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Item 8. Financial Statements and Supplementary Data

2024-02-14 compared with 2023-02-22 · 256 added, 341 removed, 883 unchanged (40% of the section changed)

Financial Statements and Supplementary Data

Item 8 Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of Innospec Inc.

To the Board of Directors and Stockholders of Innospec Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Innospec Inc.

and its subsidiaries (the “Company”) as of December 31, 2022, and 2021, and the related consolidated statements of income, comprehensive income, equity and cash flows

for each of the three 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, 2022, based on criteria established in Internal Control – Integrated Framework

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 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, 2022, based on criteria established in Internal Control – Integrated Framework

(2013) issued by the COSO.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

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.

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 audits.

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Those standards require that we plan and perform the audits 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.

Our audits of the consolidated financial statements 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.

Our audits of the consolidated financial statements 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.

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded QGP Química Geral S.A.

(“QGP”) from its assessment of internal control over financial reporting as of December 31, 2023, because it was acquired by the Company in a purchase business combination during 2023.

We have also excluded QGP from our audit of internal control over financial reporting.

QGP is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 2% and less than 1% respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023.

Definition and Limitations of Internal Control over Financial Reporting

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and 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.

and (v) evaluating the scope, competency, and objectivity of management’s specialists based on the work they were engaged to perform.

Professionals with specialized skill and knowledge were used to assist in evaluating management’s method and the reasonableness of the significant assumptions in respect of the program of the work required and the timing and cost of performing the remediation work.

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Research and development

Restructuring charge

Impairment of intangible assets

Profit on disposal

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Operating income

Other (expense)/income, net

Interest expense, net

Other income/(expense), net

Interest income/(expense), net

Income before income tax expense

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Weighted average shares outstanding (in thousands):

accompanying notes are an integral part of these statements.

The accompanying notes are an integral part of these statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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Total comprehensive income for the years ended December 31

Changes in cumulative translation adjustment, net of tax of $ 5.5 million, $ 2.0 million and $ 3.9 million, respectively

Amortization of prior service cost/(credit), net of tax of $( 0.1 ) million, $( 0.1 ) million and $ 0.1 million, respectively

Amortization of actuarial net losses, net of tax of $( 0.1 ) million, $( 0.4 ) million and $( 0.2 ) million, respectively

Actuarial net gains/(losses) arising during the year, net of tax of $ 24.0 million, $( 9.0 ) million and $ 1.9 million, respectively

Changes in cumulative translation adjustment (1)

Amortization of prior service cost/(credit)

Amortization of actuarial net losses/(gains)

Actuarial net gains/(losses) arising during the year

Other comprehensive income, before tax

Income tax income/(expense) related to other comprehensive income

Total comprehensive income

accompanying notes are an integral part of these statements.

(1) Amounts are before tax of $( 2.4 ) million in 2023, $ 5.5 million in 2022 and $ 2.0 million in 2021.

The accompanying notes are an integral part of these statements.

CONSOLIDATED BALANCE SHEETS

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Cash and cash equivalents

Trade and other accounts receivable (less allowances of $ 7.7 million and $ 5.1 million, respectively)

Trade and other accounts receivable (less allowances of $ 10.3 million and

$ 7.7 million, respectively)

Inventories (less allowances of $ 28.1 million and $ 27.1 million, respectively):

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Net property, plant and equipment

Operating leases right-of-use

Operating leases right-of-use assets

Other intangible assets

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Pension asset

Other non-current

Other non-current assets

Liabilities and Equity

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Accrued liabilities

Current portion of finance leases

Current portion of operating lease liabilities

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Current portion of accrued income taxes

Current portion of unrecognized tax benefits

Total current liabilities

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Pension liabilities and post-employment benefits

Other non-current

Acquisition-related contingent deferred consideration

Other non-current liabilities

Total liabilities

Common stock, $ 0.01 par value, authorized 40,000,000 shares, issued 29,554,500 shares

Additional paid-in

Common stock, $ 0.01 par value, authorized 40,000,000 shares, issued 29,554,500

Additional paid-in capital

Treasury stock ( 4,686,511 and 4,788,966 shares at cost, respectively)

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Total Innospec stockholders’ equity

Non-controlling

Non-controlling interest

Total liabilities and equity

accompanying notes are an integral part of these statements.

The accompanying notes are an integral part of these statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Depreciation and amortization

Impairment of intangible assets

Impairment of tangible assets

Deferred taxes

Profit on disposal

income of defined benefit pension plans

Non-cash income of defined benefit pension plans

Stock option compensation

Changes in assets and liabilities, net of effects of acquired and divested companies:

Changes in assets and liabilities, net of effects of acquired and

divested companies:

Trade and other accounts receivable

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Proceeds on disposal of property, plant and equipment

Business combinations, net of cash acquired

Internally developed software

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Cash Flows from Financing Activities

Non-controlling

Non-controlling interest

Proceeds from revolving credit facility

Repayments of revolving credit facility

Repayment of term loan

Repayment of finance leases

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Dividend paid ($ 1.16 per share)

Changes in cumulative translation adjustment, net of tax

Changes in cumulative translation

adjustment, net of tax

Share of net income

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Stock option compensation

Amortization of prior service credit, net of tax

Amortization of actuarial net losses, net of tax

Actuarial net losses

arising during the year, net of tax

Amortization of prior service credit,

Amortization of actuarial net losses,

Actuarial net gains during

the year, net of tax

Balance at December 31, 2021

Dividend paid ($ 1.28 per share)

Changes in cumulative translation adjustment, net of tax

Share of net income

Changes in cumulative translation

adjustment, net of tax

Non-controlling interest investment

Treasury stock re-issued

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Stock option compensation

Amortization of prior service cost, net of tax

Amortization of actuarial net losses, net of tax

Actuarial net gains arising during the year, net of tax

Amortization of prior service cost,

Amortization of actuarial net losses,

Actuarial net losses during

the year, net of tax

Balance at December 31 2022

Dividend paid ($ 1.41 per share)

Changes in cumulative translation adjustment, net of tax

Non-controlling

interest investment

Changes in cumulative translation

adjustment, net of tax

Share of net income

Treasury stock re-issued

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Stock option compensation

Amortization of prior service cost, net of tax

Amortization of actuarial net losses, net of tax

Actuarial net losses

arising during the year, net of tax

Amortization of prior service cost,

Amortization of actuarial net gains,

Actuarial net losses arising during

the year, net of tax

Balance at December 31 2023

accompanying notes are an integral part of these statements.

The accompanying notes are an integral part of these statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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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 Performance Chemicals business creates innovative technology-based solutions for our customers in the personal care, home care, agrochemical, construction, mining and other industrial markets.

Our Fuel Specialties business specializes in manufacturing and supplying fuel additives that improve fuel efficiency, boost engine performance and reduce harmful emissions.

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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.

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.

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Some of our contracts include variable consideration in the form of rebates.

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.

We 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.

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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.

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.

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dollar are taken to a separate equity reserve, the cumulative translation adjustment.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

where the U.S.

In entities 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.

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Other foreign exchange gains or losses are also included in other income, net in the income statement.

-based compensation plans:

Share-based compensation plans:

The Company accounts for employee stock options and stock equivalent units under the fair value method.

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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.

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.

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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.

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.

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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 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%) 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 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,

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

projected operating margins, changes in working capital and discount rates.

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 industry growth estimates.

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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.

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.

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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 right-of-use

(“ROU”) assets, and operating lease liabilities (current and non-current)

on our consolidated balance sheet at 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 the reporting date.

The present value of the future lease payments for operating leases is included in operating lease right-of-use (“ROU”) assets, and operating lease liabilities (current and non-current) on our consolidated balance sheet at 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 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.

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.

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.

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.

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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.

Fair values are determined using post-tax cash flows discounted at the Company’s weighted average cost of capital.

Derivative instruments:

time to time,

the Company uses various derivative instruments including forward currency contracts, options, interest rate swaps and commodity swaps to manage certain exposures.

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.

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.

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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

The effective portion is recognized in other comprehensive income until the hedged item is recognized in earnings.

Plant closure provisions:

includes both environmental compliance and remediation costs.

Environmental compliance costs include ongoing maintenance, monitoring and similar costs

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.

This includes both environmental compliance and remediation costs.

Environmental compliance costs include ongoing maintenance, monitoring and similar costs 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 requirement , including those arising from a

Company promise, and the costs can be reasonably estimated.

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 requirement, 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.

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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.

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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 Projected Benefit Obligation (“PBO”) are dependent on our assumptions in respect of the discount rate, annual member mortality rates, future return on assets and future inflation.

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

The Octane Additives segment ceased 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 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 Oilfield Services segment develops and markets chemical solutions for fracturing, drilling, stimulation and completion operations, products for oil and gas production and transport which aid flow assurance and maintain asset integrity.

The Octane Additives business has ceased trading and is no longer a reporting segment from July 1, 2020 as the production of TEL for use in motor gasoline has 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 the Oilfield Services segment which accounted for $ 222.2 million ( 11.3 %) of our net group sales.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In 2023, the Company had a significant customer in the Oilfield Services segment which accounted for $ 265.2 million ( 13.6 %) of our net group sales (2022 - $ 222.2 million and 11.3 %).

The Company evaluates the performance of its segments based on operating income.

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Oilfield Services

Octane Additives

Corporate costs

Restructuring charge

Impairment of intangible assets

Profit on disposal

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• managing the group 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;

• the CEO’s office, group finance, group human resources, group legal and compliance counsel, and investor relations;

• running the corporate offices in the U.S.

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;

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United States & North America

United Kingdom

Rest of Europe

Rest of World

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United States & North America

United Kingdom

Rest of Europe

Rest of World

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United States & North America

United Kingdom

Rest of Europe

Rest of World

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United States & North America

United Kingdom

Rest of Europe

Rest of World

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Identifiable assets are those directly associated with the operations of the geographical area.

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.

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In 2023, 2022 and 2021 the average number of anti-dilutive options excluded from the calculation of diluted earnings per share were 20,334 , 79,145 and 18,378 respectively.

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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Acquisition of QGP Química Geral

On December 8, 2023, the Company acquired QGP Química Geral (“QGP”).

The Company purchased the business for a total consideration of $ 58.0 million, net of cash acquired, and subject to working capital adjustments.

A portion of the consideration is deferred and payable in cash by December 7, 2026, and contingent on the financial performance of QGP for the 12 months ended June 30, 2026.

The fair value of this deferred, contingent consideration at December 31, 2023 is $ 23.4 million.

This deferred, contingent consideration will be updated at each balance sheet date based on latest available information.

We acquired the business to further strengthen our Performance Chemicals segment and add a manufacturing base in South America to compliment all of our end markets.

The revenue and earnings for QGP included in the consolidated income statement of the Company since the acquisition date, are immaterial to the group's results and financial position, due to the proximity of the acquisition to the reporting date.

The following table summarizes the calculations of the total purchase price and the estimated allocation of the purchase price to the provisional assets acquired and liabilities assumed for the business:

(in millions)

Other intangible assets

Deferred tax on other intangible assets

Net property, plant and equipment

Other net assets acquired

Purchase price, net of cash acquired

The measurement periods for the valuation of assets acquired and liabilities assumed ends as soon as information on the facts and circumstances that existed as of the acquisition dates becomes available but

does not exceed twelve months.

We have reviewed the acquired intangibles associated with the acquisition and concluded that the main identifiable asset is in relation to customer lists.

Based on current information available to management, we do not expect there to be any other material intangible assets other than goodwill.

We have engaged a third-party to assess the fair value of the intangible assets and acquired fixed assets.

This assessment has not been finalized due to the proximity of the acquisition to the filing date.

Accordingly, a provisional amount based on previous acquisitions and management’s best current estimate has been included for customer lists with the remaining purchase price above the book value of fixed assets and other net assets acquired being allocated to goodwill at this stage.

We have provisionally estimated the expected useful life of the other intangible assets to be 10 years.

We have not completed our alignment of accounting policies or fair value review on the other net assets acquired at this stage, but any potential adjustments would not have a material impact on the reported figures.

QGP, and the associated goodwill, are included within our Performance Chemicals segment for management and reporting purposes.

There is currently no goodwill amortizable for tax purposes.

Supplemental unaudited pro forma information

For illustrative purposes only pro forma information of the enlarged group is provided below but is not necessarily indicative of what the financial position or results of operations would have been had the QGP acquisition been completed as part of the Company from January 1, 2021.

In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the future financial position of operating results of the enlarged group.

(in millions, except per share data)

Earnings per share – basic

Adjustments to the unaudited pro forma financial information includes amortization in respect of the acquired other intangible assets, and the acquisition-related costs incurred in respect of the transaction.

Property, Plant and Equipment

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Ended December 31

Twelve Months

Ended December 31

Finance lease cost:

Amortization of right-of-use

Amortization of right-of-use assets

Interest on lease liabilities

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Total lease cost

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental cash flow information related to leases is as follows:

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Ended December 31

Cash paid for amounts included in the measurement of lease liabilities:

Twelve Months

Ended December 31

Cash paid for amounts included in the

measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from finance leases

Finance cash flows from finance leases

assets obtained in exchange for new lease obligations:

Right-of-use assets obtained in exchange for new

lease obligations:

Operating leases

Finance leases

Supplemental balance sheet information related to leases is as follows:

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Operating leases:

Operating lease right-of-use

Operating lease right-of-use assets

Current portion of operating lease liabilities

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Total operating lease liabilities

Finance leases:

Property, plant and equipment at cost

Accumulated depreciation

Net property, plant and equipment

Current portion of finance leases

Finance leases, net of current portion

Total finance lease liabilities

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions except lease term and discount rate)

Weighted average remaining lease term:

Operating leases

Finance leases

Weighted average discount rate:

Operating leases

Finance leases

Maturities of lease liabilities were as follows as at December 31, 2023:

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As of December 31, 2023, additional operating and finance leases that have not yet commenced are $ 5.8 million.

Future lease payment for all non-cancellable

operating and finance leases as of December 31, 2021 were as follows:

Future lease payment for all non-cancellable operating and finance leases as of December 31, 2022 were as follows:

(in millions)

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As of December 31, 2022, additional operating and finance leases that have not yet commenced are $ 2.7 million.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table analyzes goodwill movement for 2023 and 2022.

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Performance Chemicals, Fuel Specialties and Oilfield Services.

On December 8, 2023, the Company acquired QGP.

This resulted in additional goodwill of $ 37.4 million recognized within our Performance Chemicals segment.

See Note 5 of the Notes to the Consolidated Financial Statements for further details.

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.

4 unchanged sentences

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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Intangible Assets

14 unchanged sentences

Excluding the impact of foreign exchange translation on the balance sheet, $ 2.3 million, $ 2.3 million and $ 2.3 million of amortization, respectively, was recognized in cost of goods sold, and the remainder was recognized in selling, general and administrative expenses.

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.

In 2023, we capitalized $ 15.1 million (2022 - $ 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.

The additional completion costs are currently expected to be approximately $ 8.9 million.

A timescale and plan for the further implementation of the new ERP system into our other regions has not yet been fully determined at this time.

In 2023, we capitalized $ 7.3 million in relation to the acquisition of QGP.

See Note 5 of the Notes to the Consolidated Financial Statements for further details.

Other intangible assets at December 31, 2023 were:

3 unchanged sentences

Internally developed software

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other intangible assets at December 31, 2022 were:

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reduces the UK Plan’s value at risk in relation to key risks associated with improved longevity, inflation and interest rate movements while

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 service cost shown in the table below has been recognized in sel ling, gen

eral and admi

nistrative expenses within corporate

costs and the other items recognized within other income, net.

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 2023, the Company contributed $ 0.0 million (2022 – $ 0.0 million) in cash to the UK Plan in accordance with an agreement with the trustees.

For the year ending December 31, 2024, there are no plans to make cash contributions to the UK Plan.

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)

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Equity securities and real estate

Following the buy-in,

the UK Plan does not need to follow an investment strategy.

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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

0.25 % change in the discount rate assumption would change the PBO at December 31, 2022 by approximately $

10.3 million and the net pension credit for 2023 would change by approximately $

0.25 % change in the level of price inflation assumption would change the PBO at December 31, 2022 by approximately $

6.5 million and the net pension credit for 2022 by approximately $

A 0.25 % change in the discount rate assumption would change the PBO at December 31, 2023 by approximately $ 10.8 million and the net pension credit for 2023 would change by approximately $ 0.6 million.

A 0.25 % change in the level of price inflation assumption would change the PBO at December 31, 2023 by approximately $ 6.9 million and the net pension credit for 2023 by approximately $ 0.3 million.

Movements in PBO and fair value of UK Plan assets are as follows:

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Due to the UK Plan being closed to future accrual the PBO is equal to the Accumulated Benefit Obligation.

UK Plan holds approximately

1 % (December 31, 2021 –

10 %) of the UK

Plan’s assets in debt securities issued by

The UK Plan holds approximately 1 % (December 31, 2022 – 1 %) of the UK Plan’s assets in debt securities issued by non-U.S.

governments and government agencies.

5 % of the UK

Plan’s assets were invested in any one individual company’s investment funds.

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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

No more than 5 % of the UK Plan’s assets were invested in any one individual company’s investment funds.

Debt securities

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Other asset backed securities

The Company has invested in insurance contracts, known as buy-in

The Company has invested in insurance contracts, known as buy-in contracts.

The value of the insurance contracts 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.

16 unchanged sentences

Total plan assets

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions)

Quoted Prices

Identical Assets

At December 31, 2022

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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:

The reconciliation of the fair value of the UK Plan assets measured using significant unobservable inputs was as follows:

(in millions)

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Balance at December 31, 2023

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The projected net periodic benefit for the year ending December 31, 2024 is as follows:

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Interest cost on PBO

Amortization of actuarial net loss

Net periodic cost

Amortization of actuarial net loss/(gain)

Net periodic cost/(benefit)

Plan assumptions at December 31, (%):

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Rate of increase in compensation levels

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Movements in PBO of the German plan are as follows:

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For the year ended December 31, 2023, 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, 2022 – $ 0.3 million).

Company contributions to defined contribution schemes during 2022 were $ 11.0 million (2021 – $ 10.9 million), across all our reporting segments.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company contributions to defined contribution schemes during 2023 were $ 12.9 million (2022 – $ 11.0 million), across all of our reporting segments.

A roll-forward of unrecognized tax benefits and associated accrued interest and penalties is as follows:

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Closing balance at December 31, 2023

All of the $ 13.4 million of

unrecognized tax benefits would impact our effective tax rate if recognized.

All of the $ 14.8 million of unrecognized tax benefits would impact our effective tax rate if recognized.

In 2021 a non-U.S.

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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.

The Company has determined that additional tax and interest totaling $ 1.2 million may arise as a result of the ongoing review.

During 2023 the Company recorded an additional interest accrual of $ 0.1 million and a $ 0.1 million increase due to foreign exchange movements.

The Company believes that it is reasonably possible that there will be a decrease of $ 1.2 million unrecognized tax benefits within the coming year in relation to this item resulting from effective settlement of the outstanding tax positions with the U.K.

tax authorities.

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 $ 3.4 million may arise as a consequence of the tax audit.

This includes additional interest accrued of $ 0.1 million which was offset by

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

$ 0.2 million foreign exchange movements recorded during 2022.

This includes additional interest accrued of $ 0.1 million and $ 0.1 million for foreign exchange movements recorded during 2023.

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 indemnification asset of the same amount is recorded in the financial statements to reflect this arrangement.

In 2018 the Company recorded an unrecognized tax benefit 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.

In 2018 the Company recorded an unrecognized tax benefit 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.

The Company has determined that 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 Tax Act.

The Company and its U.S.

The Company has

determined that additional tax, interest and penalties totaling $ 10.2 million may arise in relation to this item.

This includes an increase in the unrecognized tax benefit of $ 0.1 million and additional interest accrued of $ 0.9 million recorded during 2023.

The Company believes that it is reasonably possible that there will be a decrease of $ 10.2 million unrecognized tax benefits within the coming year in relation to this item due to a lapse of the statute of limitations.

As of December 31, 2023, the Company and its U.S.

subsidiaries remain open to examination by the IRS for certain elements of 2017 year and for years 2020 onwards under the statute of limitations.

8 unchanged sentences

Cash payments for income taxes were $ 54.3 million, $ 50.0 million and $ 36.8 million during 2023, 2022 and 2021, respectively.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The effective tax rate varies from the U.S.

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Tax on unremitted earnings

Non-deductible

foreign interest

Change in U.K.

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incentive for foreign derived intangible income

Innovation incentives – current year

Innovation incentives – prior years

Non-deductible

officer compensation

Innovation incentives

Non-deductible officer compensation

Tax on closure of legacy operations

6 unchanged sentences

The effective tax rate is negatively impacted by the net impact of foreign inclusions post foreign tax credit usage in 2023.

As a consequence of the Company 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 2022.

In 2022 there was an increase in the level of profits arising in the U.S.

compared to prior periods.

This has increased the amount of state and local taxes falling due, which has had a negative impact on the effective tax rate, but has also increased the level of foreign-derived intangible income benefit that the Company is entitled to, which has had a positive impact on the effective tax rate in the year.

Other items do not have a significant impact on the effective tax rate.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As a consequence of the Company having operations outside of the U.S., it is also exposed to foreign currency fluctuations.

These have had a positive impact on the effective tax rate in 2023.

As in the prior year, the level of foreign-derived intangible income benefit that the Company is entitled to has had a positive impact on the effective tax rate.

There was also a benefit arising from adjustments to the tax charge for previous years, primarily arising from return to provision adjustments in relation to the federal and state tax returns filed in the U.S.

Other items do not have a significant impact on the effective tax rate in either 2023 or 2022.

Details of deferred tax assets and liabilities are analyzed as follows:

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Unremitted overseas earnings

Right-of-use assets

Total deferred tax liabilities

3 unchanged sentences

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.

Available evidence considered in determining the use of deferred tax assets includes, but is not limited to, cumulative losses arising in recent accounting periods, the Company’s estimate of future taxable income and any applicable tax-planning

Based on such evidence, if 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 Company’s deferred tax assets.

On the basis of this evaluation, as of December 31, 2022, a valuation allowance of

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

$ 0.7 million has been recorded to recognize

only the portion of the deferred tax asset that is more likely than not to be realized.

On the basis of this evaluation, as of December 31, 2023, a valuation allowance of $ 0.1 million has been recorded to 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 other evidence becomes available.

As of December 31, 2022, the Company has approximately $ 5.1 million of tax-effected

federal net operating loss carryforwards.

These loss carryforwards can be carried forward indefinitely without expiration, 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 carryforwards, net of federal 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 of tax-effected foreign net operating loss carryforwards, net of valuation allowance, across four of the Company’s foreign subsidiaries, which can also be carried forward indefinitely.

As of December 31, 2023, the Company has approximately $ 0.3 million of tax-effected state net operating loss carryforwards, net of federal benefit.

Some of these loss carryforwards will begin to expire in 2036 if not utilized, while other can be carried forward indefinitely.

The Company utilized all remaining federal

net operating loss carryforwards during 2023.

The Company also has approximately $ 8.9 million of tax-effected foreign net operating loss carryforwards, net of valuation allowance, across five of the Company’s foreign subsidiaries, which can also be carried forward indefinitely.

Long-Term Debt

As at December 31, 2022, and December 31, 2021, the Company has no t drawn down on its revolving credit facility.

The Company continues to have available a $ 250.0 million revolving credit facility until September 25, 2024 .

The facility 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.

The deferred finance costs of $ 0.6 million (December 31, 2021 – $ 1.0 million) related to the arrangement of the credit facility, are included within other current and non-current

assets at the balance sheet dates.

As at December 31, 2023 and 2022, the Company has no t drawn down on its revolving credit facility.

On May 31, 2023, Innospec Inc.

and certain subsidiaries of the Company (together with the Company, the “Borrowers”) entered into a Multicurrency Revolving Facility Agreement with various lenders (the “Agreement”) which replaces the Company’s credit facility agreement dated September 26, 2019 .

The Agreement provides for a $ 250,000,000 four-year multicurrency revolving loan facility available to the Borrowers (the “Facility”).

The Agreement also contains an accordion feature whereby the Company may elect to increase the total available borrowings by an aggregate amount of up to $ 125,000,000 .

The termination date of the Facility is May 30, 2027 , but the Company has an option to request an extension of the Facility for a further year.

As a consequence, the Company has capitalized $ 1.4 million of costs relating to the new Agreement which are to be amortized over the period to May 30, 2027 .

In addition, the Company has written-off $ 0.6 million of capitalized costs relating to the previous agreement.

The deferred finance costs of $ 1.2 million (December 31, 2022 – $ 0.6 million) related to the arrangement of the credit facility, are included within other current and non-current assets at the balance sheet dates.

(in millions)

6 unchanged sentences

The charge is included in interest expense, see Note 2 of the Notes to the Consolidated Financial Statements.

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.

4 unchanged sentences

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.

The 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, 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.

10 unchanged sentences

There are also asset retirement obligations and environmental remediation liabilities on a much smaller scale in respect of other manufacturing sites.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Movements in the provisions are summarized as follows:

1 unchanged sentence

Total at January 1

Charge for the period excluding restructuring

Restructuring (see Note 5)

Charge for the period

Utilized in the period

6 unchanged sentences

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

charge in 2020 of $ 7.5 million for the restructuring activities related to the legacy production of TEL for use in motor gasoline.

3 unchanged sentences

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 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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

inputs can be readily observable, market corroborated or generally unobservable.

These 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.

9 unchanged sentences

(in millions)

Non-derivatives:

Cash and cash equivalents

Derivatives (Level 1 measurement):

Other current and non-current

Other current and non-current assets:

Emissions Trading Scheme credits

Non-derivatives:

Finance leases (including current portion)

Derivatives (Level 1 measurement):

Other current liabilities:

Foreign currency forward exchange contracts

Non-financial

liabilities (Level 3 measurement):

Stock equivalent units

Foreign currency forward exchange

Non-financial liabilities (Level 3 measurement):

Acquisition-related contingent consideration

The following methods and assumptions were used to estimate the fair values:

Cash and cash equivalents:

The carrying amount approximates fair value because of the short-term maturities of such instruments.

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:

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.

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.

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

Foreign currency forward exchange contracts primarily relate to contracts entered into to hedge future known transactions or hedge balance sheet net 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.

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.

Acquisition-related contingent consideration:

Contingent consideration payable in cash is discounted to its fair value at each balance sheet date.

Where contingent consideration is dependent upon pre-determined financial targets, an estimate of the fair value of the likely consideration payable is made at each balance sheet date.

The contingent consideration payable at December 31, 2023 has been calculated based on the latest forecast.

Derivative Instruments and Risk Management

2 unchanged sentences

The Company previously entered into interest rate swap contracts to reduce interest rate risk on its core debt.

As at December 31, 2022 and at December 31, 2021, there were no interest rate swaps in place.

As at December 31, 2023 and 2022, there were no interest rate swaps in place.

Interest rate swaps were previously in place to hedge interest rate risk on the term loan for a notional value that matched the repayment profile of the term loan.

1 unchanged sentence

As at December 31, 2023, foreign currency forward exchange contracts with a notional value of $ 156.5 million were in place (December 31, 2022 $ 161.1 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 2022 was a gain of $ 0.7 million (2021 – gain $ 1.0 million).

As at December 31, 2022 and December 31, 2021 the Company did not hold any raw material derivatives.

These foreign currency forward exchange contracts have not been designated as hedging instruments, and their impact on the income statement for 2023 was a loss of $ 4.0 million (2022 – gain $ 0.7 million).

As at December 31, 2023 and 2022, 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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

can be emitted by sectors covered by the scheme.

Emissions trading schemes work on the ‘cap and trade’ principle, where a cap is set on the total amount of certain greenhouse gases that can be emitted by sectors covered by the scheme.

This limits the total amount of carbon that can be emitted.

13 unchanged sentences

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.

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.

As previously reported in the first quarter of 2023, we have lodged a civil and criminal legal claim and insurance claim related to a misappropriation of inventory in Brazil and as a consequence we have written-off $ 7.4 million of our inventory to cost of goods sold in our financial statements.

In the second quarter of 2023, we have incurred additional charges of $ 8.0 million as we exited the Brazilian trading relationship associated with the inventory misappropriation.

The costs incurred in the second quarter include $ 5.0 million to cost of goods sold and $ 3.0 million to selling, general and administration costs.

A corresponding asset for the potential legal or insurance recoveries has not been recorded for the resulting financial losses arising from this matter.

In addition, unrelated to the Brazil matter, in the unlikely event there are an unexpectedly large number of individual claims or proceedings with an adverse resolution, this could in the aggregate have a material adverse effect on the results of operations for a particular year or quarter.

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

This includes guarantees of non-U.S.

excise taxes and customs duties.

1 unchanged sentence

The remaining terms of the fixed maturity guarantees vary from approximately 1 month to 9 years, with some further guarantees having no fixed expiry date.

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.

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.

14 unchanged sentences

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.

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.

6 unchanged sentences

There is no limit to the number of SEUs that can be granted.

As at December 31, 2022 the liability for SEUs of $ 26.4 million is included in accrued liabilities in the consolidated balance 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 re-measured

at each 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.

As at December 31, 2023 the liability for SEUs of $ 23.2 million is included in accrued liabilities in the consolidated balance sheet, where they will remain until they are cash settled.

The fair value of SEUs is re-measured at each 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

5 unchanged sentences

Forfeits are accounted for as an adjustment to the charge in the period in which the forfeits occur.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Transactions in the period

6 unchanged sentences

The expected life was determined based upon historical exercise experience.

The volatility was determined based upon the historical

daily stock price volatilities.

The volatility was determined based upon the historical daily stock price volatilities.

The risk free interest rate was based on the U.S.

3 unchanged sentences

Nonvested at December 31, 2023

Weighted-Average Remaining Contractual Term (years)

Outstanding at December 31, 2022

1 unchanged sentence

Exercisable at December 31, 2023

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other disclosures

As at December 31, 2022, there was $

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

As at December 31, 2023, there was $ 21.3 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 1.7 years.

The total intrinsic value of share-based compensation plans outstanding at December 31, 2023 was $ 69.1 million.

The total intrinsic value of share-based compensation plans exercisable at December 31, 2023 was $ 4.6 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 total intrinsic value of share-based compensation plans exercised, was approximately $ 27.9 million in 2023 and $ 18.1 million in 2022.

The total cash paid for SEUs exercised was approximately $ 16.8 million in 2023 and $ 15.0 million in 2022.

The total fair value of share-based compensation that vested was $ 14.0 million in 2023 and $ 13.0 million in 2022.

The weighted-average grant-date fair value of share-based compensation plans granted during 2023, 2022, and 2021 was $ 94.4 , $ 60.2 , and $ 84.8 , 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.

The Company recorded a current tax charge of $ 0.3 million in 2023, a current tax charge of $ 0.7 million in 2022 and a current tax benefit of $ 1.3 million in 2021, in relation to stock option compensation.

This amount is inclusive of excess tax benefits.

2 unchanged sentences

(in millions)

Details about AOCL Components

Affected Line Item in the

1 unchanged sentence

Income is Presented

Details about AOCL Components

Defined benefit pension plan items:

8 unchanged sentences

See Note 10 of the Notes to the Consolidated Financial Statements for additional information.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Changes in AOCL for 2023, net of tax, were:

8 unchanged sentences

(in millions)

Details about AOCL Components

Affected Line Item in the

1 unchanged sentence

Net Income is Presented

Details about AOCL Components

Defined benefit pension plan items:

14 unchanged sentences

Actuarial net gains arising during the year

Net current period other comprehensive

income/(losses)

Net current period other comprehensive income/(losses)

Balance at December 31, 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No.

Simplifying the Accounting for Income Taxes (Topic 740).

This guidance removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Adopting the new standard on January 1, 2021 has not impacted the Company’s prior period comparatives and has not had a material impact on the Company’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.

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-,

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.

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 do not expect there to be a material impact on the Company’s results.

2023-09, Improvements to Income Tax Disclosures (Topic 740).

This guidance establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing guidance.

Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation.

They must also further disaggregate income taxes paid.

This ASU is effective for fiscal years beginning after December 15, 2024, although early adoption is permitted.

The Company intends to adopt the new standard on January 1, 2025.

We are currently evaluating the impact of adopting this new accounting guidance on our consolidated financial statements, including accounting policies, processes and systems, but we do not expect the adoption of this ASU will have a material impact on the Company’s disclosures.

In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No.

2023-07, Improvements to Reportable Segment Disclosures (Topic 280).

This guidance is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We do not currently expect the adoption of this ASU will have a material impact on the Company’s disclosures.

Related Party Transactions

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.

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 2023, the Company purchased product from AdvanSix for $ 0.4 million (2022 – $ 0.5 million;

2021 - $ 0.4 million).

As at December 31, 2023, the Company owed $ 0.0 million to AdvanSix (December 31, 2022 – $ 0.0 million).

Paller has been a non-executive

director of the Company since November 1, 2009.

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 2022, 2021 and 2020 the Company incurred fees payable to SGR of $ 0.3 million, $ 0.1 million and $ 0.8 million, respectively.

In 2023, the Company incurred fees payable to SGR of $ 0.3 million, (2022 - $ 0.3 million;

2021 - $ 0.1 million).

As at December 31, 2023, the Company owed $ 0.0 million to SGR (December 31, 2022 – $ 0.0 million).

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 2022 for a value

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

of $ 0.1 million (2021 – $ 0.6 million;

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 2023 for a value of $ 0.1 million (2022 - $ 0.1 million;

2021 – $ 0.6 million).

A tendering process is operated periodically

to select the best buyer for the sale of scrap metal by the Company.

A tendering process is operated periodically to select the best buyer for the sale of scrap metal by the Company.

As at December 31, 2023, EMR owed $ 0.0 million (December 31, 2022 – $ 0.0 million).

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data