What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-16 compared with 2021-02-17 · 312 added, 326 removed, 936 unchanged (41% of the section changed)

4 unchanged sentences

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

and its subsidiaries

(the “Company”) as of December 31, 2020 and 2019,

and the related consolidated statements of income, comprehensive income, equity

and cash flows for each of the two years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, 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, 2021, 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, 2021, 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, 2020 and 2019 ,

and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 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, 2021, 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 audits.

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.

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.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the

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.

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.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

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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.

Plant Closure Provision

As described in Notes 2 and 13 to the consolidated financial statements, at December 31, 2020 there is a provision in place for $58.5 million relating to 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.

The Company must comply with environmental legislation in the countries in which it operates or has operated and annually reassesses the program of work required.

This included management developing estimates and assumptions relating to the cost and timing of performing the remediation work.

Management used specialists to develop these estimates.

Costs of future obligations are discounted to their present values using the Company’s credit-adjusted risk-free rate.

The principal considerations for our determination that performing procedures relating to the plant closure provision is a critical audit matter are that there were significant estimates and assumptions made by management over the valuation of the plant closure provision.

This, in turn led to a high degree of auditor judgment, subjectivity and effort in evaluating management’s assumptions including (i) the program of work required and the costs of performing that work;

(ii) the timing of performing the remediation work;

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.

Plant Closure Provisions

As described in Notes 2 and 13 to the consolidated financial statements, at December 31, 2021, the Company has recognized plant closure provisions of $56.5 million principally

relating to asset retirement obligations.

The Company recognizes asset retirement obligations when there is an obligation based on a legal requirement or Company promise, and the 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 includes estimating the credit-adjusted risk free rate and the timing and cost of performing the remediation work.

Management receives input from specialists to develop these estimates and assumptions utilizing the latest information available together with experience of recent costs.

The principal considerations for our determination that performing procedures over the plant closure provision is a critical audit matter are the significant assumptions made by management relating to:

(i) the program of work required;

(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.

This resulted in a high degree of auditor judgment, subjectivity and extent of effort to evaluate management’s estimates and assumptions.

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 valuation of the plant closure provision.

These procedures also included, among others, (i) the use of professionals with specialized skill and knowledge to assist in testing management’s process for determining the plant closure provision.

This included evaluating the appropriateness of the valuation method and the reasonableness of significant assumptions, including the assessment of the program of work required, cost, and timing assumptions developed by management’s specialists;

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

and (iii) evaluating the credit-adjusted risk-free rate applied to calculate the present value of the future obligations.

PricewaterhouseCoopers LLP (signed)

These procedures included testing the effectiveness of controls relating to the determination of the plant closure provision.

These procedures also included, among others:

(i) testing management’s process to develop the estimate;

(ii) evaluating the appropriateness of the valuation method;

(iii) assessing the reasonableness of significant assumptions, including the assessment of the program of work required, and timing and cost of remediation work;

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

and (v) evaluating the credit-adjusted risk-free rate applied to calculate the present value of the future obligations.

Professionals with specialized skill and knowledge were used to assist in performing these audit procedures.

PricewaterhouseCoopers LLP

Manchester, United Kingdom

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We have served as the Company’s auditor since 2019 .

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Innospec Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of income, comprehensive income, cash flows and equity of Innospec, Inc.

and subsidiaries (the Company) for the year ended December 31, 2018, 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 operations of the Company and its cash flows for the year ended December 31, 2018, 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.

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.

We served as the Company’s auditor from 2011 to 2019.

Manchester, United Kingdom

February 20, 2019

CONSOLIDATED STATEMENTS OF INCOME

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Impairment of intangible assets

Profit on disposal

Total operating expenses

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Total comprehensive income for the years ended December 31

Changes in cumulative translation adjustment, net of tax of $ 3.9

million, $( 0.3

) million and $ 2.7 million, respectively

Changes in cumulative translation adjustment, net of tax of $ 2.0 million, $ 3.9 million and $( 0.3 ) million, respectively

Changes in derivative instruments, net of tax of $ 0.0 million, $ 0.0 million and $( 0.4 ) million, respectively

Amortization of prior service credit, net of tax of $ 0.1 million, $ 0.2 million and $ 0.2 million, respectively

Amortization of prior service cost/(credit), net of tax of $( 0.1 ) million, $ 0.1 million and $ 0.2 million, respectively

Amortization of actuarial net losses, net of tax of $( 0.4 ) million, $( 0.2 ) million and $ 0.0 million, respectively

Actuarial net (losses)/gains arising during the year, net of tax of $ 1.9 million, $( 2.2 ) million and $ 3.3 million, respectively

Actuarial net gains/(losses) arising during the year, net of tax of $( 9.0 ) million, $ 1.9 million and $( 2.2 ) million, respectively

Total comprehensive income

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million, respectively)

Inventories (less allowances of $ 19.4

million and $ 14.5

million, respectively):

Inventories (less allowances of $ 25.4 million and $ 19.4 million, respectively):

Finished goods

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Current portion of finance leases

Current portion of operating lease liabilities

Current portion of plant closure provisions

Current portion of accrued income taxes

Current portion of operating lease liabilities

Total current liabilities

Long-term debt, net of current portion

Finance leases, net of current portion

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Other non-current

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

Common stock, $ 0.01

par value, authorized 40,000,000

shares, issued 29,554,500

Additional paid-in

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Impairment of tangible assets

Deferred tax (benefit)/expense

Deferred taxes

Profit on disposal

Cash contributions to defined benefit pension plans

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Accounts payable and accrued liabilities

Accrued income taxes

Plant closure provisions

Accrued income taxes

Unrecognized tax benefits

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Capital expenditures

Business combinations, net of cash acquired

Proceeds on disposal of property, plant and equipment

Internally developed software

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Balance at December 31, 2018

Dividend paid ($ 0.89

Dividend paid ($ 1.02 per share)

Changes in cumulative translation adjustment, net of tax

Share of net income

Change in derivative instruments, net of tax

Changes in derivative instruments, net of tax

Treasury stock re-issued

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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

Actuarial net gains arising during the year, net of tax

Balance at December 31, 2019

Dividend paid ($ 1.02

Dividend paid ($ 1.04 per share)

Changes in cumulative translation adjustment, net of tax

Share of net income

Changes in derivative instruments, net of tax

Treasury stock re-issued

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Amortization of prior service credit, net of tax

Amortization of actuarial net losses, net of tax

Actuarial net gains arising during the year, net of tax

Balance at December 31, 2020

Dividend paid ($ 1.04

Dividend paid ($ 1.16 per share)

Changes in cumulative translation adjustment, net of tax

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Nature of Operation s

Nature of Operations

Innospec develops, manufactures, blends, markets and supplies fuel additives, oilfield chemicals, personal care products and other specialty chemicals.

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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 and production chemicals which make exploration and production more 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 (ceased trading June 30, 2020).

Our Oilfield Services business supplies drilling and production chemicals which make exploration and production more cost-efficient, and more environmentally friendly.

Our principal reportable segments are Fuel Specialties, Performance Chemicals and Oilfield Services.

Accounting Policies

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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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

revenue is recognized.

We have evaluated the contract terms under these arrangements and have determined that control transfers when the customer uses the product, at which time 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.

The performance obligation is satisfied at a point in time when

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

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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:

Components of selling, general and administrative e

Selling expenses comprise the costs of the direct sales force, and the sales management and customer service departments required to support them.

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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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Research and development expenses:

Research and development expens

Research, development and testing costs are expensed to the income statement as incurred.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Earnings per share:

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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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Credit losses:

With an effective date of January 1, 2020, we have applied Accounting Standards Update (ASU) No.

an effective date of January 1, 2020, we have applied Accounting Standards Update (ASU) No.

Financial Instruments – Credit Losses (ASC Topic 326).

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Inventories are stated at the lower of cost (FIFO method) or market value.

includes materials, labor and an appropriate proportion of plant overheads.

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.

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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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

When assets are sold or retired the associated cost and accumulated depreciation are removed from the consolidated financial statements and any

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

related gain or loss is included in earnings.

The estimated useful lives of the major classes of depreciable assets are as follows:

7 to 25 years

3 to 10 years

Goodwill is deemed to have an indefinite life and is subject to at least annual impairment assessments at the reporting unit level.

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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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

of the assets.

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

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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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

impairment of their carrying value.

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The estimated useful lives of the major classes of assets are as follows:

10 to 17 years

Customer lists

10 to 15 years

5 to 10 years

Product rights

9 to 10 years

Internally developed software

Marketing related

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.

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.

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 assets, and operating lease liabilities (current and non-current)

on our consolidated balance sheet at December 31, 2020.

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 December 31, 2020.

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

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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.

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The amortization charge is included in interest expense in the income statement.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Impairment of long-lived assets:

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Environmental compliance and remediation:

Environmental compliance costs include ongoing maintenance, monitoring and similar costs.

We recognize environmental liabilities when they are probable and the costs can be reasonably estimated, and asset retirement obligations when there is a legal obligation and the costs can be reasonably estimated.

Plant closure provisions:

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 or 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.

1 unchanged sentence

This includes estimating the credit-adjusted risk free rate and the timing and cost of performing the remediation work.

Management use specialists to develop these estimates and assumptions utilizing the latest information available together with experience of recent costs.

While we believe our assumptions for environmental liabilities are reasonable, they are subjective judgements and it is possible that variations in any of the assumptions will result in materially different calculations to the liabilities we have reported.

Management receives 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 the liabilities are reasonable, they are subjective estimates 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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Pension plans and other post-employment benefits:

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The Company recognizes accrued interest and penalties associated with unrecognized tax benefits as part of income taxes in our consolidated statements of income.

TO THE CONSOLIDATED

FINANCIAL STATEMENTS—( Continued

Segment Reporting and Geographical Area Data

The 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 ceased trading and is no longer a reporting segment from July 1, 2020, as reported

in our Quarterly Report on Form 10-Q

The 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 ceased trading and is no longer a reporting segment from July 1, 2020, as reported in our Quarterly Report on Form 10-Q

for the quarter ended June 30, 2020.

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

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 chemical solutions for fracturing, stimulation and stimulation operations, products for oil and gas production which aid flow assurance and maintain asset integrity and products to prevent loss of mud in drilling operations.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

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There are no significant customers with sales greater than 10% of our net group sales in the last three financial years.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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(in millions)

Gross profit:

Gross profit/(loss):

Fuel Specialties

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Impairment of intangible assets

Profit on disposal

Total operating income

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions)

Identifiable assets at year end:

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Octane Additives

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Identifiable assets relating to our tetra ethyl lead (“TEL”) operations are included within our Fuel Specialties segment in 2020 and in our Octane Additives segment in 2019 and 2018, as shown in the table above.

Identifiable assets relating to our tetra ethyl lead (“TEL”) operations are included within our Fuel Specialties segment in 2021 and 2020 and in our Octane Additives segment in 2019, as shown in the table above.

Octane Additives ceased trading on June 30, 2020 and is no longer a reporting segment after that date.

As a result, it is now appropriate to report the identifiable assets relating to the remaining TEL production within Fuel Specialties from July 1, 2020.

Our TEL operations historically produced TEL for automotive gasoline, which is reported in our Octane Additives segment for the years presented above, and for our AvTel product line, which is reported in our Fuel Specialties segment.

Our TEL operations historically produced TEL for automotive gasoline, which is reported in our Octane Additives segment for the years presented above, and for our AvGas product line, which is reported in our Fuel Specialties segment.

The Company includes within the corporate costs line item the costs of:

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Sales between areas

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions)

Income before income taxes:

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Rest of World

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions)

Identifiable assets at year end:

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Goodwill has not been allocated by geographical location on the grounds that it would be impracticable to do so.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Earnings per Share

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Net income per share, diluted:

In 2020, 2019 and 2018 the average number

of anti-dilutive options excluded from the calculation of diluted earnings per share were

17,980 , 6,270 and

0 respectively.

In 2021, 2020 and 2019 the average number of anti-dilutive options excluded from the calculation of diluted earnings per share were 18,378 , 17,980 and 6,270 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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

motor gasoline.

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 to the aviation market (“AvTel”), as reported within our Fuel Specialties segment.

The restructuring charge

the future committed costs of environmental monitoring of $ 2.0 million, remediation of facilities of $ 7.5 million, contract termination costs o f

$ 7.2 million, impairment of tangible assets of $ 2.0 million and costs of redundancy due to the down-sizing

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 year

ended December 31

, 2020 the utilization and the unwinding of the discounting was not material.

During the years ended December 31, 2021 and December 31, 2020 the utilization and the unwinding of the discounting was not material.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Property, Plant and Equipment

3 unchanged sentences

Less accumulated depreciation and impairment

Of the total net book value of equipment at December 31, 2020 $ 1.0 million (2019 – $ 1.8 million) are in respect of assets held under finance leases.

Of the total net book value of equipment at December 31, 2021, $ 0.5 million are in respect of assets held under finance leases (2020 – $ 1.0 million).

Depreciation charges were $ 26.3 million, $ 24.7 million and $ 23.6 million in 2021, 2020 and 2019, respectively.

An impairment charge of $ 2.0 million was incurred in 2020

as a result of the Octane Additives segment ceasing to trade on June 30, 2020.

An impairment charge of $ 2.0 million was incurred in 2020 as a result of the Octane Additives segment ceasing to trade on June 30, 2020.

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 10 years , some of which include options to terminate the leases within 1 year .

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The components of lease expense were as follows:

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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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Finance leases

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Supplemental balance sheet information related to leases is as follows:

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Total finance lease liabilities

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions except lease term and discount rate)

Weighted average remaining lease term:

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Less imputed interest

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of December 31, 2020, additional operating and finance leases that have not yet commenced are $

As of December 31, 2021, additional operating and finance leases that have not yet commenced are $ 8.8 million.

Future lease payment for all non-cancellable

4 unchanged sentences

Less imputed interest

As of December 31, 2019, additional operating and finance leases that have not yet commenced are $ 0.0

As of December 31, 2020, additional operating and finance leases that have not yet commenced are $ 0.0 million.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table analyzes goodwill movement for 2021 and 2020.

12 unchanged sentences

Net book amount

TO THE CONSOLIDATED FINANCIAL STATEMENTS—( Continued

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.

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

The Company’s reporting units, the level at which goodwill is tested for impairment, are consistent with the reportable segments:

Fuel Specialties, Performance Chemicals and Oilfield Services.

The Octane Additives segment has ceased trading and is no longer a reporting segment from July 1, 2020, as reported in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

The Octane Additives segment has ceased trading and is no longer a reporting segment from July 1, 2020, as reported in our Quarterly Report on Form 10-Q

for the quarter ended June 30, 2020.

As a result the gross cost and the accumulated impairment losses have been written down to nil .

2 unchanged sentences

If a potential impairment is identified then an impairment test is performed.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company performed its annual impairment assessment in respect of goodwill as at December 31, 2021, 2020 and 2019.

Our impairment assessment concluded that there had been

impairment of goodwill in respect of those reporting units.

Due to the triggering events of the COVID-19 pandemic and the reduction in oil prices and their impact on our business, we performed a step one impairment review at June 30, 2020.

Our impairment assessment concluded that there had been no impairment of goodwill in respect of those reporting units.

Due to the triggering events of the COVID-19

pandemic and the reduction in oil prices and their impact on our business, we performed a step one impairment review at June 30, 2020.

The impairment assessment indicated the fair values substantially exceeded the carrying values for all operating segments.

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

Other intangible assets comprise the following:

The following table analyzes other intangible assets movement for 2021 and 2020.

(in millions)

16 unchanged sentences

were impaired.

The impaired assets relate to technology ($ 10.0 million) and customer relationships ($ 9.8 million).

There was no impairment indicated on the other businesses within the Oilfield Services operating segment.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The net book amount by category of other intangible assets is shown in the following table:

assets relate to technology ($ 10.0 million) and customer relationships ($ 9.8 million).

There was no impairment indicated on the other businesses within the Oilfield Services operating segment.

Other intangible assets at December 31, 2021 were:

(in millions)

2 unchanged sentences

Internally developed software

Other intangible assets at December 31, 2020 were:

(in millions)

Product rights

Customer relationships

Internally developed software

Future amortization expense is estimated to be as follows for the next five years:

(in millions)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Pension and Post-Employment Benefits

United Kingdom plan

The Company maintains a defined benefit pension plan (the “Plan”) covering a number of its 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 Plan is closed to future service accrual but has a large number of deferred and current pensioners.

The Company maintains a defined benefit pension plan covering certain current and former employees in the United Kingdom (the “UK Plan”).

The UK Plan is closed to future service accrual and 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 UK 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 2020, the Company contributed $ 0.0 million (2019 – $ 0.4 million) in cash to the Plan in accordance with an agreement with the trustees.

A mixture across asset classes should nevertheless provide the level of returns required by the UK Plan to meet its liabilities at an acceptable level of risk for the trustees and an acceptable level of cost to the Company.

In 2021, the Company contributed $ 0.0 million (2020 – $ 0.0 million) in cash to the UK Plan in accordance with an agreement with the trustees.

For the year ending December 31, 2022, there are no plans to make cash contributions to the UK Plan.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The net service cost for the twelve months ended December 31, 2020 was $ 1.2 million (twelve months ended December 31, 2019 – $ 0.9 million and twelve months ended December 31, 2018 – 1.2 million) and has been recognized in selling, general and administrative expenses within corporate costs.

The following table shows the income statement effect recognized within other income, net:

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)

Plan net pension (credit)/charge:

Interest cost on PBO

Expected return on plan assets

Amortization of prior service credit

Amortization of prior service cost/(credit)

Amortization of actuarial net losses

Settlement event

Net periodic benefit

Plan assumptions at December 31, (%):

6 unchanged sentences

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 Plan’s liabilities.

The model used to develop the discount rate for the year ending December 31, 2019 has been updated for the year ending December 31, 2020.

Management’s experts have used the same data source as the prior year for the bond rate used to determine the discount rate, however this data source now uses inputs from a different range of categories of bonds.

The impact of this change has resulted in an increase of 0.13 % in the discount rate assumption, which has resulted in a reduction to the Pension Benefit Obligation of around $ 14 million.

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.

A 0.25 % change in the discount rate assumption would change the PBO at December 31, 2020 by approximately

and the net pension credit for 2021 would change by approximately

$ 0.4 million.

A 0.25 % change in the level of price inflation assumption would change the PBO at December 31, 2020 by approximately

$ 19 million and the net pension credit for 2021 by approximately

$ 1.2 million.

A 0.25 % change in the discount rate assumption would change the PBO at December 31, 2021 by approximately $ 22 million and the net pension credit for 2022 would change by approximately $ 1.4 million.

A 0.25 % change in the level of price inflation assumption would change the PBO at December 31, 2021 by approximately $ 14 million and the net pension credit for 2022 by approximately $ 0.3 million.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6 unchanged sentences

Plan amendments

Actuarial losses

Actuarial losses/(gains)

Exchange effect

3 unchanged sentences

Benefits paid

Actual contributions by employer

Actual return on assets

1 unchanged sentence

Closing balance

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 and real estate in order to achieve a more predictable return on assets.

The Plan holds approximately 11 % (December 31, 2019 – 12 %) of the Plan’s assets in debt securities issued by non-US

Net pension asse t

The current investment strategy of the UK Plan is to divest equity securities and real estate in order to achieve a lower risk return on assets from debt securities and cash.

The UK Plan holds approximately 10 % (December 31, 2020 – 11 %) of the Plan’s assets in debt securities issued by non-US

governments and government agencies.

1 unchanged sentence

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.

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.

Debt securities

1 unchanged sentence

Corporate debt securities are classified as Level 2 in line with the industry standard.

Equity backed securities

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

exchange on which they are actively traded.

Equity backed securities

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 level 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.

16 unchanged sentences

Other financial derivatives

Investments measured at net asset

Other asset backed securities:

34 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The projected net service cost for the year ending December 31, 2021 is $ 1.6 million and will be recognized in selling, general and administrative expenses.

The following net pension credit will be recognized in other income and expense:

The projected net periodic benefit for the year ending December 31, 2022 is as follows:

(in millions)

3 unchanged sentences

Amortization of actuarial net losses

In total, there will be a net pension credit of $ 4.4 million to the Innospec’s net income for the year ending December 31, 2021.

Net periodic benefit

The following benefit payments are expected to be made:

(in millions)

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 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 net service cost for the German plan for the twelve months ended December 31, 2020 was $ 0.1 million (twelve months ended December 31, 2019 – $ 0.1 million and twelve months ended December 31, 2018 – $ 0.2 million).

The following table shows the income statement effect recognized within other income and expense:

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)

Plan net pension charge:

Interest cost on PBO

Amortization of actuarial net loss

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Net periodic cost

Plan assumptions at December 31, (%):

2 unchanged sentences

Rate of increase in compensation levels

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Movements in PBO of the German plan are as follows:

4 unchanged sentences

Benefits paid

Actuarial losses

Actuarial losses/(gains)

Exchange effect

Closing balance

As at December 31, 2020, we have post-employment obligations in our European businesses with a liability of $ 5.3 million (December 31, 2019 – $ 4.5 million).

For the year ended December 31, 2020 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 schemes during 2020 were $ 10.3 million (2019 – $ 10.4 million).

As at December 31, 2021, we have post-employment obligations in our Performance Chemicals European businesses with a liability of $ 4.6 million (December 31, 2020 – $ 5.3 million).

For the year ended December 31, 2021 we have recognized an actuarial loss of $ 0.1 million in other comprehensive loss in relation to the Performance Chemicals pension in France (December 31, 2020 – $0.2 million).

Company contributions to defined contribution schemes during 2021 were $ 10.9 million (2020 – $ 10.3 million), across all our reporting segments.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3 unchanged sentences

Additions for tax positions of prior periods

Reductions due to lapsed statute of limitations

Closing balance at 31 December, 2019

Opening balance at January 1, 2020

Reductions for tax positions of prior periods

Additions for tax positions of prior periods

5 unchanged sentences

All of the $ 16.3 million of unrecognised tax benefits would impact our effective tax rate if recognised.

As previously disclosed, a non-US

During 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”).

The Company determined that additional tax and interest totaling $ 1.0 million may arise during the course of the PDCF review process which is currently ongoing.

As previously disclosed, 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 $ 3.3 million may arise as a consequence of the tax audit.

This includes a reduction in interest accrued of $ 0.2 million and an increase for foreign exchange movements of $ 0.2 million recorded during 2020.

This includes additional interest accrued of $ 0.1 million and a reduction for foreign exchange movements of $ 0.2 million recorded during 2021.

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.

As previously disclosed, in 2018 the Company recorded an unrecognized tax benefit in relation to a potential adjustment that could arise as a consequence of the Tax Act, but for

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

which retrospective adjustment to the filed 2017 U.S.

As previously disclosed, 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 $ 12.0 million may arise in relation to this item.

This includes an increase in interest accrued of $ 0.7 million during 2020.

As previously disclosed, in 2015 the Company recorded an unrecognized tax benefit of $ 1.2 million in relation to additional tax that could have arisen if a historical impairment in value of certain of the Company’s non-U.S.

subsidiaries was reversed upon challenge by the tax authorities.

During 2020, the Company released the provision of $ 1.2 million in full, together with accrued interest of $ 0.2 million thereon, following a review of the value of the Company’s investments that confirmed the historical impairment in value undertaken in 2005 was appropriate.

Other non-significant

items, inclusive of interest and penalties, total $ 0.2 million.

This includes a reduction in the unrecognized tax benefit of $ 0.9 million related to adjustments recognized during 2021 that would offset adjustments arising as a consequence of the Tax Act.

This also includes an increase in interest accrued of $ 0.5 million during 2021.

In addition to the items noted above, an amount of $ 0.2 million was also released during 2021 in relation to a non-significant

position taken in a prior period in relation to one of the Company’s non-U.S.

subsidiaries.

This was released following confirmation from the tax authorities that no further amounts fall due.

The Company and its U.S.

subsidiaries remain open to examination by the IRS for years 2017 onwards under the statute of limitations.

subsidiaries remain open to examination by the IRS for certain elements of year 2017 and for years 2018 onwards under the statute of limitations.

The Company’s subsidiaries in foreign tax jurisdictions are open to examination including Spain (2018 onwards), France (2019 onwards), Germany (2018 onwards), Switzerland (2017 onwards) and the U.K.

13 unchanged sentences

Foreign tax rate differential

Tax charge/(credit) from previous

Net charge/(credit) from

unrecognized tax benefits

Tax charge/(credit) from previous years

Net charge/(credit) from unrecognized tax benefits

Foreign currency transactions

4 unchanged sentences

foreign interest

Change in UK statutory tax rate

Change in U.K.

statutory tax rate

State and local taxes

US incentive for foreign derived intangible income

incentive for foreign derived intangible income

Innovation incentives – current year

2 unchanged sentences

officer compensation

Tax on closure of legacy operations

Other items and adjustments, net

The mix of taxable profits generated in the different geographical jurisdictions in which the Group operates continues to have a significant impact on the effective tax rate.

In 2020, a significant proportion of the Group’s profits were generated by non-U.S.

subsidiaries located in higher tax jurisdictions, which negatively impacted on the tax rate.

During 2021, an income tax rate increase was enacted in the U.K..

The increase in the rate of tax from 19 % to 25 % will take effect on 1 April 2023.

The Company’s U.K.

deferred tax liabilities have been revalued at the higher rate.

This revaluation increased the 2021 tax charge by $ 7.3 million and had a significant negative impact on the effective tax rate.

Foreign income inclusions arise each year from certain types of income earned overseas being taxable under U.S.

4 unchanged sentences

The effective tax rate is negatively impacted by the net impact of foreign inclusions post foreign tax credit usage in 2021.

The 2020 effective tax rate was negatively impacted by the change in tax estimates for 2019 when compared to finalized positions as determined for the purpose of filing tax returns.

During 2021, to facilitate the closure of legal entities who had historically operated as part of the Octane Additives business segment, that ceased to operate in June 2020, a reorganization took place to distribute assets unrelated to the Octane Additives business prior to commencing liquidation proceedings.

Tax arising on the distribution of assets in relation to the reorganization totaled $ 2.2 million and this had a negative impact on the effective tax rate.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

An increase in the enacted income tax rate in the UK on the Company’s deferred tax liabilities, which increased the 2020 tax charge by $ 2.7 million, had a negative impact on the effective tax rate.

The effective tax was also positively impacted by increased claims for innovation reliefs in the UK and the US.

This reduced the tax charge in 2020 by $ 4.0 million.

As a consequence of the Company having operations

outside of the U.S., it is exposed to foreign currency fluctuations.

These have a positive effect on the effective tax rate in 2020.

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

Details of deferred tax assets and liabilities are analyzed

The effective tax rate was positively impacted by an increase in foreign-derived intangible income, as a result of U.S.

subsidaries serving non-U.S.

This reduced the tax charge in 2021 by $ 2.0 million which had a positive impact on the effective tax rate.

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

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

(in millions)

5 unchanged sentences

Restructuring provision

Employee related liabilities

Foreign tax credits

6 unchanged sentences

Pension asset

Investment impairment recapture

Customer relationships

Unremitted overseas earnings

Right-of-use assets

Total deferred tax liabilities

2 unchanged sentences

Deferred tax liabilities

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 piece of objective negative evidence evaluated was the cumulative losses incurred in certain jurisdictions over the three-year period ended December 31, 2020.

Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

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

Based on such

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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, 2021, a valuation allowance of $ 0.8 million has been recorded to recognise 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 negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

Gross net operating loss carry forwards of $ 67.1 million result in a deferred tax asset of $ 8.7 million, net of valuation allowances.

The net operating loss carry forwards arose in the U.S.

and in five of the Company’s foreign subsidiaries.

Net operating loss carry forwards of $ 36.5 million arose in the U.S.

It is expected that sufficient taxable profits will be generated in the U.S.

against which $ 10.7 million of State net operating loss carry forwards can be relieved before their expiration in the period 2031 to 2040.

The remaining U.S.

State net operating losses and all U.S.

Federal net operating losses can be carried forward indefinitely without expiration.

Net operating loss carry forwards of $ 30.6 million arose in five of the Company’s foreign

subsidiaries, of which $ 1.3 million were generated in 2020

It is expected that sufficient taxable profits will be generated against which $ 24.4

million of these net operating loss carry forwards can be relieved.

These losses can be carried forward indefinitely without expiration.

As of December 31, 2021, the Company has approximately $ 5.4 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 can be carried forward indefinitely.

The Company also has approximately $ 5.4 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

Long-term debt consists of the following:

(in millions)

Revolving credit facility

Deferred finance costs

Less current portion

As at December 31, 2020, the Company had repaid all of its borrowings under the revolving credit facility and as a result, the related deferred finance costs of $ 1.3 million are now included within other current and

assets at the balance sheet date.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On September 16, 2020, Innospec and certain of its 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 current credit facility, as described below.

As a result, refinancing costs of $ 1.5 million were capitalized which are being amortized over the expected life of 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.

As at December 31, 2021, and December 31, 2020, 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 $ 1.0 million (December 31, 2020 – $ 1.3 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)

1 unchanged sentence

Capitalized in the year

Written down in the year

Accumulated amortization at January 1

Amortization in the year

Amortization written down in the year

Net book value at December 31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Amortization expense was $ 0.3 million, $ 0.4 million and $ 1.0 million in 2021, 2020 and 2019, respectively.

6 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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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, 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.

6 unchanged sentences

Plant Closure Provisions

The Company has continuing plans to close some of its manufacturing facilities at sites around the world as and when those operations are expected to be decommissioned.

The liability for estimated closure costs of Innospec’s manufacturing facilities includes costs for decontamination and environmental remediation activities (“remediation”).

As a result, the principal site giving rise to remediation liabilities is the manufacturing site at Ellesmere Port in the United Kingdom, which management believes is the last ongoing manufacturer of TEL.

There are also remediation liabilities on a much smaller scale in respect of our other manufacturing sites in the U.S.

The Company has continuing plans to remediate manufacturing facilities at sites around the world as and when those operations are expected to cease or we are required to decommission the sites according to local laws and regulations.

The liability for estimated plant closure costs includes costs for environmental remediation liabilities and asset retirement obligations.

The principal site giving rise to asset retirement obligations is the manufacturing site at Ellesmere Port in the United Kingdom.

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:

8 unchanged sentences

Due after one year

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 2021 represents the accretion expense recognized of $ 3.8 million and a further $ 0.1 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 has been a one-off

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

We recognize environmental 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.

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.

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 or 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.

Remediation expenditure utilized provisions of $ 4.1 million, $ 4.4 million and $ 3.1 million in 2020, 2019 and 2018, respectively.

Expenditure utilizing plant closure provisions was

$ 5.3 million, $ 4.1 million and $ 4.4 million in 2021, 2020 and 2019, respectively.

Fair Value Measurements

4 unchanged sentences

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.

The Company primarily applies the market approach for recurring fair value measurements and

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

4 unchanged sentences

In 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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the carrying amount and fair values of the Company’s assets and liabilities measured on a recurring basis:

6 unchanged sentences

Other current and non-current

Foreign currency forward exchange contracts

Emissions Trading Scheme credits

Non-derivatives:

Long-term debt (including current portion)

Finance leases (including current portion)

Derivatives (Level 1 measurement):

Other current liabilities:

Foreign currency forward exchange contracts

5 unchanged sentences

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

Emissions Trading Scheme credits:

The fair value is determined by the open market pricing at the end of the reporting period.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Long-term debt and finance leases:

7 unchanged sentences

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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock equivalent units:

2 unchanged sentences

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, as the need arises.

The Company does use derivatives to manage certain interest rate, foreign currency exchange rate, raw material cost exposures and greenhouse gases emission allowances, as the need arises.

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

4 unchanged sentences

As at December 31, 2021, foreign currency forward exchange contracts with a notional value of $ 113 million were in place (December 31, 2020 $ 127.2 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 2020 was a loss of $ 1.5 million (2019 – gain $ 1.5 million).

These foreign currency forward exchange contracts have not been designated as hedging instruments, and their impact on the income statement for 2021 was a gain of $ 1.0 million (2020 – loss $ 1.5 million).

As at December 31, 2021 and December 31, 2020 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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

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, 2021, the Company held UK ETS credits of $ 3.9 million (December 31, 2020 – $ 0.0 million).

The Company sells a range of specialty chemicals to major oil refiners and chemical companies throughout the world.

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Commitments and Contingencies

Environmental remediation obligations

Commitments in respect of environmental remediation obligations are disclosed in Note 13

of the Notes to the Consolidated Financial Statements.

Environmental remediation liabilities and asset retirement obligations

Commitments in respect of environmental remediation liabilities and asset retirement obligations are disclosed in Note 13 of the Notes to the Consolidated Financial Statements.

Capital commitments

The estimated additional cost to complete work in progress at December 31, 2021 is $ 23.5 million (2020 – $ 14.7 million).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Contingencies

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As at December 31, 2021, such guarantees which are not recognized as liabilities in the consolidated financial statements amounted to $ 4.6 million (December 31, 2020 – $ 9.9 million).

The remaining terms of the fixed maturity guarantees vary from 1 month to 3 years, with some further guarantees having no fixed expiry date.

The remaining terms of the fixed maturity guarantees vary from approximately 1 month to 5 years, with some further guarantees having no fixed expiry date.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

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At December 31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At December 31, 2021, the Company had authorized common stock of 40,000,000 shares (2020 - 40,000,000 ).

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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.

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Expected life

Volatility (daily)

Risk free interest rate

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Outstanding at December 31, 2021

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At December 31, 2020, there were 42,657 stock options that were exercisable, 15,611 had performance conditions attached.

At December 31, 2021, there were 107,383

(Weighted Average Exercise Price $ 22.54 , Weighted Average Grant-Date Fair Value $ 43.65 ) stock options that were exercisable

66,190 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.

The stock option compensation cost for 2021, 2020 and 2019 was $ 4.4 million, $ 5.8 million and $ 6.6 million, respectively.

The total intrinsic value of options exercised in 2020, 2019 and 2018 was $ 4.9 million, $ 3.5 million and $ 3.2 million, respectively.

The total intrinsic value of options exercised in 2021, 2020 and 2019 was $ 3.7 million, $ 4.9 million and $ 3.5

million, respectively.

The total intrinsic value of options outstanding at December 31, 2021 is $ 20.7 million.

The total compensation cost related to non-vested

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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)

Stock equivalent units

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SEUs are cash settled equity instruments conditional on certain performance criteria and linked to the Innospec Inc.

SEUs have vesting periods ranging from 2 to 5 years and in all cases SEUs granted expire within 10 years of the date of grant.

SEUs have vesting periods ranging from six months to 5 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.

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Expected life

Volatility (daily)

Risk free interest rate

TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the transactions of the Company’s SEUs for the year ended December 31, 2021:

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Outstanding at December 31, 2021

At December 31, 2020, there were 53,146 SEUs that were exercisable, 46,614 had performance conditions attached.

At December 31, 2021, there were 25,877

(Weighted Average Exercise Price $ 12.41 , Weighted Average Grant-Date Fair Value $ 47.12 ) SEUs that were exercisable

21,074 had performance conditions attached.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The charges for SEUs are spread over the life of the award subject to a revaluation to fair value each quarter.

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The SEU compensation cost for 2021, 2020 and 2019 was $ 3.1 million, $ 1.9 million and $ 20.1 million, respectively.

The total intrinsic value of SEUs exercised in 2020, 2019 and 2018 was $ 6.3 million, $ 7.3 million and $ 2.7 million, respectively.

The total intrinsic value of SEUs exercised in 2021, 2020 and 2019 was $ 1.8 million, $ 6.3 million and $ 7.3

million, respectively.

The total intrinsic value of SEUs outstanding at December 31, 2021 is $ 46.4 million.

The weighted-average remaining vesting period of non-vested

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Statement where

Income is Presented

Net Income is Presented

Details about AOCL Components

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Total reclassifications

These items are included in the computation of net periodic pension cost.

of the Notes to the Consolidated Financial Statements for additional information.

Changes in accumulated other comprehensive loss for 2021, net of tax, were:

(in millions)

Balance at December 31, 2020

Other comprehensive income before reclassifications

Amounts reclassified from AOCL

Actuarial net gains arising during the year

Net current period other comprehensive income

Balance at December 31, 2021

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Reclassifications out of accumulated other comprehensive loss for 2020 were:

(in millions)

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

See (1) below

Amortization of actuarial net losses

See (1) below

Total before tax

Income tax expense

Total reclassifications

These items are included in the computation of net periodic pension cost.

See Note 9 of the Notes to the Consolidated Financial Statements for additional information.

of the Notes to the Consolidated Financial Statements for additional information.

Changes in accumulated other comprehensive loss for 2020, net of tax, were:

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Simplifying the Accounting for Income Taxes (Topic 740).

This 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, with early adoption permitted.

The Company will be applying this ASU from January 1, 2021.

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 adoption will have a material impact on the Company’s disclosures.

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.

2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848).

This provides various practical expedients to account for

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

contract modification for loan agreements, lease agreements and derivative instruments currently referencing the London Interbank Offered Rate (“LIBOR”) up to December 31, 2022

At December 31, 2021 the Company has not modified contracts covered by this ASU to change a reference to LIBOR.

We will continue to evaluate the use of the expedients covered by this ASU through 2022, but we do not expect there to be a material impact on the Company’s results.

Related Party Transactions

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director of AdvanSix, a chemicals manufacturer, since February 2020.

In 2020 the Company purchased product from AdvanSix for $ 0.3

As at December 31, 2020, the Company owed $ 0.0

million to AdvanSix.

In 2021 the Company purchased product from AdvanSix for $ 0.4 million (2020 – $ 0.3 million).

As at December 31, 2021, the Company owed $ 0.1 million to AdvanSix (December 31, 2020 – $ 0.0 million).

Paller has been a non-executive

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Paller holds a position.

In 2020, 2019 and 2018 the Company incurred fees payable to SGR of $ 0.8

million, $ 0.5

million and $ 0.3

million, respectively.

As at December 31, 2020 the Company owed $ 0.1

million to SGR

(December 31, 2019 – $ 0.0 million).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In 2021, 2020 and 2019 the Company incurred fees payable to SGR of $ 0.1 million, $ 0.8 million and $ 0.5 million, respectively.

As at December 31, 2021 the Company owed $ 0.0 million to SGR (December 31, 2020 – $ 0.1 million).

Landless has been a non-executive

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director of Ausurus Group Limited which owns European Metal Recycling Limited (“EMR”).

The Company has sold scrap metal to EMR in 2020 for a value of $ 0.2

The Company has sold scrap metal to EMR in 2021 for a value of $ 0.6 million (2020 – $ 0.2 million;

2019 – $ 0.4 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, 2020 EMR owed $ 0.0

million (December 31, 2019 – $ 0.0

As at December 31, 2021 EMR owed $ 0.0 million (December 31, 2020 – $ 0.0 million).

Subsequent Events

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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