
         
Interest cost on PBO
 $
0.2
  $
0.2
  $
0.2
 
Amortization of actuarial net loss
  
0.3
   
0.4
   
0.4
 
             
 $
0.5
  $
0.6
  $
0.6
 
             
Plan assumptions at December 31, (%):
         
Discount rate
  
0.80
   
1.90
   
1.70
 
Inflation rate
  
1.75
   
1.75
   
1.75
 
Rate of increase in compensation levels
  
2.75
   
2.75
   
2.75
 
Movements in PBO of the German plan are as follows:
(in millions)
 
2019
  
2018
 
Change in PBO:
      
Opening balance
 $
11.3
  $
11.8
 
Service cost
  
0.1
   
0.2
 
Interest cost
  
0.2
   
0.2
 
Benefits paid
  
(0.3
)  
(0.3
)
Actuarial losses
  
2.2
   
0.0
 
Exchange effect
  
(0.2
)  
(0.6
)
         
Closing balance
 $
13.3
  $
11.3
 
         
Other plans
As at December 31, 2019, we have post-employment obligations in our European businesses with a liability of $
4.5
 million (December 31, 2018 – $
4.4
million).
For the year ended December 31, 2019 we have recognized an actuarial loss of $0.2 million in other comprehensive loss in relation to the Performance Chemicals pension in France.
Company contributions to defined contribution schemesforeign exchange movements recorded during 2019 were $10.4 million (2018 – $8.6 million).
7
6
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 10.    Income Taxes
A roll-forward of unrecognized tax benefits and associated accrued interest and penalties is as follows:
             
(in millions)
 
Unrecognised
Tax Benefits
�� 
Interest
and
Penalties
  
Total
 
Opening balance at January 1, 2017
 $
2.2
  $
0.1
  $
2.3
 
Additions
 for tax positions of prior periods
  
0.5
   
0.2
   
0.7
 
Reductions due to lapsed statute of limitations
  
(0.5
)   
0.0
   
(0.5
)
Closing balance at 31 December
, 2017
 
  2.2   0.3   2.5 
C
urren
t
  
0.0
   
0.0
   
0.0
 
Non-cur
rent
 
 
$
 
2.2  
$
 
0.3  
$
 
2.5 
Ope
ning balance at January 1, 2018
 
 
$
 
2.2  
$
 
0.3  
$
 
2.5 
Addition
s for tax positions of p
rior periods
 
  11.7   0.4   12.1 
Reductions due to lapsed statute of limitations
  
(0.5
)   
(0.1
)  
(0.6
)
             
Closing balance at 31 December, 201
8
  
13.4
   
0.6
   
14.0
 
Current
  
0.0
   
0.0
   
0.0
 
             
Non-
current
 $ 
13.4
  $ 
0.6
  $ 
14.0
 
Opening balance at January 1, 2019
 $
13.4
  $
0.6
  $
14.0
 
Additions for tax positions of prior periods
  
1.0
   
1.4
   
2.4
 
             
Closing balance at 31 December, 2019
  
14.4
   
2.0
   
16.4
 
Current
  
0.0
   
0.0
   
0.0
 
             
Non-current
 $
14.4
  $
2.0
  $
16.4
 
             
All of the $14.4 million of unrecognised tax benefits would impact our effective tax rate if recognised.
T
ax audits have been opened by the Italian tax authorities in respect of
Innospec
Performance Chemicals Italia Srl, acquired as part of the Huntsman business, in relation to the period
2011
to
2013
inclusive.
D
uring the third quarter of 2019, the Italian tax authorities opened a tax au
dit into 2014.
The Company believes that additional tax of approximately $
0.5
 million, together with associated interest of $
0.2
 million, may arise as a result of the
2011
audit. This amount was recorded at December 
31
,
2017
. During
2018
, the Company determined that additional tax of approximately $
0.9
 million, together with associated interest of $
0.3
 million, may arise as a result of the
2012
and
2013
audits collectively.
Duri
ng 2019, the company recor
ded additi
onal tax of $1.0 million in relation to 2014, together with additional interest of $0.5 million relating to all years.
2022. As any additional tax arising as a consequence of the tax audit would be reimbursed by the previous owner under the terms of the sale and purchase agreement, an
unre
co
gnized t
a
x bene
fit of
 $3.4
 million is recorded,
 together with an
77
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
indemnification asset of the same amount is recorded in the financial statements to reflect the fact that the final liability would be reimbursed by the previous owner.
this arrangement.
I
n the fourth quarter ofIn 2018 the Company recorded an uncertainunrecognized tax position of $10.8 
million. This portion primarily relatedbenefit in relation to a potential adjustment that could arise as a consequence of the Tax Cuts and Jobs Act of 2017 (“Tax Act”), but
for which retrospective adjustment to the filed 2017 U.S. federal income tax returns was not permissible. Additional interest
of $0.9 million has bee
n re
corded during the period e
nding December 31, 2019
.
Innospec Performance Chemicals France SAS and Innospec Saint-Mihiel SAS are currently subject to a corporate income tax audit in France in respect of 2016 to 2018. The Company currently anticipateshas determined that adjustments, if any, arising out of this tax audit would not result in a material change to the Company’s financial position as at December 31, 2019. Any additional tax, interest and penalties totaling $9.2 million may arise in relation to this item. This includes a reduction in the unrecognized tax benefit of $2.8 million related to tax adjustments recognized during 2022 that would offset adjustments arising as a consequence of the 2016 tax audit would be reimbursed by the previous owner under the terms of the sale and purchase agreement.Tax Act.
The Company and its U.S. subsidiaries remain open to examination by the IRS for certain elements of 2017 year and for years 2016 onwards.2019 onwards under the statute of limitations. The Company’s subsidiaries in foreign tax jurisdictions are open to examination including Spain (2015 onwards), France (2016Brazil (2018 onwards), Germany (2016(2018 onwards), Switzerlandand the U.K. (2017 onwards) and the United Kingdom (2018 onwards).
The sources of income before income taxes were as follows:
             
(
in millions
)
 
2019
  
2018
  
2017
 
Domestic
 $
52.4
  $
37.1
  $
3.1
 
Foreign
  
98.0
   
94.5
   
125.0
 
             
 $
150.4
  $
131.6
  $
128.1
 
             
 
(in millions)
  
2022
   
2021
   
2020
 
Domestic  $106.3   $53.2   $(0.7) 
Foreign   78.3    81.2    40.4 
                
   $184.6   $134.4   $39.7 
                
The components of income tax expense are summarized as
follows:
             
(
in millions
)
 
2019
  
2018
  
2017
 
Current:
         
Federal
 $
13.8
  $
12.5
  $
51.2
 
State and local
  
2.3
   
2.0
   
0.9
 
Foreign
  
22.9
   
26.6
   
21.0
 
             
  
39.0
   
41.1
   
73.1
 
             
Deferred:
         
Federal
  
(3.0
)  
4.2
   
(8.1
)
State and local
  
(0.5
)  
0.3
   
0.7
 
Foreign
  
2.7
   
1.0
   
0.6
 
             
  
(0.8
)  
5.5
   
(6.8
)
             
 $
38.2
  $
46.6
  $
66.3
 
             
 
(in millions)
  
2022
   
2021
   
2020
 
Current:
               
Federal  $27.0   $12.4   $6.1 
State and local   6.5    2.6    0.5 
Foreign   23.1    19.4    6.8 
                
    56.6    34.4    13.4 
                
Deferred:
               
Federal   (3.7)    (1.9)    (2.8) 
State and local   (0.7)    (0.3)    (0.4) 
Foreign   (0.6)    9.1    0.8 
                
    (5.0)    6.9    (2.4) 
                
   $51.6   $41.3   $11.0 
                
Cash payments for income taxes were $50.0 million, $36.8 million and $23.4 million during 2022, 2021 and 2020, respectively.
 
7882

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash payments for income taxes were $37.6 million, $35.4 million and $24.2 million during 2019, 2018 and 2017, respectively.
The effective tax rate varies from the U.S. federal statutory rate because of the factors indicated below:
             
(in percent)
 
2019
  
2018
  
2017
 
Statutory rate
  
21.0
%  
21.0
%  
35.0
%
Foreign income inclusions
  
0.3
   
0.7
   
2.1
 
Foreign tax rate differential
  
(0.2
)   
(0.5
)  
(13.7
)
Tax charge from previous years
  
1.8
   
0.7
   
1.1
 
Net charge/(credit) from unrecognized tax benefits
  
1.1
   
0.3
   
(0.4
)
Foreign currency transactions
  
(0.3
)   
1.4
   
(0.9
)
Effect of U.S. tax law change
  
0.6
   
9.3
   
31.7
 
Tax on unremitted earning
s
  
(0.1
)   
0.9
   
0.0
 
Non-deductible
foreign interest
  
0.8
   
1.3
   
1.1
 
Other items and adjustments, ne
t
  
0.4
   
0.3
   
(4.2
)
             
  
25.4
%  
35.4
%  
51.8
%
             
 
(in percent)
  
2022
  
2021
  
2020
 
Statutory rate   21.0%   21.0%   21.0% 
Foreign income inclusions   3.3   1.7   7.1 
Foreign tax rate differential   0.9   1.0   4.2 
Tax charge/(credit) from previous years   0.2   0.6   3.7 
Net charge/(credit) from unrecognized tax benefits   (1.4)   0.4   (1.7) 
Foreign currency transactions   3.5   0.1   (4.5) 
Tax on unremitted earnings   0.3   0.1   0.3 
Non-deductible
foreign interest
   —     —     0.7 
Change in U.K. statutory tax rate   —     5.4   6.9 
State and local taxes   2.2   1.3   1.5 
U.S. incentive for foreign derived intangible income   (2.7)   (1.5)   (1.5) 
Innovation incentives – current year   (0.8)   (1.1)   (4.9) 
Innovation incentives – prior years   —     —     (5.3) 
Non-deductible
officer compensation
   1.4   0.2   1.8 
Tax on closure of legacy operations   —     1.6   —   
Other items and adjustments, net   0.1   (0.1)   (1.6) 
              
    28.0%   30.7%   27.7% 
              
Foreign income inclusions arise each year from certain types of income earned overseas being taxable under U.S. tax regulations. Foreign tax credits can fully or partially offset these incremental U.S. taxes from foreign income inclusions. The 2019utilization of foreign tax credits varies year on year as this is dependent on a number of variable factors which are difficult to predict and may prevent offset. The effective tax rate wasis negatively impacted by the change in tax estimates for 2018 compared to actual filed returns, including thenet impact of the final U.S. FDII regulations which were released during the first quarter of 2019.
foreign inclusions post foreign tax credit usage in 2022.
During 2019, the Company recorded additional tax and interest arising asAs a consequence of the tax audit into Innospec Performance Chemicals Italia Srl. This hasCompany having operations outside of the U.S., it is exposed to foreign currency fluctuations. These have had a negative impact on the effective tax rate in 2019, although any finally determined tax liabilities would be reimbursed by2022.
In 2022 there was an increase in the previous owner underlevel of profits arising in the termsU.S. compared to prior periods. This has increased the amount of the salestate and purchase agreement.
Additional interest arising on the uncertain tax position relating to a potential adjustment that could arise as a consequence of the Tax Actlocal taxes falling due, which has had a negative impact on the effective tax rate, in 2019.
In the United Kingdom, tax legislation prohibits a tax deduction in relation to certain intercompany interest expense arising. Thisbut has also increased the level of foreign-derived intangible income benefit that the Company is entitled to, which has had a negativepositive impact on the effective tax rate in 201
9the year.
.
Other items do not have a materialsignificant impact on the effective tax rate.
 
8
793
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Details of deferred tax assets and liabilities are analyzed as follows:
         
(
in millions
)
 
2019
  
2018
 
Deferred tax assets:
      
Stock compensation
 $
6.7
  $
4.9
 
Net operating loss carry forwards
  
7.3
   
8.8
 
Other intangible assets
  
6.0
   
5.6
 
Accretion expense
  
3.3
   
3.3
 
Restructuring provision
  
0.0
   
1.9
 
Foreign t
ax credits
 
  3.6   0.0 
Other
  
5.9
   
4.8
 
         
Subtotal
  
32.8
   
29.3
 
Less valuation allowance
  
(0.8
)  
0.0
 
         
Total net deferred tax assets
 $
32.0
  $
29.3
 
         
         
Deferred tax liabilities:
      
Property, plant and equipment
 $
(19.5
) $
(17.1
)
Intangible assets including goodwill
  
(28.1
)  
(28.1
)
Pension asset
  
(18.2
)  
(15.0
)
Investment impairment recapture
  
(1.0
)  
(2.0
)
Customer relationships
  
(4.2
)  
(4.9
)
Unremitted overseas earnings
  
(1.0
)  
(1.1
)
Other
  
(0.5
)  
(0.5
)
         
Total deferred tax liabilities
 $
(72.5
) $
(68.7
)
         
Net deferred tax liability
 $
(40.5
) $
(39.4
)
         
Deferred tax assets
 $
9.1
  $
8.8
 
Deferred tax liabilities
  
(49.6
)  
(48.2
)
         
 $
(40.5
) $
(39.4
)
         
 
(in millions)
  
2022
   
2021
 
Deferred tax assets:
          
Stock compensation  $3.7   $5.2 
Net operating loss carry forwards   10.9    12.0 
Other intangible assets   10.5    11.1 
Accretion expense   3.2    3.2 
Restructuring provision   1.7    2.0 
Employee related liabilities   8.1    4.1 
Foreign tax credits   0.8    1.9 
Operating lease liabilities   11.8    10.6 
Inventory provisions   6.6    3.6 
Research and experimental expenditure   2.7    —   
Other   4.8    3.8 
           
Subtotal   64.8    57.5 
Less valuation allowance   (0.7)    (0.8) 
           
Total net deferred tax assets  $64.1   $56.7 
           
Deferred tax liabilities:
          
Property, plant and equipment  $(22.5)   $(23.6) 
Intangible assets including goodwill   (30.3)    (29.8) 
Pension asset   (10.9)    (38.2) 
Customer relationships   (3.4)    (4.5) 
Unremitted overseas earnings   (1.9)    (1.9) 
Right-of-use
assets
   (11.8)    (10.6) 
Other   (3.6)    (2.5) 
           
Total deferred tax liabilities  $(84.4)   $(111.1) 
           
Net deferred tax liability  $(20.3)   $(54.4) 
           
Deferred tax assets  $5.9   $6.4 
Deferred tax liabilities   (26.2)    (60.8) 
           
   $(20.3)   $(54.4) 
           
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant pieceAvailable evidence considered in determining the use of objective negative evidence evaluated was thedeferred tax assets includes, but is not limited to, cumulative losses incurredarising in certain jurisdictions overrecent accounting periods, the three-year period ended December 31, 2019. Such objectiveCompany’s estimate of future taxable income and any applicable
tax-planning
strategies. Based on such evidence, limitsif it is more likely than not that some portion or all of such deferred tax assets will not be realized, a valuation allowance is recorded to reduce the ability to consider other subjective evidence, such as our projections for future growth.Company’s deferred tax assets. On the basis of this evaluation, as of December 31, 2019,2022, a valuation allowance of $0.8
8
4
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
$0.7 million has been recorded to recognise
recognize
only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carry forward period are reduced or increased or if objective negativeother evidence inbecomes available.
As of December 31, 2022, the formCompany has approximately $5.1 million of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for
growthtax-effected
.

Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
GrossU.S. federal net operating loss carry forwards of $33.7 million result in a deferred tax asset of $7.3 million
, ne
t of valuation allowances
. The net operatingcarryforwards. These loss carry forwards arose in the U.S. and in
five
of the Company’s foreign subsidiaries. Net operating loss carry forwards of $3.9 million arose from state tax losses in prior periods in certain of the Company’s U.S. subsidiaries. It is expected that sufficient taxable profits will be generated in the U.S. against which the state net operating loss carry forwards of $3.8 million can be relieved before their expiration in the period
2031 to 2038. The remaining $0.1 million of the U.S. net operating lossescarryforwards can be carried forward indefinitely without expiration. Netexpiration, and the Company expects to utilize the losses in their entirety. The Company has approximately $0.4 million of
tax-effected
state net operating loss carry forwardscarryforwards, net of $29.8federal benefit. Some of these loss carryforwards will begin to expire in 2036 if not utilized, while other
s
can be carried forward indefinitely. The Company also has approximately $4.8 million arose in fiveof tax-effected foreign net operating loss carryforwards, net of valuation allowance, across four of the Company’s foreign subsidiaries. It is expected that sufficient taxable profits will be generated againstsubsidiaries, which $26.4 million of these net operating loss carry forwards can be relieved. These losses canalso be carried forward indefinitely without expiration.indefinitely.
Note 11.12.    Long-Term Debt
As at December 31, 2022, and December 31, 2021, the Company has not drawn down on its revolving credit facility.
Long-term debt consists of the following:
         
(
in millions
)
 
2019
  
2018
 
Revolving credit facility
 $
60.0
  $
126.0
 
Term loan
  
0.0
   
82.5
 
Deferred finance costs
  
(1.4
)  
(0.9
)
         
  
58.6
   
207.6
 
Less current portion
  
0.0
   
(21.4
)
         
 $
58.6
  $
186.2
 
         
On September 26, 2019, Innospec and certain of its subsidiaries entered into a new agreement forThe Company continues to have available a $250.0 million revolving credit facility until
September 25, 2023
with an option to request an extension to the facility for a further year.2024. The facility also contains an accordion feature whereby the Company may elect to increase the total available borrowings by an aggregate amount of up to $125.0 million.
On September 30, 2019The deferred finance costs of $0.6 million (December 31, 2021 – $1.0 million) related to the Company repaid its
pre-existing
term loan and revolvingarrangement of the credit facility, that had been amendedare included within other current and restated on December 14, 2016, and replaced this borrowing with
non-current
assets at the new credit facility.
As a result, refinancing costs of $1.5 million were capitalized which are being amortized over the expected life of the facility.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
         
(
in millions
)
 
2019
  
2018
 
Gross cost at January 1
 $
2.7
  $
2.7
 
Capitalized in the year
  
1.5
   
0.0
 
Written down in the year
  
(2.7
)  
0.0
 
         
  
1.5
   
2.7
 
         
Accumulated amortization at January 1
 $
(1.8
) $
(1.1
)
Amortization in the year
  
(1.0
)  
(0.7
)
Amortization written down in the year
  
2.7
   
0.0
 
         
 $
(0.1
) $
(1.8
)
         
Net book value at December 31
 $
1.4
  $
0.9
 
         
balance sheet dates.
 
(in millions)
  
2022
   
2021
 
Gross cost at January 1  $1.8   $1.8 
Capitalized in the year   —      —   
           
    1.8    1.8 
           
Accumulated amortization at January 1  $(0.8)   $(0.5) 
Amortization in the year   (0.4)    (0.3) 
           
   $(1.2)   $(0.8) 
           
Net book value at December 31  $0.6   $1.0 
           
Amortization expense was $1.0$0.4 million, $0.7$0.3 million and $0.6$0.4 million in 2019, 20182022, 2021 and 2017,2020, respectively. The charge is included in interest expense, see Note 2 of the Notes to the Consolidated Financial Statements.
8
5
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The obligations of the Company under the credit facility are secured obligations and guaranteed by certain subsidiaries of the Company. Amounts available under the revolving facility may be borrowed in U.S. dollars, Euros, British pounds and other freely convertible currencies.
The Company’s credit facility contain
s
contains restrictive clauses which may constrain our activities and limit our operational and financial flexibility. The facility obliges the lenders to comply with a request for utilization of finance unless there is an event of default outstanding. Events of default
are defined in the credit facility and include a material adverse change to our assets, operations or financial condition. The facility contains a number of restrictions that limit our ability,
amongst
other things, and subject to certain limited exceptions, to incur additional indebtedness, pledge our assets as security, guarantee obligations of third parties, make investments, undergo a merger or consolidation, dispose of assets, or materially change our line of business.
In addition, the credit facility contains terms which, if breached, would result in it becoming repayable on demand. It requires, among other matters, compliance with the following financial covenant ratios measured on a quarterly basis: (1) the ratio of net debt to EBITDA shall not be greater than 3.0:1 and (2) the ratio of EBITDA to net interest shall not be less than 4.0:1. Management has determined that the Company has not breached these covenants throughout the period to December 31, 20192022 and does not expect to breach these covenants for the next 12 months.
The weighted average rate of interest on borrowings was 3.14%0.00% at December 31, 20192022 and 3.32%0.00% at December 31, 2018.2021. Payments of interest on long-term debt were $4.8$0.0 million, $6.5$0.0 million and $7.2$0.8 million in 2019, 20182022, 2021 and 2017,2020, respectively.
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The net cash outflows in respect of refinancing costs were $1.5$0.0 million, $0.0 million and $0.0$0.3 million in 2019, 20182022, 2021 and 2017,2020, respectively.
Note 12.13.    Plant Closure Provisions
The Company has continuing plans to close some of itsremediate manufacturing facilities at sites around the world as and when those operations are expected to be decommissioned.cease or we are required to decommission the sites according to local laws and regulations. The liability for estimated plant closure costs of lnnospec’s manufacturing facilities includes costs for decontamination and environmental remediation activities (“remediation”).
liabilities and asset retirement obligations.
As a result, theThe principal site giving rise to remediation liabilitiesasset retirement obligations is the manufacturing site at Ellesmere Port in the United Kingdom, which management believes is the last ongoing manufacturer of TEL.Kingdom. There are also asset retirement obligations and environmental remediation liabilities on a much smaller scale in respect of our other manufacturing sites in the U.S. and Europe.sites.
8
6
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Movements in the provisions are summarized as follows:
             
(
in millions
)
 
2019
  
2018
  
2017
 
Total at January 1
 $
49.5
  $
46.1
  $
39.5
 
Charge for the period
  
4.4
   
6.8
   
5.9
 
Measurement period adjustment on acquisition
  
0.0
   
0.0
   
2.8
 
Utilized in the period
  
(4.4
)  
(3.1
)  
(2.4
)
Exchange effect
  
(0.2
)  
(0.3
)  
0.3
 
             
Total at December 31
  
49.3
   
49.5
   
46.1
 
Due within one year
  
(5.6
)  
(5.9
)  
(5.2
)
             
Due after one year
 $
43.7
  $
43.6
  $
40.9
 
             
 
(in millions)
  
2022
  
2021
  
2020
 
Total at January 1  $56.5  $58.5  $49.3 
Charge for the period excluding restructuring   5.3   3.9   5.1 
Restructuring (see Note 5)   —     —     7.5 
Utilized in the period   (4.2)   (5.3)   (4.1) 
Exchange effect   (0.4)   (0.6)   0.7 
              
Total at December 31   57.2   56.5   58.5 
Due within one year   (5.3)   (5.2)   (6.6) 
              
Due after one year  $51.9  $51.3  $51.9 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts due within one year refer to provisions where expenditure is expected to arise within one year of the balance sheet date. Remediation costs are recognized in cost of goods sold.
The provisions for remediation represent the Company’s liability for environmental liabilities and asset retirement obligations. The charge for the period in 20192022 represents the accretion expense recognized of $4.3$3.8 million and a further $0.1$1.5 million primarily in respect of changes in the expected cost and scope of future remediation activities.
The charges for plant closure provisions are recognized in cost of goods sold for our reporting segments and within selling, general and administrative expenses for Corporate costs.
The Octane Additives segment ceased trading and is no longer a reporting segment from July 1, 2020. As a result, there was a
one-off
In 2017, we recognized $2.8charge in 2020 of $7.5 million of asset retirement obligations, in relationfor the restructuring activities related to the acquisitionlegacy production of our European Performance Chemicals business, as an increaseTEL for use in the value of the tangible assets acquired. This is being depreciated over the remaining useful economic life of those assets.
motor gasoline.
We recognize environmental remediation liabilities when they are probable and the costs can be reasonably estimated, and asset retirement obligations when there is an obligation based on a legal obligationrequirement, including those arising from a Company promise, and the costs can be reasonably estimated. The Company has to anticipate the program of work required and the
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
associated future expected costs, and comply with environmental legislation in the countries in which it operates or has operated in.
Remediation expenditure utilizedExpenditure utilizing plant closure provisions of $4.4was $4.2 million, $3.1$5.3 million and $2.4$4.1 million in 2019,
2018
2022, 2021 and 2017,2020, respectively.
Note 13.14.    Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes a
mid-market
pricing convention for valuing the majority of its assets and liabilities measured and reported at fair value. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These
8
7
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
inputs can be readily observable, market corroborated or generally unobservable. The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs. The Company gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy Levels. In 2018,2019, the Company evaluated the fair value hierarchy levels assigned to its assets and liabilities, and concluded that there should be no transfers into or out of Levels 1, 2 and 3.
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The following table presents the carrying amount and fair values of the Company’s assets and liabilities measured on a recurring basis:
 
December 31, 2019
  
December 31, 2018
 
(
in millions
)
 
Carrying
Amount
  
Fair
Value
  
Carrying
Amount
  
Fair
Value
 
Assets
            
Non-derivatives:
            
Cash and cash equivalents
 $
75.7
  $
75.7
  $
123.1
  $
123.1
 
Derivatives (Level 1 measurement):
            
Other current and
non-current
assets:
            
Foreign currency forward exchange contracts
  
0.8
   
0.8
   
0.0
   
0.0
 
Interest rate swaps
  
0.0
   
0.0
   
1.9
   
1.9
 
                 
Liabilities
            
Non-derivatives:
            
Long-term debt (including current portion)
 $
58.6
  $
58.6
  $
207.6
  $
207.6
 
Finance leases (including current portion)
  
1.5
   
1.5
   
3.3
   
3.3
 
Derivatives (Level 1 measurement):
            
Other
non-current
liabilities:
            
Foreign currency forward exchange contracts
  
0.0
   
0.0
   
0.7
   
0.7
 
Non-financial
liabilities (Level 3 measurement):
            
Stock equivalent units
  
24.6
  
 
 
 
24.6
   
15.1
   
15.1
 

   
December 31, 2022
   
December 31, 2021
 
(in millions)
  
Carrying

Amount
   
Fair

Value
   
Carrying

Amount
   
Fair

Value
 
Assets
                    
Non-derivatives:
                    
Cash and cash equivalents  $147.1   $147.1   $141.8   $141.8 
Derivatives (Level 1 measurement):
                    
Other current and
non-current
assets:
                    
Emissions Trading Scheme credits   2.7    2.7    3.9    3.9 
Liabilities
                    
Non-derivatives:
                    
Finance leases (including current portion)  $—     $—     $0.1   $0.1 
Derivatives (Level 1 measurement):
                    
Other current liabilities:                    
Foreign currency forward exchange contracts   0.5    0.5    1.2    1.2 
Non-financial
liabilities (Level 3 measurement):
                    
Stock equivalent units   26.4    26.4    17.3    17.3 
The following methods and assumptions were used to estimate the fair values of financial instruments:
values:
Cash and cash equivalents:
The carrying amount approximates fair value because of the short-term maturities of such instruments.
8
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Emissions Trading Scheme credits:
The fair value is determined by the open market pricing at the end of the reporting period.
Long-term debt and finance leases:debt:
Long-term debt principally comprises the revolving credit facility, which is shown net of deferred finance costs that have been capitalized. The fair value of long-term debt approximates to the carrying value. Finance leases relate to certain fixed assets in our Fuel Specialties and Oilfield Services segments. The carrying amount of long-term debt and finance leases approximates to the fair value.
Derivatives:
The fair value of derivatives relating to foreign currency forward exchange contracts and interest rate swaps are derived from current settlement prices and comparable contracts using current assumptions. Foreign currency forward exchange contracts primarily relate to contracts entered into to hedge future known transactions or hedge balance sheet net
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
cash positions. The movements in the carrying amounts and fair values of these contracts are largely due to changes in exchange rates against the U.S. dollar. Interest rate swaps in the prior year related to contracts taken out to hedge interest rate risk on a portion of our long-term debt.
Stock equivalent units:
The fair values of stock equivalent units are calculated at each balance sheet date using either the Black-Scholes or Monte Carlo method.
Note 14.15.    Derivative Instruments and Risk Management
The Company has limited involvement with derivative instruments and does not trade them. The Company does use derivatives to manage certain interest rate, foreign currency exchange rate, and raw material cost exposures and greenhouse gases emission allowances, as the need arises.
The Company
pre
viously
enter
ed
previously entered into interest rate swap contracts to reduce interest rate risk on its core debt. As at December 31, 2019,
2022 and at December 31, 2021, there were 0no interest rate swaps in pl
a
ce with all sw
aps having bee
n settled during the year
. As at Dece
m
b
er
31,
 2018, ther
e were
interestplace. Interest rate swaps with a notional value of $132.5 million
in place
. Interest rate swaps
were
previously in place to hedge interest rate risk on the term loan for a notional value that matche
d
matched the repayment profile of the term loan. These interest rate
swaps
we
re
designated as hedging instruments, and their impact on other comprehensive loss for 2019 was a
loss
of $1.9 million (2018 – gain $0.4 million).
The Company enters into various foreign currency forward exchange contracts to minimize currency exchange rate exposure from expected future cash flows. As at December 31, 2019,2022, foreign currency forward exchange contracts with a notional value of $108.9$161.1 million were in place (December 31, 2018 $108.72021 $113.0 million), with maturity dates of up to
one year
from the date of inception. These foreign currency forward exchange contracts have not been designated as hedging instruments, and their impact on the income statement for 20192022 was a
gain
of $1.5$0.7 million (2018(2021 – loss $1.8gain $1.0 million).
As at December 31, 20192022 and December 31, 20182021 the Company did not hold any raw material derivatives.
The Company participates in the new United Kingdom Emissions Trading Scheme (“UK ETS”) which was launched on January 1, 2021. Emissions trading schemes work on the ‘cap and trade’ principle, where a cap is set on the total amount of certain greenhouse gases that
8
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
can be emitted by sectors covered by the scheme. This limits the total amount of carbon that can be emitted. Within this cap, participants receive free allowances and/or buy emission allowances at auction or on the secondary market which they can trade with other participants as needed. As at December 31, 2022, the Company held UK ETS credits of $2.7 million (December 31, 2021 – $3.9 million).
The Company sells a range of specialty chemicals to major oil refineriesrefiners and chemical companies throughout the world. Credit limits, ongoing credit evaluation and account monitoring procedures are intended to minimize bad debt risk. Collateral is not generally required.
Note 15.16.    Commitments and Contingencies
Environmental remediation liabilities and asset retirement obligations
Commitments in respect of environmental remediation liabilities and asset retirement obligations are disclosed in Note 1213 of the Notes to the Consolidated Financial Statements.
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Capital commitments
The estimated additional cost to complete work in progress at December 31, 2022 is $37.7 million (2021 – $23.5 million).
Internally developed software
The estimated additional cost to complete work in progress at December 31, 20192022 is $4.0$25.0 million (2018(2021 – $6.0$0.0 million).
Contingencies
Legal matters
While we are involved from time to time in claims and legal proceedings that result from, and are incidental to, the conduct of our business including business and commercial litigation, employee and product liability claims, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party, or of which any of their property is subject. It is possible however, that an adverse resolution of an unexpectedly large number of such individual items could in the aggregate have a material adverse effect on results of operations for a particular year or quarter.
Guarantees
The Company and certain of the Company’s consolidated subsidiaries are contingently liable for certain obligations of affiliated companies primarily in the form of guarantees of debt and performance under contracts entered into as a normal business practice. This
includes
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
guarantees
of
non-U.S.
excise taxes and customs duties. As at December 31, 2019,2022, such guarantees which are not recognized as liabilities in the consolidated financial statements amounted to $4.7$7.0 million (December 31, 20182021 – $5.0$4.6 million).
The remaining terms of the fixed maturity guarantees vary from approximately 1 month to 4 years, with some further guarantees having no fixed expiry date.
Under
the terms of the guarantee arrangements, generally the Company would be required to perform should the affiliated company fail to fulfill its obligations under the arrangements. In some cases, the guarantee arrangements have recourse provisions that would enable the Company to recover any payments made under the terms of the guarantees from securities held of the guaranteed parties’ assets.
The Company and its affiliates have numerous long-term sales and purchase commitments in their various business activities, which are expected to be fulfilled with no adverse consequences material to the Company.
Note 16.17.    Stockholders’ Equity
                         
 
Common Stock
  
Treasury Stock
 
(
number of shares in thousands
)
 
2019
  
2018
  
2017
  
2019
  
2018
  
2017
 
At January 1
  
29,555
   
29,555
   
29,555
   
5,121
   
5,204
   
5,483
 
Exercise of options
  
0
   
0
   
0
   
(104
)  (103)  (296)
Stock purchases
  
0
   
0
   
0
   
30
   
20
   
17
 
                         
At December 31
  
29,555
   
29,555
   
29,555
   
5,047
   
5,121
   
5,204
 
                         
 
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
   
Common Stock
   
Treasury Stock
 
(number of shares in thousands)
  
2022
   
2021
   
2020
   
2022
  
2021
  
2020
 
At January 1   29,554.5    29,554.5    29,554.5    4,781   4,959   5,047 
Exercise of options   —      —      —      (55)   (185)   (109) 
Stock purchases   —      —      —      63   7   21 
                             
At December 31   29,554.5    29,554.5    29,554.5    4,789   4,781   4,959 
                             
At December 31, 2019,2022, the Company had authorized common stock of
40,000,000
shares (2018
 –
40,000,000
)(2021 - 40,000,000).
Note 17.    Stock-Based18.    Share-Based Compensation Plans
Stock option plans
The Company has
2
two stock option plans, the Omnibus Long-Term Incentive Plan and the Share
S
aveShareSave Plan 2008 under which it currently grants awards. The stock options have vesting periods ranging from 24 months2 to 5 years and in all cases stock options granted expire within 10 years of the date of grant. All grants are at the sole discretion of the Compensation Committee of the Board of Directors. Grants may be priced at market value or at a premium or discount. The aggregate number of shares of common stock reserved for issuance which can be granted under the plans is 2,550,000.
In the fourth quarter of 2020, a number of stock options that were granted to 14 employees in February 2018 were modified to extend the vesting period by two years. The incremental compensation cost resulting from the modifications was $2.4 million, resulting from the performance targets that were not achieved in 2020 being extended to a future
period.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair value of stock options is measured on the grant date using either the Black-Scholes model, or in cases where performance criteria are dependent upon external factors such as the Company’s stock price, using a Monte Carlo model. The following weighted average assumptions were used to determine the grant-date fair value of options:
             
 
 
2019
  
2018
  
2017
 
Dividend yield
  
1.09
%  
1.11
%  
0.96
%
Expected life
  
5 years
   
5 years
   
5 years
 
Volatility
  
26.8
%  
25.6
%  
25.3
%
Risk free interest rate
  
2.48
%  
2.74
%  
1.50
%
The following table summarizes the transactions of the Company’s stock option plans for the year ended December 31, 2019:
             
 
Number of
Options
  
Weighted
Average
Exercise
Price
  
Weighted
Average
Grant-Date

Fair Value
 
Outstanding at December 31, 2018
  
545,249
  $
32.46
  $
36.06
 
Granted – at discount
  
67,230
  $
0.00
  $
71.54
 
      – at market value
  
12,539
  $
81.07
  $
22.69
 
Exercised
  
(103,633
) $
11.92
  $
32.12
 
Forfeited
  
(16,926
) $
47.69
  $
33.50
 
             
Outstanding at December 31, 2019
  
504,459
  $
33.05
  $
41.35
 
             
At December 31, 2019, there were 41,525 stock options that were exercisable, 8,530 had performance conditions attached.
The Company’s policy is to issue shares from treasury stock to holders of stock options who exercise those options, but if sufficient treasury stock is not available, the Company will issue previously unissued shares of stock to holders of stock options who exercise options.

Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The stock option compensation cost for 2019, 2018 and 2017 was $6.6 million, $4.9 million and $4.2 million, respectively. The total intrinsic value of options exercised in 2019, 2018 and 2017 was $3.5 million, $3.2 million and $2.9 million, respectively.
The total compensation cost related to
non-vested
stock options not yet recognized at December 31, 2019 was $8.6 million and this cost is expected to be recognized over the weighted-average period of 1.76 years.
In
2019
, the Company recorded a current tax benefit of $
1.5
 million in respect of stock option compensation
(2018
– $
1.2
million). This amount is inclusive of excess tax benefits.
Forfeits are accounted for as an adjustment to the charge in the period in which the forfeits occur.
Stock equivalent units
The Company awards Stock Equivalent Units (“SEUs”) from time to time as a long-term performance incentive. SEUs are cash settled equity instruments conditional on certain performance criteria and the fair value is linked to the Innospec Inc. share price. SEUs have vesting periods ranging from 11six months to 45 years and in all cases SEUs granted expire within 10 years of the date of grant. Grants may be priced at market value or at a premium or discount. There is no limit to the number of SEUs that can be granted. As at December 31, 20192022 the liability for SEUs of $24.6$26.4 million is
in
clu
ded
included in accrued liabilities in the consolidated balance sheets
sheet, where they will remain
until they are cash settled.
In the fourth quarter of 2020, a number of SEUs that were granted to 61 employees in February 2018 were modified to extend the vesting period by two years. The adjusted compensation cost resulting from the modifications has been recognised by the fair valuation at the balance sheet date based on the extended vesting period.
The fair value of SEUs is measured
re-measured
at theeach balance sheet reporting date using either the Black-Scholes model, or in cases where performance criteria are dependent upon external factors such as the Company’s stock price, using a Monte Carlo model.
Compensation cost
The following assumptions were used to determinecompensation cost recorded for stock options was $6.7 million, $4.4 million and $5.8 million for 2022, 2021 and 2020, respectively. The compensation cost for stock options is based on the grant-date fair value of SEUs atand spread evenly over the balance sheet dates:vesting period.
             
 
    2019    
 
 
   2018    
 
 
    2017    
 
Dividend yield
  0.99%  1.44%  1.09%
Ex
pected life
 
  5
 years
   
5
 years
   
5
 years
 
Volatility
  26.6%  27.2%  25.4%
Risk free interest rate
  1.62%  2.46%  1.98%
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes the transactions of the Company’s SEUs for the year ended December 31, 2019:
             
 
Number
of SEUs
  
Weighted
Average
Exercise
Price
  
Weighted
Average
Grant-Date

Fair Value
 
Outstanding at December 31, 2018
  
418,936
  $
3.47
  $
52.45
 
Granted – at discount
  
123,815
  $
0.00
  $
71.47
 
      – at market value
  
4,359
  $
81.07
  $
22.69
 
Exercised
  
(142,035
) $
2.22
  $
46.45
 
Forfeited
  
(14,259
) $
3.42
  $
63.76
 
             
Outstanding at December 31, 2019
  
390,816
  $
3.69
  $
59.91
 
             
At December 31, 2019, there were 31,649 SEUs that were exercisable, 28,881 had performance conditions attached.
The chargescompensation cost recorded for SEUs arewas $24.2 million, $3.1 million and $1.9 million for 2022, 2021 and 2020, respectively. The compensation cost for SEUs is spread over the life of the award subject to a revaluation to the fair value at each quarter.quarter end. The revaluation may result in a charge or a credit to the income statement in theeach quarter dependent upon our share price movements and other performance criteria.
The SEU compensation cost for 2019, 2018 and 2017 was $20.1 million, $5.7 million and $6.6 million, respectively. The total intrinsic value of SEUs exercised in 2019, 2018 and 2017 was $7.3 million, $2.7 million and $1.7 million, respectively.
The weighted-average remaining vesting period of
non-vested
SEUs is 1.88 years.
Forfeits are accounted for as an adjustment to the charge in the period in which the forfeits occur.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Transactions in the period
The fair value of each stock option or SEU granted in the year was estimated on the date of grant using the Black-Scholes option-pricing model and where appropriate the Monte Carlo simulation model. These models utilized the following weighted average assumptions to determine the grant-date fair values of the share-based compensation granted in the year:
   
2022
  
2021
  
2020
 
Dividend yield   1.27%   1.17%   1.15% 
Expected life   5 years   5 years   5 years 
Volatility   39.8%   40.2%   27.4% 
Risk free interest rate   2.90%   0.45%   1.10% 
The dividend yield was based on our recent history of dividend payouts. The expected life was determined based upon historical exercise experience. The volatility was determined based upon the
historical
daily stock price volatilities. The risk free interest rate was based on the U.S. Federal Reserve 3 year interest rate at the grant dates, which approximates to the expected term of the options.
The following tables summarizes the transactions of the Company’s share-based compensation plans for the year ended December 31, 2022.
   
Number of
shares
  
Weighted

Average

Grant-Date

Fair Value
 
Nonvested at December 31, 2021   680,711  $74.6 
Granted   332,009  $60.2 
Vested   (178,886)  $72.7 
Forfeited   (76,794)  $71.2 
          
Nonvested at December 31, 2022   757,040  $69.0 
          
   
Number of
shares
  
Weighted

Average

Exercise

price
 
Outstanding at December 31, 2021   813,971  $8.0 
Granted   332,009  $40.9 
Exercised   (203,788)  $12.4 
Forfeited   (77,674)  $2.1 
          
Outstanding at December 31, 2022   864,518  $20.1 
          
Exercisable at December 31, 2022   107,478  $12.6 
9
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other disclosures
As at December 31, 2022, there was $
23.1
 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of
1.9
years.
The total intrinsic value of share-based compensation plans outstanding at December 31, 2022 was $71.5 million. The total intrinsic value of share-based compensation plans exercisable at December 31, 2022 was $9.7 million. The total intrinsic value of share-based compensation plans exercised for the year ended December 31, 2022 was approximately $18.1 million.
The total cash paid for SEUs exercised for the year ended December 31, 2022 was approximately $15.0 million.
The total fair value of share-based compensation that vested for the year ended December 31, 2022 was $13.0 million.
The weighted-average grant-date fair value of share-based compensation plans granted during 2022, 2021, and 2020 was $60.2, $84.8, and $72.4, respectively.
The Company recorded a current tax charge of $0.7 million in 2022, and a current tax benefit of $1.3 million and $1.6 million in 2021 and 2020, respectively, in relation to stock option compensation. This amount is inclusive of excess tax benefits.
Note 18.19.    Reclassifications out of Accumulated Other Comprehensive Loss
Reclassifications out of accumulated other comprehensive loss (“AOCL”) for 20192022 were:
         
(in millions)
 
Amount
Reclassified
from AOCL
  
Affected Line Item in the
Statement where
Net Income is Presented
 
Details about AOCL Components
Defined benefit pension plan items:
      
Amortization of prior service credit
 $
(0.9
)  
See (1) below
 
Amortization of actuarial net losses
  
0.0
   
See (1) below
 
         
  
(0.9
)  
Total before tax
 
  
0.2
   
Income tax expense
 
         
Total reclassifications
 $
(0.7
)  
Net of tax
 
         
 
(in millions)
  
Amount
Reclassified
from AOCL
  
Affected Line Item in the
Statement where Net
Income is Presented
Details about AOCL Components
Defined benefit pension plan items:
       
Amortization of prior service cost  $0.5  See (1) below
Amortization of actuarial net losses   0.5  See (1) below
        
    1.0  Total before tax
    (0.2)  Income tax expense
        
Total reclassifications
  $0.8  Net of tax
        
 
(1) 
(1)
These items are included in the computation of net periodic pension cost. See Note 910 of the Notes to the Consolidated Financial Statements for additional information.
 
9
4
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Changes in accumulated other comprehensive lossAOCL for 2019,2022, net of tax, were:
                 
(in millions)
 
Derivative
Instruments
  
Defined
Benefit
Pension
Plan Items
  
Cumulative
Translation
Adjustments
  
Total
 
Balance at December 31, 2018
 $
1.5
  $
(18.1
) $
(59.1
) $
(75.7
)
                 
Other comprehensive income before reclassifications
  
(1.5
)  
0.0
   
(6.0
)  
(7.5
)
Amounts reclassified from AOCL
  
0.0
   
(0.7
)  
0.0
   
(0.7
)
Actuarial net gains arising during the year
  
0.0
   
9.5
   
0.0
   
9.5
 
                 
Net current period other comprehensive income
  
(1.5
)  
8.8
   
(6.0
)  
1.3
 
                 
Balance at December 31, 2019
 $
0.0
  $
(9.3
) $
(65.1
) $
(74.4
)
                 
 
(in millions)
  
Defined
Benefit
Pension
Plan Items
  
Cumulative
Translation
Adjustments
  
Total
 
Balance at December 31, 2021  $10.7  $(57.6)  $(46.9) 
              
Other comprehensive income/(losses) before reclassifications   —     (29.2)   (29.2) 
Amounts reclassified from AOCL   0.8   —     0.8 
Actuarial net gains/(losses) arising during the year   (69.9)   —     (69.9) 
              
Net current period other comprehensive income/(losses)   (69.1)   (29.2)   (98.3) 
              
Balance at December 31, 2022  $(58.4)  $(86.8)  $(145.2) 
              
Reclassifications out of AOCL for 2021 were:
(in millions)
  
Amount

Reclassified

from AOCL
  
Affected Line Item in the

Statement where
Net Income is Presented
 
Details about AOCL Components
Defined benefit pension plan items:
         
Amortization of prior service cost  $0.3   See (1) below 
Amortization of actuarial net losses   2.6   See (1) below 
          
    2.9   Total before tax 
    (0.5)   Income tax expense 
          
Total reclassifications
  $2.4   Net of tax 
          
(1) 
These items are included in the computation of net periodic pension cost. See Note 10 of the Notes to the Consolidated Financial Statements for additional information.
Changes in AOCL for 2021, net of tax, were:

(in millions)
  
Defined
Benefit
Pension
Plan Items
  
Cumulative
Translation
Adjustments
  
Total
 
Balance at December 31, 2020  $(19.9)  $(37.4)  $(57.3) 
              
Other comprehensive income/(losses) before reclassifications   —     (20.2)   (20.2) 
Amounts reclassified from AOCL   2.4   —     2.4 
Actuarial net gains arising during the year   28.2   —     28.2 
              
Net current period other comprehensive
income/(losses)
   30.6   (20.2)   10.4 
              
Balance at December 31, 2021  $10.7  $(57.6)  $(46.9) 
              
 
9
5
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 19.20.    Recently Issued Accounting Pronouncements
In June 2016,December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (ASU)
No.
 2016-13, 2019-12,
Financial Instruments – Credit Losses (ASC Topic 326)Simplifying the Accounting for Income Taxes (Topic 740). This replacesguidance removes certain exceptions to the incurred loss impairment methodology under currentgeneral principles in Topic 740 and improves consistent application of and simplifies GAAP with a methodology that reflects
expected credit lossesfor other areas of Topic 740 by clarifying and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Credit losses relating to
available-for-sale
debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The standard will beamending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Adopting the Company beginningnew standard on January 1, 2020. Adoption of2021 has not impacted the standard will be applied usingCompany’s prior period comparatives and has not had a modified retrospective approach through a cumulative-effect adjustment to retained earnings as ofmaterial impact on the effective date to align our credit loss methodology with the new standard. We
have
e
va
luated
the impact of this standard on ourCompany’s consolidated financial statements, including its accounting policies, processes and systems.
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”)
No. 2020-04,
Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848). This provides various practical expedients to account for contract modification for loan agreements, lease agreements and derivative instruments currently referencing the London Interbank Offered Rate (“LIBOR”) up to December 31, 2022. In March 2021, the FCA announced that the intended cessation date of the overnight
1-,
3-,
6-,
and
12-month
tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848. In December 2022, the Financial Accounting Standards Board issued ASU
No. 2022-06,
Deferral of Sunset Date of Topic 848. This extends the use of practical expedients from December 31, 2022 to December 31, 2024 to cover the period where significant modification may take place. To date, we have not required the use of expedients covered by this topic, but we will continue to assess the need for their use through to the revised sunset date. We ex
p
ec
t thedo not expect there to be a material impact on the financial statements of ad
opting this 
standard to be minimal.
Company’s results.
Note 20.21.    Related Party Transactions
Mr. Patrick S. Williams has been an executive director of the Company since April 2009 and has been a
non-executive
director of AdvanSix, a chemicals manufacturer, since February 2020. In 2022 the Company purchased product from AdvanSix for $0.5 million (2021 – $0.4 million). As at December 31, 2022, the Company owed $0.0 million to AdvanSix (December 31, 2021 – $0.1 million).
Mr. Robert I. Paller has been a
non-executive
director of the Company since November 1, 2009. The Company has retained and continues to retain Smith, Gambrell & Russell, LLP (“SGR”), a law firm with which Mr. Paller holds a position. In 2019, 20182022, 2021 and 20172020 the Company incurred fees payable to SGR of $0.5 million, $0.3 million, $0.1 million and $0.4$0.8 million, respectively. As at December 31, 2019 and at December 31, 2018,2022 the Company did
0
t have any amounts outstanding dueowed $0.0 million to SGR.SGR (December 31, 2021 – $0.0 million).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Mr. David F. Landless has been a
non-executive
director of the Company since January 1, 2016 and is a
non-executive
director of Ausurus Group Limited which owns European
Metal
Recycling Limited (“EMR”). The Company has sold scrap metal to EMR in
2019
2022 for a value of $
0.4
 million
 (2018
–9
 $0.3 million
; 2017
– 
 $0.0 
million
)6
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
of $0.1 million (2021 – $0.6 million; 2020 – $0.2 million). A tendering process is operated
periodically
to select the best buyer for the sale of scrap metal by the Company. As at December 
31,
,
2019
2022 EMR owed $
0.0
$0.0 million (December 31, 20182021 – $
0.1
$0.0 million).
Note 21.    Subsequent Events97
The Company has evaluated subsequent events through the date that the consolidated financial statements were issued, and has concluded that no additional disclosures are required in relation to events subsequent to the balance sheet date.
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Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation carried out as of the end of the period covered by this report, under the supervision and with the participation of our management, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s “disclosure controls and procedures” (as defined in Rules
13a-15(e)
and
15d-15(e)
of the Securities Exchange Act of 1934) were effective as of December 31, 2019.2022.
Management’s Report on Internal Control Over Financial Reporting
Our management, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (within the meaning of Rule
13a-15(f)
under the Securities Exchange Act of 1934). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.
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Due to its inherent limitations, management does not believe that internal control over financial reporting will prevent or detect all errors or fraud. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on criteria in
Internal Control – Integrated Framework (2013)
 issued by the Committee of Sponsoring Organizations of the Treadway Commission the evaluation of our management,
98
Table of Contents
including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company did maintain effective internal control over financial reporting as of December 31, 2019.2022.
Our independent registered public accounting firm PricewaterhouseCoopers LLP, has audited our consolidated financial statementsConsolidated Financial Statements and the effectiveness of our internal control over financial reporting as of December 31, 2019.2022. Their report is included in Item 8 of this Annual Report on Form
10-K.
Changes in Internal Controls over Financial Reporting
As disclosed under Item 4 Controls and Procedures in our Quarterly Report on Form
10-Q
for the period ended June 30, 2019 management identified a material weakness in internal control over financial reporting relating to a network security incident that prevented access to certain information technology systems and data within our network. Management designed and maintained new controls and procedures to improve the IT infrastructure. Therefore, as of December 31, 2019 management has concluded that these controls are operating effectively and the material weakness remediated.
The Company is continuously seeking to improve the efficiency and effectiveness of its operations and of its internal controls. This is intended to result in refinements to processes throughout the Company.
There were no changes to our internal control over financial reporting which were identified in connection with the evaluation required by paragraph (d) of Rules
13a-15
and
15d-15
under the Securities Exchange Act of 1934, have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, other than those to remediate the aforementioned material weakness in the Company’s IT infrastructure, that occurred during our second fiscal quarter.reporting.
Item 9B
Other Information
None.
Item 9C
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
94Not applicable.
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PART III
Item 10
Directors, Executive Officers and Corporate Governance
The information set forth under the headings
“Re-Election
“Election of Twotwo Class I Directors”, “Information about theDirectors,” “Corporate Governance – Board of Directors,Committees – Audit Committee– Audit Committee Financial Expert,” “Information about the Executive Officers” and “Delinquent Section 16(a) Reports” in the Proxy Statement for the Annual Meeting of Stockholders to be held on May 6, 20204, 2023 (“the Proxy Statement”) is incorporated herein by reference.
The Board of Directors has adopted a Code of Conduct that applies to the Company’s directors, officers and employees, including the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. Any stockholder who would like to receive a copy of our Code of Conduct, our Corporate Governance Guidelines or any charters of our Board’s committees may obtain them without charge by writing to the General Counsel and Chief Compliance Officer, Innospec Inc., 8310 South Valley Highway, Suite 350, Englewood, Colorado, 80112,
e-mail
i
investor@innospecinc.com
nvestor@innospec.com
. These and other documents can also be accessed via the Company’s web site,website,
www.innospecinc.com
www.innospec.com
.
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Table of Contents
The Company intends to disclose on its web sitewebsite
www.innospecinc.com
www.innospec.com
any amendments to, or waivers from, its’ Code of Conduct that are required to be publicly disclosed pursuant to the rules of the SEC or Nasdaq.
Information regarding the Audit Committee of the Board of Directors, including membership and requisite financial expertise, set forth under the headings “Corporate Governance – Board Committees – Audit Committee” in the Proxy Statement is incorporated herein by reference.
Information regarding the procedures by which stockholders may recommend nominees to the Board of Directors set forth under the heading “Corporate Governance – Board Committees – NominatingIdentifying and Governance Committee”Evaluating Nominees for Director” in the 2020 Proxy Statement is incorporated herein by reference.
Item 11
Executive Compensation
The information set forth under the headings “Executive Compensation,” “Corporate Governance – Board Committees – Compensation Committee – Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the Proxy Statement is incorporated herein by reference.
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information set forth under the heading “Information About“Who Owns Our Stock? Information about our Common Stock Ownership” in the Proxy Statement is incorporated herein by reference.
95
Table of Contents
Shares Authorized for Issuance Under Equity Compensation Plans
The information set forth in the table under the heading “Equity Compensation Plans” in the Proxy Statement is incorporated herein by reference.
Item 13
Certain Relationships and Related Transactions, and Director Independence
The information set forth under the headings “Related“Corporate Governance – Related Person Transactions and Relationships”, “RelatedRelationships,” “Corporate Governance – Related Person Transactions Approval Policy” and “Corporate Governance – Director Independence” in the Proxy Statement is incorporated herein by reference.
Item 14
Principal Accountant Fees and Services
Information regarding fees and services related to the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP and KPMG LLP, is provided under the heading “Principal Accountant Fees and Services” in the Proxy Statement and is incorporated herein by reference. Information regarding the Audit Committee’s
pre-approval
policies and procedures is provided under the heading “Audit Committee
Pre-approval
Policies and Procedures” in the Proxy Statement and is incorporated herein by reference.
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PART IV
Item 15
Exhibits and Financial Statement Schedules
 
 
(1)
Financial Statements
The Consolidated Financial Statements (including Notes) of Innospec Inc. and its subsidiaries, together with the report of PricewaterhouseCoopers LLP (PCAOB ID 00876) dated February 22, 2023, are set forth in Item 8.
 
The Consolidated Financial Statements (including notes) of Innospec Inc. and its subsidiaries, together with the report of PricewaterhouseCoopers LLP dated February 19, 2020, are set forth in Item 8.
 
(2)
Financial Statement Schedules
Financial statement schedules have been omitted since they are either included in the financial statements, not applicable or not required.
 
Financial statement schedules have been omitted since they are either included in the financial statements, not applicable or not required.
 
(3)
Exhibits
   2.1
  2.1
Amended and Restated Share and Asset Purchase Agreement, dated as of December 22, 2016, by and between Huntsman Investments (Netherlands) B.V. and Innospec International Ltd (Incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K on January 3, 2017).
   3.1
  3.1
Amended and Restated Certificate of Incorporation of the Company (filed herewith).
  3.2
Amended and Restated By-laws of the Company (Incorporated by reference to Exhibit 3.1 of the Company’s Form 10-K on February 19, 2020).
  3.2
Amended and Restated By-laws of the Company (Incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K on November 13, 2015).
   3.3
  3.3
Innospec Inc. 2018 Omnibus Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed May 10, 2018).
   3.4
  3.4
Innospec Inc. ShareSave Plan 2008 (as amended and restated) (Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed May 10, 2018).
   4.1
  4.1
Description of Common Stock (Incorporated by reference to Exhibit 4.1 of the Company’s Form 10-K on February 19, 2020).(filed herewith).
 10.1
10.1
Executive Service Agreement of Mr. Philip J. Boon dated June 1, 2009 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K on May 27, 2009). *
 10.2
Executive Service Letter to Mr. Philip J. Boon dated October 15, 2015 (Incorporated by reference to Exhibit 10.24 of the Company’s Form 10-K on February 17, 2016). *
101
Table of Contents
 10.3
10.2
Contract of Employment, Mr. Ian McRobbie (Incorporated by reference to Exhibit 10.23 of the Company’s Form 10-K on March 28, 2003). *
 
10.3
Contract of Employment, Dr. Catherine Hessner (Incorporated by reference to Exhibit 10.26 of the Company’s Form 10-K on March 31, 2005). *
97
Table of Contents
 10.4
10.4
Contract of Employment, Mr. Patrick Williams, dated October 11, 2005, (Incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K on October 12, 2005) and Executive Service Agreement dated April 2, 2009. (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K on April 3, 2009). *
 10.5
10.5
Contract of Employment, Mr. Ian Cleminson, dated June 30, 2006 (Incorporated by reference to Exhibit 99.2 of the Company’s Form 8-K on June 30, 2006). *
 
10.6
Innospec Inc. Performance Related Stock Option Plan 2008 (Incorporated by reference to Appendix A of the Company’s Proxy Statement on April 1, 2011). *
 
10.7
Innospec Inc. Company Share Option Plan 2008 (Incorporated by reference to Appendix B of the Company’s Proxy Statement on April 1, 2011). *
 10.8
10.8
Innospec Inc. Non-Employee Directors’ Stock Option Plan 2008 (Incorporated by reference to Appendix C of the Company’s Proxy Statement on April 1, 2011). *
 
10.9
Innospec Inc. ShareSave Plan 2008 (Incorporated by reference to Appendix D of the Company’s Proxy Statement on March 31, 2008). *
 10.10
10.10
Innospec Inc. Executive Co-Investment Stock Plan 2004, as amended by the First Amendment 2006 (Incorporated by reference to Exhibit 10.10 of the Company’s Form 10-K on February 17, 2012). *
 
10.11
Contract of Employment, Mr. David E. Williams, dated September 17, 2009 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K on September 14, 2009). *
10.12
Form of Indemnification Agreement for individual who is an officer (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on February 27, 2014).
 10.12
10.13
Form of Indemnification Agreement for individual who is a director (Incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on February 27, 2014).
 
 10.13
10.14
Form of Indemnification Agreement for individual who is an officer and director (Incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on February 27, 2014).
 
10.15
Employment contract for Brian Watt (Incorporated by Reference to Exhibit 10.4 of the Company’s Form 10-Q filed on May 7, 2014). *
98
Table of Contents
 10.14
10.16
Innospec Inc. 2014 Long-Term Incentive Plan (Incorporated by Reference to Exhibit 10.5 of the Company’s Form 10-Q filed on May 7, 2014). *
102
Table of Contents
 10.15
10.17
Executive Service Letter to Mr. Philip J. Boon dated October 15, 2015 (Incorporated by reference to Exhibit 10.24 of the Company’s Form 10-K on February 17, 2016). *
10.18
$250,000,000 Multicurrency Revolving Facility Agreement with various lenders dated September 26, 2019 (Incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K on September 30, 2019).
 10.16
10.19
Innospec Inc. 2018 Omnibus Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed May 10, 2018).
 10.17
10.20
Innospec Inc. ShareSave Plan 2008 (as amended and restated) (Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed May 10, 2018)
 
10.18
16
Letter regarding change in certifying accountant dated April 10, 2019 (IncorporatedExtension Request for Multicurrency Revolving Facility Agreement and Confirmation (incorporated by reference to Exhibit 16.110.1 of the Company’s Form 8-K filed April 11, 2019).October 6, 2020)
10.19
Innospec Inc. Nonqualified Deferred Compensation Plan.* (filed herewith)
 
21.1
Principal Subsidiaries of the Registrant (filed herewith).
 
23.1
Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP (filed herewith).
 
23.2
Consent of Independent Registered Public Accounting Firm, KPMG LLP (filed herewith).31.1
23.3
Consent of Independent Registered Public Accounting Firm, KPMG Audit Plc (filed herewith).
31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
32.1
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
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Table of Contents
 
32.2
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
 
101
XBRL Instance Document and Related Items.
 
104
Cover Page Interactive Data File – The cover page XBRL tags are embedded within the inline XBRL document.
 
 *
Denotes a management contract or compensatory plan.
 
100103
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Item 16
Form
10-K
Summary
Not Applicable.
101104
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INNOSPEC INC.  By:  
INNOSPEC INC.
By:
/s/ PATRICK S. WILLIAMS
(Registrant)
    
Patrick S. Williams
Date:
    
President and Chief Executive Officer
February 19, 202022, 2023
    
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of February 19, 2020:22, 2023:
/s/ MILTON C. BLACKMORE
Milton C. Blackmore
 
 
Chairman and Director
/s/ PATRICK S. WILLIAMS
Patrick S. Williams
 
 
President and Chief Executive Officer (Principal Executive Officer); Director
/s/ IAN P. CLEMINSON
Ian P. Cleminson
 
 
Executive Vice President and Chief Financial Officer
/s/ CHRISTOPHER J. PARSONSGRAEME BLAIR
Christopher J. ParsonsGraeme Blair
 
 
Head of Group Finance (Principal Accounting Officer)
/s/ HUGH G. C. ALDOUSKELLER ARNOLD
Hugh G. C. AldousKeller Arnold
 
 
Director
/s/ DAVID F. LANDLESS
David F. Landless
 
 
Director
/s/ LAWRENCE J. PADFIELD
Lawrence J. Padfield
 
 
Director
/s/ ROBERT I. PALLER
Robert I. Paller
 Director
/s/ LESLIE J. PARRETTE
Leslie J. Parrette
 
Director
 Director
/s/ CLAUDIA POCCIA
Claudia Poccia
 
 
Director
/s/ JOACHIM ROESER
Joachim Roeser
Director
 
102105