INNOSPEC INC., 10-Q filed on 06 Nov 19
v3.19.3
Cover Page - shares
9 Months Ended
Sep. 30, 2019
Oct. 31, 2019
Cover [Abstract]    
Amendment Flag false  
Document Type 10-Q  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Document Quarterly Report true  
Document Transition Report false  
Current Fiscal Year End Date --12-31  
Document Period End Date Sep. 30, 2019  
Entity File Number 1-13879  
Entity Registrant Name INNOSPEC INC.  
Entity Central Index Key 0001054905  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 98-0181725  
Entity Address, Postal Zip Code 80112  
City Area Code 303  
Local Phone Number 792 5554  
Security Exchange Name NASDAQ  
Title of 12(b) Security Common stock  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   24,495,893
Entity Address, Address Line One 8310 South Valley Highway  
Entity Address, Address Line Two Suite 350  
Entity Address, City or Town Englewood  
Entity Address, State or Province CO  
Trading Symbol IOSP  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
v3.19.3
Condensed Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Income Statement [Abstract]        
Net sales $ 371.9 $ 363.1 $ 1,122.6 $ 1,081.9
Cost of goods sold (252.8) (252.1) (774.6) (763.6)
Gross profit 119.1 111.0 348.0 318.3
Operating expenses:        
Selling, general and administrative (71.2) (64.7) (214.9) (197.8)
Research and development (9.7) (8.1) (27.0) (25.1)
Restructuring charge (0.0) (4.8) (0.0) (4.8)
Total operating expenses (80.9) (77.6) (241.9) (227.7)
Operating income 38.2 33.4 106.1 90.6
Other income/(expense), net 1.0 (1.2) 5.1 4.3
Interest expense, net (1.4) (1.8) (4.1) (5.3)
Income before income tax expense 37.8 30.4 107.1 89.6
Income tax expense (7.7) (9.8) (26.0) (25.0)
Net income $ 30.1 $ 20.6 $ 81.1 $ 64.6
Earnings per share:        
Basic $ 1.23 $ 0.84 $ 3.31 $ 2.65
Diluted $ 1.22 $ 0.84 $ 3.28 $ 2.63
Weighted average shares outstanding (in thousands):        
Basic 24,491 24,419 24,476 24,399
Diluted 24,715 24,597 24,700 24,580
v3.19.3
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net income $ 30.1 $ 20.6 $ 81.1 $ 64.6
Changes in cumulative translation adjustment, net of tax of $1.1 million, $0.2 million, $1.2 million and $1.2 million respectively (12.4) (1.5) (14.0) (12.4)
Changes in unrealized gains on derivative instruments, net of tax of $0.1 million, $0.0 million, $0.3 million and $(0.2) million respectively (0.3) (0.1) (1.5) 1.0
Amortization of prior service credit, net of tax of $0.0 million, $0.0 million, $0.1 million and $0.1 million respectively (0.1) (0.2) (0.6) (0.7)
Amortization of actuarial net losses, net of tax of $0.0 million, $(0.1) million, $0.0 million and $(0.2) million respectively (0.0) 0.4 (0.0) 1.3
Total other comprehensive loss (12.8) (1.4) (16.1) (10.8)
Total comprehensive income $ 17.3 $ 19.2 $ 65.0 $ 53.8
v3.19.3
Condensed Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
Changes in cumulative translation adjustment, tax $ 1.1 $ 0.2 $ 1.2 $ 1.2
Unrealized gains on derivative instruments, tax 0.1 0.0 0.3 (0.2)
Amortization of prior service credit, tax 0.0 0.0 0.1 0.1
Amortization of actuarial net losses, tax $ 0.0 $ (0.1) $ 0.0 $ (0.2)
v3.19.3
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 110.3 $ 123.1
Trade and other accounts receivable (less allowances of $6.5 million and $2.9 million respectively) 296.5 279.7
Inventories (less allowances of $15.0 million and $13.6 million respectively):    
Finished goods 175.1 180.2
Raw materials 76.3 67.8
Total inventories 251.4 248.0
Prepaid expenses 8.9 11.6
Prepaid income taxes 6.0 1.5
Other current assets 0.2 0.0
Total current assets 673.3 663.9
Net property, plant and equipment 195.0 196.4
Goodwill 360.5 364.9
Operating lease right-of-use assets 33.8 0.0
Other intangible assets 118.4 136.3
Deferred tax assets 8.3 8.8
Pension asset 100.7 95.9
Other non-current assets 4.4 7.2
Total assets 1,494.4 1,473.4
Current liabilities:    
Accounts payable 106.1 126.8
Accrued liabilities 159.5 132.1
Current portion of long-term debt 0.0 21.4
Current portion of finance leases 1.2 1.8
Current portion of plant closure provisions 3.9 5.9
Current portion of accrued income taxes 15.0 8.6
Current portion of operating lease liabilities 11.0 0.0
Total current liabilities 296.7 296.6
Long-term debt, net of current portion 131.2 186.2
Finance leases, net of current portion 0.6 1.5
Plant closure provisions, net of current portion 45.3 43.6
Accrued income taxes, net of current portion 36.2 40.0
Unrecognized tax benefits, net of current portion 14.9 14.0
Operating lease liabilities, net of current portion 22.8 0.0
Deferred tax liabilities 47.2 48.2
Pension liabilities and post-employment benefits 15.4 15.7
Other non-current liabilities 1.9 2.1
Total liabilities 612.2 647.9
Equity:    
Common stock, $0.01 par value, authorized 40,000,000 shares, issued 29,554,500 shares 0.3 0.3
Additional paid-in capital 329.4 324.9
Treasury stock (5,058,972 and 5,120,799 shares at cost, respectively) (93.3) (92.8)
Retained earnings 737.2 668.3
Accumulated other comprehensive loss (91.8) (75.7)
Total Innospec stockholders' equity 881.8 825.0
Non-controlling interest 0.4 0.5
Total equity 882.2 825.5
Total liabilities and equity $ 1,494.4 $ 1,473.4
v3.19.3
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Allowances for doubtful accounts $ 6.5 $ 2.9
Inventory allowances $ 15.0 $ 13.6
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 40,000,000 40,000,000
Common stock, shares issued 29,554,500 29,554,500
Treasury stock, shares 5,058,972 5,120,799
v3.19.3
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Cash Flows from Operating Activities    
Net income $ 81.1 $ 64.6
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 36.3 37.9
Deferred tax expense (0.1) 2.4
Cash contributions to defined benefit pension plans (0.4) (0.8)
Non-cash movements on defined benefit pension plans (4.7) (3.2)
Stock option compensation 4.9 3.0
Changes in assets and liabilities, net of effects of acquired and divested companies:    
Trade and other accounts receivable (20.8) (47.0)
Inventories (6.0) (55.5)
Prepaid expenses 2.5 3.6
Accounts payable and accrued liabilities 9.4 32.2
Accrued income taxes (0.4) (6.4)
Plant closure provisions 0.1 3.0
Unrecognized tax benefits 1.0 0.7
Other assets and liabilities 0.3 0.6
Net cash provided by operating activities 103.2 35.1
Cash Flows from Investing Activities    
Capital expenditures (22.6) (20.0)
Business combinations, net of cash acquired (0.0) (5.4)
Internally developed software (1.1) (0.8)
Net cash used in investing activities (23.7) (26.2)
Cash Flows from Financing Activities    
Proceeds from revolving credit facility 105.5 10.0
Repayments of revolving credit facility (99.0) (5.0)
Receipt of short-term borrowing 0.0 0.5
Repayment of term loan (82.5) 0.0
Dividend paid (12.2) (10.7)
Repayments of finance leases (1.3) (2.1)
Refinancing costs (1.3) (0.0)
Issue of treasury stock 1.2 1.1
Repurchase of common stock (2.2) (1.2)
Net cash used in financing activities (91.8) (7.4)
Effect of foreign currency exchange rate changes on cash (0.5) (0.3)
Net change in cash and cash equivalents (12.8) 1.2
Cash and cash equivalents at beginning of period 123.1 90.2
Cash and cash equivalents at end of period $ 110.3 $ 91.4
v3.19.3
Condensed Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Statement of Cash Flows [Abstract]    
Amortization of deferred finance costs $ 0.9 $ 0.5
v3.19.3
Condensed Consolidated Statements of Equity - USD ($)
$ in Millions
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Treasury Stock [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Loss [Member]
Non-Controlling Interest [Member]
Beginning Balance at Dec. 31, 2017 $ 794.3 $ 0.3 $ 320.4 $ (93.3) $ 605.0 $ (38.5) $ 0.4
Net income 64.6       64.6    
Dividend paid (10.7)       (10.7)    
Changes in cumulative translation adjustment, net of tax (12.4)         (12.4)  
Changes in unrealized gains on derivative instruments, net of tax 1.0         1.0  
Treasury stock re-issued 1.1   (0.5) 1.6      
Treasury stock repurchased (1.2)     (1.2)      
Stock option compensation 3.0   3.0        
Amortization of prior service credit, net of tax (0.7)         (0.7)  
Amortization of actuarial net losses, net of tax 1.3         1.3  
Ending Balance at Sep. 30, 2018 840.3 0.3 322.9 (92.9) 658.9 (49.3) 0.4
Beginning Balance at Jun. 30, 2018 819.7 0.3 321.6 (93.0) 638.3 (47.9) 0.4
Net income 20.6       20.6    
Changes in cumulative translation adjustment, net of tax (1.5)         (1.5)  
Changes in unrealized gains on derivative instruments, net of tax (0.1)         (0.1)  
Treasury stock re-issued 0.3   0.2 0.1      
Stock option compensation 1.1   1.1        
Amortization of prior service credit, net of tax (0.2)         (0.2)  
Amortization of actuarial net losses, net of tax 0.4         0.4  
Ending Balance at Sep. 30, 2018 840.3 0.3 322.9 (92.9) 658.9 (49.3) 0.4
Beginning Balance at Dec. 31, 2018 825.5 0.3 324.9 (92.8) 668.3 (75.7) 0.5
Net income 81.1       81.1    
Dividend paid (12.2)       (12.2)    
Changes in cumulative translation adjustment, net of tax (14.0)         (14.0)  
Changes in unrealized gains on derivative instruments, net of tax (1.5)         (1.5)  
Share of net income (0.1)           (0.1)
Treasury stock re-issued 1.2   (0.4) 1.6      
Treasury stock repurchased (2.1)     (2.1)      
Stock option compensation 4.9   4.9        
Amortization of prior service credit, net of tax (0.6)         (0.6)  
Amortization of actuarial net losses, net of tax (0.0)            
Ending Balance at Sep. 30, 2019 882.2 0.3 329.4 (93.3) 737.2 (91.8) 0.4
Beginning Balance at Jun. 30, 2019 863.1 0.3 327.7 (93.4) 707.1 (79.0) 0.4
Net income 30.1       30.1    
Changes in cumulative translation adjustment, net of tax (12.4)         (12.4)  
Changes in unrealized gains on derivative instruments, net of tax (0.3)         (0.3)  
Treasury stock re-issued 0.1     0.1      
Stock option compensation 1.7   1.7        
Amortization of prior service credit, net of tax (0.1)         (0.1)  
Amortization of actuarial net losses, net of tax (0.0)            
Ending Balance at Sep. 30, 2019 $ 882.2 $ 0.3 $ 329.4 $ (93.3) $ 737.2 $ (91.8) $ 0.4
v3.19.3
Basis of Presentation
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form
10-Q
and Article 10 of Regulation
S-X
under the Securities Exchange Act of 1934. Accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial position, results of operations and cash flows.
It is our opinion, however, that all adjustments (consisting of normal, recurring adjustments, unless otherwise disclosed) have been made which are necessary for the condensed consolidated financial statements to be fairly stated. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2018 filed on February 20, 2019 (the “2018 Form
10-K”).
The results for the interim period covered by this report are not necessarily indicative of the results to be expected for the full year.
When we use the terms “Innospec,” “the Corporation,” “the Company,” “Registrant,” “we,” “us” and “our,” we are referring to Innospec Inc. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.
Leases
With an effective date of January 1, 2019 we have applied Accounting Standards Update (ASU)
2016-02,
Revision to Lease Accounting, ASC Topic 842 which replaces ASC Topic 840, Leases. ASU
2016-02
requires lessees to recognize a
right-of-use
(“ROU”) asset and a lease liability for all of their leases (other than leases that meet the definition of a short-term lease).
The standard was adopted using a modified retrospective transition method, with the Company electing not to adjust comparative periods. We have taken the election not to apply the requirements to short-term leases and have taken the election not to separate related
non-lease
components from lease components.
The standard had a material impact on our consolidated balance sheet, 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 condensed consolidated balance sheet at September 30, 2019. 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 September 30, 2019.
 
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of future lease payments over the remaining lease term. Very few of our leases have renewal options or early termination break clauses, but where they do we have assessed the term of the lease based on any options being exercised only if they are reasonably certain. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at point of recognition in determining the present value of future payments.
The operating lease ROU asset excludes lease incentives and initial direct costs incurred. Lease expense for lease payments is recognized on a straight-line basis over the lease term unless payments are variable per the agreement. Where we have lease payments linked to an index or inflationary rate, this rate has been used to value the asset and liability at the inception of the lease. If the payments are not linked to a specific index or inflationary rate, but can vary during the term of the agreement, they have been included at their actual value for each future period. In some circumstances the future expected payments may be dependent on other factors, for example production volumes, in which case we have used the minimum future expected payments to value the asset.
We do not recognize a ROU asset or operating lease liability for short-term leases (with a length of one year or less), and any associated cost is recognized, as incurred, through the income statement
.
v3.19.3
Segment Reporting
9 Months Ended
Sep. 30, 2019
Segment Reporting [Abstract]  
Segment Reporting
NOTE 2 – SEGMENT REPORTING
The Company reports its financial performance based on the following four reportable segments: Fuel Specialties, Performance Chemicals, Oilfield Services and Octane Additives.
The Fuel Specialties, Performance Chemicals and Oilfield Services segments operate in markets where we actively seek growth opportunities although their ultimate customers are different. The Octane Additives segment is expected to decline in the near future as our one remaining refinery customer transitions to unleaded fuel.
The Company evaluates the performance of its segments based on operating income. The following tables analyze sales and other financial information by the Company’s reportable segments:
                                 
 
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
(in millions)
 
2019
   
2018
   
2019
   
2018
 
Net Sales:
   
     
     
     
 
Refinery and Performance
  $
96.5
    $
97.8
    $
309.0
    $
306.9
 
Other
   
47.6
     
37.1
     
124.4
     
105.6
 
                                 
Fuel Specialties
   
144.1
     
134.9
     
433.4
     
412.5
 
                                 
Personal Care
   
55.0
     
60.6
     
170.9
     
183.6
 
Home Care
   
21.1
     
28.2
     
71.2
     
84.5
 
Other
   
23.8
     
26.0
     
80.6
     
89.6
 
                                 
Performance Chemicals
   
99.9
     
114.8
     
322.7
     
357.7
 
                                 
Oilfield Services
   
121.4
     
104.2
     
358.1
     
292.1
 
Octane Additives
   
6.5
     
9.2
     
8.4
     
19.6
 
                                 
  $
371.9
    $
363.1
    $
1,122.6
    $
1,081.9
 
Gross profit/(loss):
   
     
     
     
 
Fuel Specialties
  $
54.1
    $
48.8
    $
154.5
    $
141.8
 
Performance Chemicals
   
22.6
     
25.3
     
73.2
     
74.5
 
Oilfield Services
   
41.2
     
33.5
     
120.4
     
93.5
 
Octane Additives
   
1.2
     
3.4
     
(0.1
)    
8.5
 
                                 
  $
119.1
    $
111.0
    $
348.0
    $
318.3
 
Operating income/(loss):
   
     
     
     
 
Fuel Specialties
  $
31.1
    $
28.8
    $
88.1
    $
80.7
 
Performance Chemicals
   
9.3
     
12.4
     
33.8
     
34.2
 
Oilfield Services
   
10.0
     
7.0
     
27.9
     
14.1
 
Octane Additives
   
0.8
     
2.7
     
(1.9
)    
6.5
 
Corporate costs
   
(13.0
)    
(12.7
)    
(41.8
)    
(40.1
)
Restructuring charge
   
0.0
     
(4.8
)    
0.0
     
(4.8
)
                                 
Total operating income
  $
38.2
    $
33.4
    $
106.1
    $
90.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents a summary of the depreciation and amortization charges incurred by the Company’s reportable segments:
                                 
 
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
(in millions)
 
2019
   
2018
   
2019
   
2018
 
Depreciation:
   
     
     
     
 
Fuel Specialties
  $
0.9
    $
1.0
    $
2.8
    $
2.9
 
Performance Chemicals
   
2.8
     
2.6
     
8.0
     
7.8
 
Oilfield Services
   
1.7
     
1.5
     
5.2
     
4.6
 
Octane Additives
   
0.3
     
0.3
     
0.9
     
0.9
 
Corporate
   
0.5
     
0.3
     
1.3
     
0.8
 
                                 
  $
6.2
    $
5.7
    $
18.2
    $
17.0
 
Amortization:
   
     
     
     
 
Performance Chemicals
  $
2.2
    $
2.3
    $
6.6
    $
6.8
 
Oilfield Services
   
2.6
     
2.7
     
7.9
     
8.1
 
Corporate
   
0.9
     
1.8
     
2.7
     
5.5
 
                                 
  $
5.7
    $
6.8
    $
17.2
    $
20.4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
v3.19.3
Earnings per Share
9 Months Ended
Sep. 30, 2019
Earnings Per Share [Abstract]  
Earnings per Share
NOTE 3 – EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the effect of options that are dilutive and outstanding during the period under the treasury stock method.
Per share amounts are computed as follows:
                                 
 
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
 
2019
   
2018
   
2019
   
2018
 
Numerator (in millions):
   
     
     
     
 
Net income available to common stockholders
  $
30.1
    $
20.6
    $
81.1
    $
64.6
 
                                 
Denominator (in thousands):
   
     
     
     
 
Weighted average common shares outstanding
   
24,491
     
24,419
     
24,476
     
24,399
 
Dilutive effect of stock options and awards
   
224
     
178
     
224
     
181
 
                                 
Denominator for diluted earnings per share
   
24,715
     
24,597
     
24,700
     
24,580
 
                                 
Net income per share, basic:
  $
1.23
    $
0.84
    $
3.31
    $
2.65
 
                                 
Net income per share, diluted:
  $
1.22
    $
0.84
    $
3.28
    $
2.63
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In the three and nine months ended September 30, 2019, the average number of anti-dilutive options excluded from the calculation of diluted earnings per share were 12,539 and 6,270, respectively (three and nine months ended September 30, 2018 – 0 and 0, respectively).
v3.19.3
Leases
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Leases
NOTE 4 – LEASES
We have operating and finance leases for toll manufacturing facilities, warehouse storage, land, buildings, plant and equipment. Our leases have remaining lease terms of
up
 to 11 years, some of which include options to terminate the leases within 1 year.
The components of lease expense were as follows:
                 
(
in millions
)
 
Three Months
Ended September 30
   
Nine Months
Ended September 30
 
 
2019
   
2019
 
Finance lease cost:
   
     
 
Amortization of
right-of-use
assets
  $
0.4
    $
1.4
 
Interest on lease liabilities
   
0.0
     
0.0
 
                 
Total finance lease cost
   
0.4
     
1.4
 
Operating lease cost
   
3.0
     
9.0
 
Short-term lease cost
   
0.8
     
1.7
 
Variable lease cost
   
0.1
     
0.3
 
Sub-lease
income
   
0.0
     
0.0
 
                 
Total lease cost
  $
4.3
    $
12.4
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental cash flow information related to leases is as follows:
                 
(
in millions
)
 
Three Months
Ended September 30
   
Nine Months
Ended September 30
 
 
2019
   
2019
 
Cash paid for amounts included in the measurement of lease liabilities:
   
     
 
Operating cash flows from operating leases
  $
3.7
    $
10.6
 
Operating cash flows from finance leases
   
0.5
     
1.6
 
Financing cash flows from finance leases
   
0.0
     
0.0
 
Right-of-use
assets obtained in exchange for new lease obligations:
   
     
 
Operating leases
  $
1.2
    $
3.1
 
Finance leases
   
0.0
     
0.0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental balance sheet information related to leases is as follows:
         
(
in millions except lease term and discount rate
)
 
September 30
2019
 
Operating leases:
   
 
Operating lease
right-of-use
assets
  $
33.8
 
         
Current portion of operating lease liabilities
  $
11.0
 
Operating lease liabilities, net of current portion
   
22.8
 
         
Total operating lease liabilities
  $
33.8
 
         
Finance leases:
   
 
Property, plant and equipment at cost
  $
10.5
 
Accumulated depreciation
   
(8.3
)
         
Net property, plant and equipment, net
  $
2.2
 
         
Current portion of finance leases
  $
1.2
 
Finance leases, net of current portion
   
0.6
 
         
Total finance lease liabilities
  $
1.8
 
         
Weighted average remaining lease term:
   
 
Operating leases
   
3.4 years
 
Finance leases
   
1.8 years
 
Weighted average discount rate:
   
 
Operating leases
   
3.1
%
Finance leases
   
2.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maturities of lease liabilities were as follows as at September 30, 2019:
(
in millions
)
 
Operating
leases
   
Finance
leases
 
Within one year
  $
11.0
    $
1.2
 
Year two
   
9.0
     
0.6
 
Year three
   
6.4
     
0.2
 
Year four
   
4.5
     
0.0
 
Year five
   
2.4
     
0.0
 
Thereafter
   
2.7
     
0.0
 
                 
Total lease payments
   
36.0
     
2.0
 
Less imputed interest
   
(2.2
)    
(0.2
)
                 
Total
  $
33.8
    $
1.8
 
                 
 
As of September 30, 2019, additional operating and finance ​​​​​​​leases that have not yet commenced are $0.2 million.
Future lease payments for all non
-
cancelable operating and finance leases as of December 31, 2018 are as follows, as accounted for under the previous lease standard, ASC 840. As such the amounts are not directly comparable to those included above.
(
in millions
)
 
Operating
leases
   
Finance
leases
 
Within one year
  $
6.5
    $
1.8
 
Year two
   
4.5
     
1.0
 
Year three
   
3.2
     
0.4
 
Year four
   
2.3
     
0.1
 
Year five
   
2.1
     
0.0
 
Thereafter
   
4.4
     
0.0
 
                 
Total lease payments
  $
23.0
    $
3.3
 
                 
v3.19.3
Goodwill
9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill
NOTE 5 – GOODWILL
The following table summarizes goodwill at the balance sheet dates:
(in millions)
 
Total
 
At December 31, 2018
   
 
Gross cost
(1)
  $
601.4
 
Accumulated impairment losses
   
(236.5
)
         
Net book amount
  $
364.9
 
         
Exchange effect
   
(4.4
)
At September 30, 2019
   
 
Gross cost
(1)
  $
597.0
 
Accumulated impairment losses
   
(236.5
)
         
Net book amount
  $
360.5
 
         
(1)
Gross cost for 2019 and 2018 is net of $
298.5
 million of historical accumulated amortization.
v3.19.3
Other Intangible Assets
9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Other Intangible Assets
NOTE 6 – OTHER INTANGIBLE ASSETS
The following table summarizes the other intangible assets movement year on year:
                 
 
Nine Months Ended
September 30
 
(in millions)
 
2019
   
2018
 
Gross cost at January 1
  $
294.6
    $
295.8
 
Internally developed software
   
1.1
     
0.8
 
Exchange effect
   
(2.1
)    
(1.6
)
                 
Gross cost at September 30
   
293.6
     
295.0
 
                 
Accumulated amortization at January 1
   
(158.3
)    
(132.5
)
Amortization expense
   
(17.2
)    
(20.4
)
Exchange effect
   
0.3
     
0.2
 
                 
Accumulated amortization at September 30
   
(175.2
)    
(152.7
)
                 
Net book amount at September 30
  $
118.4
    $
142.3
 
                 
 
 
 
 
 
 
 
 
Internally developed software has been capitalized in relation to the Company’s information system platforms.
Amortization expense
                 
 
Nine Months Ended
September 30
 
(in millions)
 
2019
   
2018
 
Product rights
  $
(2.8
)   $
 (2.8
)
Brand names
   
(0.5
)    
(0.9
)
Technology
   
(2.5
)    
(2.5
)
Customer relationships
   
(7.9
)    
(8.0
)
Internally developed software
   
(3.5
)    
(6.2
)
                 
Total
  $
(17.2
)   $
(20.4
)
                 
 
 
 
 
 
 
 
 
v3.19.3
Pension and Post Employment Benefits
9 Months Ended
Sep. 30, 2019
Retirement Benefits [Abstract]  
Pension and Post Employment Benefits
NOTE 7 – PENSION AND POST EMPLOYMENT BENEFITS
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 net service cost for the three and nine months ended September 30, 2019 was $0.2 million and $0.7 million respectively (three and nine months ended September 30, 2018 – $0.3 million and $0.9 million respectively) 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:
                                 
 
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
(in millions)
 
2019
   
2018
   
2019
   
2018
 
Plan net pension credit/(charge):
   
     
     
     
 
Interest cost on projected benefit obligation
  $
(3.6
)   $
(3.7
)   $
(11.4
)   $
(11.4
)
Expected return on plan assets
   
5.5
     
5.5
     
16.5
     
16.9
 
Amortization of prior service credit
   
0.1
     
0.2
     
0.7
     
0.8
 
Amortization of actuarial net losses
   
0.0
     
(0.5
)    
0.0
     
(1.5
)
                                 
  $
2.0
    $
1.5
    $
5.8
    $
4.8
 
                                 
 
 
 
 
 
 
 
 
The amortization of prior service credit and actuarial net losses is a reclassification out of accumulated other comprehensive loss into other income and expense.
The Company also maintains an unfunded defined benefit pension plan covering a number of its current and former employees in Germany (the “German plan”) 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 three and nine months ended September 30, 2019 was $0.0 million and $0.1 million, respectively (three and nine months ended September 30, 2018 – $0.0 million and $0.1 million, respectively)
 
and has been recognized in selling, general and administrative expenses.
 
The following table shows the income statement effect recognized within other income and expense:
                                 
 
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
(in millions)
 
2019
   
2018
   
2019
   
2018
 
Plan net pension charge:
   
     
     
     
 
Interest cost on projected benefit obligation
  $
(0.1
)   $
(0.1
)   $
(0.2
)   $
(0.2
)
Amortization of actuarial net losses
   
(0.1
)    
(0.1
)    
(0.2
)    
(0.3
)
                                 
  $
(0.2
)   $
(0.2
)   $
(0.4
)   $
(0.5
)
                                 
 
 
 
 
 
 
 
 
As at September 30, 2019, our Performance Chemicals segment has obligations for post-employment benefits in its European businesses with a liability of $4.2 million (December 31, 2018 – $4.4 million).
v3.19.3
Income Taxes
9 Months Ended
Sep. 30, 2019
Income Tax Disclosure [Abstract]  
Income Taxes
NOTE 8 – INCOME TAXES
A roll-forward of unrecognized tax benefits and associated accrued interest and penalties is as follows:
(in millions)
 
Unrecognized
Tax Benefits
   
Interest and
Penalties
   
Total
 
Opening balance at January 1
  $
13.4
    $
0.6
    $
14.0
 
Additions for tax positions of prior periods
   
0.0
     
0.9
     
0.9
 
                         
Closing balance at September 30
   
13.4
     
1.5
     
14.9
 
Current
   
0.0
     
0.0
     
0.0
 
                         
Non-current
  $
13.4
    $
1.5
    $
14.9
 
We recognize accrued interest and penalties associated with unrecognized tax benefits as part of income taxes in our condensed consolidated statements of income. Related to the unrecognized tax benefits noted above, we have also accrued a net increase in interest and penalties of $0.9 million during the first nine months of 2019, and a net increase in interest and penalties of $0.3 million in 2018. Total accrued interest and penalties at September 30, 2019 on all remaining unrecognized tax benefits amounted to $1.5 million (December 31, 2018 – $0.6 million).
All of the $14.9 million of unrecognized tax benefits, interest and penalties, would impact our effective tax rate if recognized.
As previously disclosed, tax audits have been opened by the Italian tax authorities in respect of Innospec Performance Chemicals Italia Srl, acquired as part of the Huntsman business, in relation to the period 2011 to 2013 inclusive. The Company believes that additional tax of approximately $0.5 million, together with associated interest of $0.2 million, may arise as a result of the 2011 audit. This amount was recorded at December 31, 2017. During 2018, the Company determined that additional tax of approximately $0.9 million, together with associated interest of $0.3 million, may arise as a result of the 2012 and 2013 audits collectively. Additional interest of $0.1 million 
has been recorded in the nine months to September 30, 2019. During the third quarter of 2019 the Italian Tax Authorities opened a tax audit into the 2014 accounting period. As this is currently limited to information gathering and no​​​​​​​ tax has been assessed the unrecognized tax benefits have not been updated as a result of the 2014 audit.
 
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 unrecognized tax benefit of $
2.0
 million is recorded, together with an indemnification asset of the same amount to reflect the fact that the final liability would be reimbursed by the previous owner.
In the fourth quarter of 2018, the Company recorded an unrecognized tax benefit of $10.8 million. This portion primarily relates to a potential adjustment that could arise as a consequence of the Tax Cuts and Jobs Act, but for which retrospective adjustment to the filed 2017 U.S. federal income tax returns was not permissible. The Company accrued a net increase in interest of $0.7 million in the first nine months of 2019 relating to this matter.
The Company and its U.S. subsidiaries remain open to examination by the IRS for years 2015 onwards under the statute of limitations. The Company’s subsidiaries in foreign tax jurisdictions are open to examination including Spain (
2014
onwards), Italy (2013 onwards), France (
2016
onwards), Germany (
2014
onwards), Switzerland (
2014
onwards) and the United Kingdom (
2017
onwards).
v3.19.3
Long-Term Debt
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Long-Term Debt
NOTE 9 – LONG-TERM DEBT
Long-term debt consists of the following:
(in millions)
 
September 30,
2019
   
December 31,
2018
 
Revolving credit facility
  $
132.5
    $
126.0
 
Term loan
   
0.0
     
82.5
 
Deferred finance costs
   
(1.3
)    
(0.9
)
                 
  $
131.2
    $
207.6
 
Due within one year
   
0.0
     
(21.4
)