What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-22 compared with 2022-02-16 · 265 added, 289 removed, 959 unchanged (37% of the section changed)

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Innospec Inc.

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, 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”).

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

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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.

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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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.

As described in Notes 2 and 13 to the consolidated financial statements, at December 31, 2022, the Company has recognized plant closure provisions of $57.2 million, the majority of which relates to asset retirement obligations.

The Company recognizes asset retirement obligations when there is an obligation based on a legal requirement, including those arising from Company promises, 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.

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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.

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

The principal considerations for our determination that performing procedures relating to the plant closure provisions is a critical audit matter are:

(i) the significant judgment made by management when developing the estimate;

(ii) a high degree of auditor judgment and subjectivity in applying procedures relating to the recognition and measurement of the asset retirement obligations;

(iii) the audit effort involved the use of professionals with specialized skill and knowledge;

and (iv) the significant audit effort in evaluating the significant assumptions related to:

the program of work required;

and the timing and cost of performing the remediation work.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

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

These procedures included testing the effectiveness of controls relating to the recognition and measurement of the plant closure provisions.

These procedures also included, among others:

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

(i) testing management’s process to recognize and measure 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

(iii) testing the data used in the calculation of the estimate;

(iv) evaluating the reasonableness of significant assumptions including the assessment of the program of work required;

the timing and cost of performing the remediation work;

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.

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.

/s/ PricewaterhouseCoopers LLP

Manchester, United Kingdom

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Operating income

Other income, net

Other (expense)/income, net

Interest expense, net

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Weighted average shares outstanding (in thousands):

The accompanying notes are an integral part of these statements.

accompanying notes are an integral part of these statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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Changes in cumulative translation adjustment, net of tax of $ 5.5 million, $ 2.0 million and $ 3.9 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 cost/(credit), net of tax of $( 0.1 ) million, $( 0.1 ) million and $ 0.1 million, respectively

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Total comprehensive income

The accompanying notes are an integral part of these statements.

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 $ 5.1

million and $ 4.5

million, respectively)

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

Inventories (less allowances of $ 27.1 million and $ 25.4 million, respectively):

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Total current liabilities

Finance leases, net of current portion

Operating lease liabilities, 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

Total liabilities

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

Additional paid-in

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Total liabilities and equity

The accompanying notes are an integral part of these statements.

accompanying notes are an integral part of these statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Profit on disposal

Cash contributions to defined benefit pension plans

income of defined benefit pension plans

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Repayments of revolving credit facility

Repayment of term loans

Repayment of finance leases

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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

Actuarial net gains arising during the year, net of tax

Amortization of actuarial net losses, net of tax

Actuarial net losses

arising during the year, net of tax

Balance at December 31, 2020

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Stock option compensation

Amortization of prior service credit, net of tax

Amortization of prior service cost, net of tax

Amortization of actuarial net losses, net of tax

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Changes in cumulative translation adjustment, net of tax

Share of net income

Non-controlling

interest investment

Treasury stock re-issued

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Stock option compensation

Amortization of prior service credit, net of tax

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

Actuarial net losses

arising during the year, net of tax

Balance at December 31 2022

The accompanying notes are an integral part of these statements.

accompanying notes are an integral part of these statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Nature of Operations

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

Our products are sold primarily to oil and gas exploration and production companies, oil refiners, personal care and home care companies, formulators of agrochemical and metal extraction preparations and other chemical and industrial companies throughout the world.

Our fuel additives help improve fuel efficiency, boost engine performance and reduce harmful emissions.

Our Performance Chemicals business provides effective technology-based solutions for our customers’ processes or products focused in the personal care, home care, agrochemical and metal extraction markets.

Our Oilfield Services business supplies drilling 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.

Innospec develops, manufactures, blends, markets and supplies a wide range of specialty chemicals to markets in the Americas, Europe, the Middle East, Africa and Asia-Pacific.

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

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

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

Accounting Policies

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The consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America on a going concern basis and include all subsidiaries of the Company where the Company has a controlling financial interest.

All significant intercompany accounts and balances have been eliminated upon consolidation.

All intercompany accounts and balances have been eliminated upon consolidation.

In accordance with GAAP in the United States of America, the results of operations of an acquired or disposed business are included or excluded from the consolidated financial statements from the date of acquisition or disposal.

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Our contracts generally include one performance obligation, which is providing specialty chemicals.

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.

The performance obligation is satisfied at a point in time when products are shipped, delivered, or consumed by the customer, depending on the underlying contracts.

While some of our customers have payment terms beyond 30 days, we do not provide extended payment terms of a year or more, nor do our contracts include a financing component.

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

We record rebates at the point of sale as a reduction in sales when we can reasonably estimate the amount of the rebate.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

record rebates at the point of sale as a reduction in sales when we can reasonably estimate the amount of the rebate.

The estimates are based on our best judgment at the time of sale, which includes anticipated as well as historical performance.

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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 e

Components of selling, general and administrative expenses:

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

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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.

Research and development expens

Research and development expenses:

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

In entities where the U.S.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

where the U.S.

dollar is the functional currency no gains or losses on translation occur, and gains or losses on monetary assets relating to currencies other than the U.S.

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

Stock-based compensation plans:

-based compensation plans:

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

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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:

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

Financial Instruments – Credit Losses (ASC Topic 326).

This replaces the incurred loss impairment methodology under previous GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The standard was adopted using prospective application and principally impacts the allowance for trade and other accounts receivables.

Upon adoption, there was no adjustment made to opening retained earnings as at January 1, 2020.

As a result of implementing the standard, the Company did not recognize any material change to the allowance within trade and other accounts receivable as at January 1, 2020.

Trade and other accounts receivable are shown net of a $ 5.1 million allowance at December 31, 2021.

The allowance remains immaterial to the financial statements.

The Company is exposed to credit losses primarily through sales of products.

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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 .

The Company considered the current and expected future economic and market conditions surrounding the COVID-19

pandemic and determined that the estimate of credit losses was not significantly impacted.

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

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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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 related gain or loss is included in earnings.

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

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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 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 Fuel Specialties, Performance Chemicals and Oilfield Services segments is December 31 each year.

Initially we perform a qualitative assessment to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reportable segment is less than the carrying amount prior to performing a quantitative goodwill impairment test.

The annual measurement date for impairment assessment of the goodwill relating to the Performance Chemicals, Fuel Specialties 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.

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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.

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.

We would develop these assumptions by considering recent financial performance and industry growth estimates.

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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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Internally developed software

3 to 10 years

Marketing related

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)

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.

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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.

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Deferred finance costs:

The costs relating to debt financing are capitalized are amortized using the effective interest method over the expected life of the debt financing facility.

The costs relating to debt financing are capitalized and amortized using the effective interest method over the expected life of the debt financing facility.

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Impairment of long-lived assets:

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Derivative instruments:

From time to time,

time to time,

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

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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 earnings.

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

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.

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.

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.

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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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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Prior service costs and credits and actuarial gains and losses are amortized over the average remaining life expectancy of the inactive participants using the corridor method.

Movements in the underlying plan asset value and Projected Benefit Obligation (“PBO”) are dependent on actual return on investments as well as our assumptions in respect of the discount rate, annual member mortality rates, future return on assets and future inflation.

The insurance contracts are adjusted each reporting period to reflect the estimated fair value of the premium that would be paid for such contracts at that time.

In May 2022, the Trustees of the United Kingdom defined benefit pension plan (“UK Plan”) entered into an agreement with Legal and General Assurance Society Limited to acquire an insurance policy that operates as an investment asset, with the intent of matching the remaining uninsured part of the UK Plan’s future cash outflow arising from the accrued pension liabilities of members.

Such an arrangement is commonly termed as a “buy-in”.

The benefit obligation was not transferred to the insurer, and the Company remains responsible for paying pension benefits.

The initial value of the asset associated with this contract was equal to the premium paid to secure the contract and is adjusted each reporting period to reflect the estimated fair value of the premium that would be paid for such a contract at that time.

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)

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.

Income taxes:

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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

for the quarter ended June 30, 2020.

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, 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)

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.

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

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)

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

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(in millions)

Refinery and Performance

Fuel Specialties

Personal Care

Performance Chemicals

Oilfield Services

Octane Additives

(in millions)

Gross profit/(loss):

Refinery and Performance

Fuel Specialties

Performance Chemicals

Oilfield Services

Octane Additives

Operating income/(expense):

Fuel Specialties

Performance Chemicals

Fuel Specialties

Oilfield Services

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Total operating income

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions)

Identifiable assets at year-end:

Fuel Specialties

Performance Chemicals

Fuel Specialties

Oilfield Services

Octane Additives

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 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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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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Sales between areas

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(in millions)

Income before income taxes:

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

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)

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

Earnings per Share

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Work in progress

Total gross cost

Less accumulated depreciation and impairment

Total net book value

Of the total net book value of equipment at December 31, 2022, $ 0.0 million are in respect of assets held under finance leases (2021 – $ 0.5 million).

Depreciation charges were $ 25.7 million, $ 26.3 million and $ 24.7 million in 2022, 2021 and 2020, 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.

We have operating and finance leases for toll manufacturing facilities, warehouse storage, land, buildings, plant and equipment.

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At December 31, 2020

Gross cost (1)

Accumulated impairment losses

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Net book amount

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.

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

Performance Chemicals, Fuel Specialties and Oilfield Services.

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.

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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, 2022, 2021 and 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

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Gross cost at January 1

Written down in the year

Exchange effect

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Amortization expense

Written down in the year

Exchange effect

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Excluding the impact of foreign exchange translation on the balance sheet, $ 2.3 million, $ 2.3 million and $ 2.9 million of amortization, respectively, was recognized in cost of goods sold, and the remainder was recognized in selling, general and administrative expenses.

During the quarter ended June 30, 2020, the Company performed an impairment review over the assets of each operating segment.

This indicated the fair values substantially exceeded the carrying values for all operating segments.

Further, the Company also performed an impairment review over each of the businesses within the Oilfield Services segment, as a result of reduction in demand for drilling related products.

A discounted cash flow analysis was performed to determine the fair value of the assets.

This indicated that the intangible assets arising from the acquisition of Strata Control Services Inc.

were impaired.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

we capitalized $ 2.7 million in relation to our internally developed software for a new Enterprise Resource Planning (“ERP”) system covering our EMEA and ASPAC regions.

The expenses capitalized include the acquisition costs for the software as well as the external and internal costs of the development.

We are expecting to complete the project in the first half of 2024 with the additional completion costs currently planned to be approximately

$ 25.0 million.

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

Other intangible assets at December 31, 2022 were:

3 unchanged sentences

Internally developed software

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other intangible assets at December 31, 2021 were:

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(in millions)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Pension and Post-Employment Benefits

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Normal retirement age is 65 but provisions are made for early retirement.

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 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.

In May 2022, the Trustees of the UK Plan entered into an agreement with Legal and General Assurance Society Limited to acquire an insurance policy that operates as an investment asset, with the intent of matching the remaining uninsured part of the UK Plan’s future cash outflow arising from the accrued pension liabilities of members.

Such an arrangement is commonly termed as a “buy-in”.

The benefit obligation was not transferred to the insurer, and the Company remains responsible for paying pension benefits.

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)

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.

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.

(in millions)

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Equity securities and real estate

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.

Following the buy-in,

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

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, 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)

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

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 $

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

(in millions)

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Closing balance

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

Net pension asset

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

governments and government agencies.

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

For the vast majority of assets, a market approach is adopted to assess the fair value of the assets, with the inputs being the quoted market prices for the actual securities held in the relevant fund.

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)

Debt securities

Fixed income securities are valued based on quotations received from independent pricing services or from dealers who make markets in such securities and are classified as Level 1.

In the prior year, fixed income securities are valued based on quotations received from independent pricing services or from dealers who make markets in such securities and are classified as Level 1.

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

In the prior year, common and preferred stock for which market prices are readily available at the measurement date are valued at the last reported sale price or official closing price on the primary market or exchange on which they are actively traded.

Other financial derivatives are classified as 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.

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

The value of the insurance contract is 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.

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.

Therefore, we have classified the contracts as Level 3 investments.

Fair value estimates are provided by external parties and are subsequently reviewed and approved by management.

The Company also invests in real estate as a low risk asset backed security, classified as Level 1.

The fair values of pension assets by level of input were as follows:

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Other financial derivatives

Investments measured at net asset value (1)

Other asset backed securities:

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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 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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As at December 31, 2022, we have post-employment obligations in our Performance Chemicals European businesses with a liability of $ 4.1 million (December 31, 2021 – $ 4.6 million).

For the year ended December 31, 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).

For the year ended December 31, 2022 we have recognized an actuarial gain of $ 0.3 million in other comprehensive loss in relation to the Performance Chemicals pension in France (December 31, 2021 – $0.1 million).

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

3 unchanged sentences

Opening balance at January 1, 2020

Reductions for tax positions of prior periods

Additions for tax positions of prior periods

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Closing balance at 31 December, 2022

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

During 2021, a non-U.S.

All of the $ 13.4 million of

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

In 2021 a non-U.S.

subsidiary, Innospec Limited, entered into a review by the U.K.

tax authorities under the U.K.’s Profit Diversion Compliance Facility (“PDCF”).

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.

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.

subsidiary, Innospec Performance Chemicals Italia Srl, is subject to an ongoing tax audit in relation to the period 2011 to 2014 inclusive.

The Company has determined that additional tax, interest and penalties totaling $ 3.2 million may arise as a consequence of the tax audit.

This includes additional interest accrued of $ 0.1 million 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.

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

$ 0.2 million foreign exchange movements recorded during 2022.

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 $ 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.

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.

subsidiaries remain open to examination by the IRS for certain elements of 2017 year and for years 2019 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.

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

(2017 onwards).

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State and local

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Cash payments for income taxes were $ 50.0 million, $ 36.8 million and $ 23.4 million during 2022, 2021 and 2020, respectively.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The effective tax rate varies from the U.S.

6 unchanged sentences

Foreign currency transactions

Effect of U.S.

tax law change

Tax on unremitted earnings

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Other items and adjustments, net

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 2022.

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)

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.

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)

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

9 unchanged sentences

Operating lease liabilities

Inventory provisions

Research and experimental expenditure

Less valuation allowance

11 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

Based on such

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)

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.

$ 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.

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.

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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.

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.

Long-Term Debt

As at December 31, 2021, and December 31, 2020, the Company has

no t drawn down on its revolving credit facility.

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 .

8 unchanged sentences

Net book value at December 31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Amortization expense was $ 0.4 million, $ 0.3 million and $ 0.4 million in 2022, 2021 and 2020, respectively.

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.

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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.

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.

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, including those arising from a Company promise, and the costs can be reasonably estimated.

The Company has to anticipate the program of work required and the associated future expected costs, and comply with environmental legislation in the countries in which it operates or has operated in.

Expenditure utilizing plant closure provisions was

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

Expenditure utilizing plant closure provisions was $ 4.2 million, $ 5.3 million and $ 4.1 million in 2022, 2021 and 2020, respectively.

Fair Value Measurements

3 unchanged sentences

The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.

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

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.

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

The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information.

Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

24 unchanged sentences

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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Long-term debt and finance leases:

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.

Finance leases relate to certain fixed assets in our Fuel Specialties and Oilfield Services segments.

The carrying amount of long-term debt and finance leases approximates to the fair value.

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.

8 unchanged sentences

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

As at December 31, 2021 and at December 31, 2020, there were no interest rate swaps in place with all swaps having been settled during 2019.

As at December 31, 2022 and at December 31, 2021, 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.

The interest rate swaps in the prior years were designated as hedging instruments, and their impact on other comprehensive loss for 2019 was a loss of $ 1.9 million.

The Company enters into various foreign currency forward exchange contracts to minimize currency exchange rate exposure from expected future cash flows.

As at December 31, 2022, foreign currency forward exchange contracts with a notional value of $ 161.1 million were in place (December 31, 2021 $ 113.0 million), with maturity dates of up to one year from the date of inception.

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

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.

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

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)

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.

can be emitted by sectors covered by the scheme.

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

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The estimated additional cost to complete work in progress at December 31, 2022 is $ 37.7 million (2021 – $ 23.5 million).

Internally developed software

The estimated additional cost to complete work in progress at December 31, 2022 is $ 25.0 million (2021 – $ 0.0 million).

Contingencies

3 unchanged sentences

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 guarantees of non-U.S.

This includes

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

excise taxes and customs duties.

1 unchanged sentence

The remaining terms of the fixed maturity guarantees vary from approximately 1 month to 4 years, with some further guarantees having no fixed expiry date.

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.

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.

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At December 31, 2022, the Company had authorized common stock of 40,000,000 shares (2021 - 40,000,000 ).

Stock-Based Compensation Plans

Share-Based Compensation Plans

Stock option plans

8 unchanged sentences

The fair value of stock options is measured on the grant date using either the Black-Scholes model, or in cases where performance criteria are dependent upon external factors such as the Company’s stock price, using a Monte Carlo model.

The following weighted average assumptions were used to determine the grant-date fair value of options:

Dividend yield

Expected life

Volatility (daily)

Risk free interest rate

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

Outstanding at December 31, 2020

Granted – at discount

– at market value

Outstanding at December 31, 2021

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 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

stock options not yet recognized at December 31, 2021 was $ 7.1 million and this cost is expected to be recognized over the weighted-average period of 1.93 years.

In 2021, the Company recorded a current tax benefit of $ 1.3 million in respect of stock option compensation (2020 – $ 1.6 million).

This amount is inclusive of excess tax benefits.

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock equivalent units

The Company awards Stock Equivalent Units (“SEUs”) from time to time as a long-term performance incentive.

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

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

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.

1 unchanged sentence

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

As at December 31, 2021 the liability for SEUs of $ 17.3 million is included in accrued liabilities in the consolidated balance sheets until they are cash settled.

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 measured at the balance sheet date using either the Black-Scholes model, or in cases where performance criteria are dependent upon external factors such as the Company’s stock price, using a Monte Carlo model.

The following assumptions were used to determine the fair value of SEUs at the balance sheet dates:

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

The compensation cost recorded for stock options was $ 6.7 million, $ 4.4 million and $ 5.8 million for 2022, 2021 and 2020, respectively.

The compensation cost for stock options is based on the grant-date fair value and spread evenly over the vesting period.

The compensation cost recorded for SEUs was $ 24.2 million, $ 3.1 million and $ 1.9 million for 2022, 2021 and 2020, respectively.

The compensation cost for SEUs is spread over the life of the award subject to a revaluation to the fair value at each quarter end.

The revaluation may result in a charge or a credit to the income statement in each quarter dependent upon our share price movements and other performance criteria.

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

The fair value of each stock option or SEU granted in the year was estimated on the date of grant using the Black-Scholes option-pricing model and where appropriate the Monte Carlo simulation model.

These models utilized the following weighted average assumptions to determine the grant-date fair values of the share-based compensation granted in the year:

Dividend yield

Expected life

Volatility (daily)

Risk free interest rate

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

The dividend yield was based on our recent history of dividend payouts.

The expected life was determined based upon historical exercise experience.

The volatility was determined based upon the historical

daily stock price volatilities.

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

Federal Reserve 3 year interest rate at the grant dates, which approximates to the expected term of the options.

The following tables summarizes the transactions of the Company’s share-based compensation plans for the year ended December 31, 2022.

Nonvested at December 31, 2021

Nonvested at December 31, 2022

Outstanding at December 31, 2021

Granted – at discount

– at market value

Outstanding at December 31, 2022

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.

Exercisable at December 31, 2022

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.

The revaluation may result in a charge or a credit to the income statement in the quarter dependent upon our share price and other performance criteria.

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 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

SEUs is 1.31 years.

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

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

The total intrinsic value of share-based compensation plans outstanding at December 31, 2022 was $ 71.5 million.

The total intrinsic value of share-based compensation plans exercisable at December 31, 2022 was $ 9.7 million.

The total intrinsic value of share-based compensation plans exercised for the year ended December 31, 2022 was approximately $ 18.1 million.

The total cash paid for SEUs exercised for the year ended December 31, 2022 was approximately $ 15.0 million.

The total fair value of share-based compensation that vested for the year ended December 31, 2022 was $ 13.0 million.

The weighted-average grant-date fair value of share-based compensation plans granted during 2022, 2021, and 2020 was $ 60.2 , $ 84.8 , and $ 72.4 , respectively.

The Company recorded a current tax charge of $ 0.7 million in 2022, and a current tax benefit of $ 1.3 million and $ 1.6 million in 2021 and 2020, respectively, in relation to stock option compensation.

This amount is inclusive of excess tax benefits.

Reclassifications out of Accumulated Other Comprehensive Loss

Reclassifications out of accumulated other comprehensive loss for 2021 were:

Reclassifications out of accumulated other comprehensive loss (“AOCL”) for 2022 were:

(in millions)

Affected Line Item in the

Statement where

Net Income is Presented

Statement where Net

Income is Presented

Details about AOCL Components

Defined benefit pension plan items:

Amortization of prior service credit

Amortization of prior service cost

See (1) below

5 unchanged sentences

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:

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 2022, net of tax, were:

(in millions)

Balance at December 31, 2021

Other comprehensive income before reclassifications

Other comprehensive income/(losses) before reclassifications

Amounts reclassified from AOCL

Actuarial net gains arising during the year

Net current period other comprehensive income

Actuarial net gains/(losses) arising during the year

Net current period other comprehensive income/(losses)

Balance at December 31, 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Reclassifications out of accumulated other comprehensive loss for 2020 were:

Reclassifications out of AOCL for 2021 were:

(in millions)

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Defined benefit pension plan items:

Amortization of prior service credit

Amortization of prior service cost

See (1) below

5 unchanged sentences

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 2020, net of tax, were:

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

Changes in AOCL for 2021, net of tax, were:

(in millions)

Balance at December 31, 2020

Other comprehensive income before reclassifications

Other comprehensive income/(losses) before reclassifications

Amounts reclassified from AOCL

Actuarial net gains arising during the year

Net current period other comprehensive income

Net current period other comprehensive

income/(losses)

Balance at December 31, 2021

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recently Issued Accounting Pronouncements

6 unchanged sentences

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.

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.

Related Party Transactions

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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 2021 for a value of $ 0.6 million (2020 – $ 0.2 million;

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;

2020 – $ 0.2 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, 2022 EMR owed $ 0.0 million (December 31, 2021 – $ 0.0 million).

Subsequent Events

The Company has evaluated subsequent events through the date that the consolidated financial statements were issued, and has concluded that no additional disclosures are required in relation to events subsequent to the balance sheet date.

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