INNOSPEC INC., 10-Q filed on 06 May 20
v3.20.1
Cover Page - shares
3 Months Ended
Mar. 31, 2020
Apr. 30, 2020
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Document Quarterly Report true  
Document Transition Report false  
Current Fiscal Year End Date --12-31  
Document Period End Date Mar. 31, 2020  
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   24,560,830
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  
v3.20.1
Condensed Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Net sales $ 372.3 $ 388.3
Cost of goods sold (258.4) (270.5)
Gross profit 113.9 117.8
Operating expenses:    
Selling, general and administrative (64.4) (72.5)
Research and development (8.6) (9.1)
Total operating expenses (73.0) (81.6)
Operating income 40.9 36.2
Other income, net 3.9 4.1
Interest expense, net (0.6) (1.5)
Income before income tax expense 44.2 38.8
Income tax expense (11.1) (10.1)
Net income $ 33.1 $ 28.7
Earnings per share:    
Basic $ 1.35 $ 1.17
Diluted $ 1.34 $ 1.17
Weighted average shares outstanding (in thousands):    
Basic 24,529 24,437
Diluted 24,742 24,594
v3.20.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net income $ 33.1 $ 28.7
Changes in cumulative translation adjustment, net of tax of $1.6 million and $0.4 million respectively (7.9) (5.0)
Changes in unrealized gains on derivative instruments, net of tax of $0.0 million and $0.1 million respectively 0.0 (0.5)
Amortization of prior service credit, net of tax of $0.0 million and $0.0 million respectively (0.2) (0.2)
Amortization of actuarial net losses, net of tax of $0.0 million and $0.0 million respectively 0.2 (0.0)
Total other comprehensive loss (7.9) (5.7)
Total comprehensive income $ 25.2 $ 23.0
v3.20.1
Condensed Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Changes in cumulative translation adjustment, tax $ 1.6 $ 0.4
Unrealized gains on derivative instruments, tax 0.0 0.1
Amortization of prior service credit, tax 0.0 0.0
Amortization of actuarial net losses, tax $ 0.0 $ 0.0
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 68.1 $ 75.7
Trade and other accounts receivable (less allowances of $3.8 million and $3.8 million respectively) 296.3 292.0
Inventories (less allowances of $14.7 million and $14.5 million respectively):    
Finished goods 171.8 173.9
Raw materials 74.2 70.7
Total inventories 246.0 244.6
Prepaid expenses 11.6 14.7
Prepaid income taxes 4.7 2.5
Other current assets 0.0 0.8
Total current assets 626.7 630.3
Net property, plant and equipment 197.8 198.7
Operating lease right-of-use assets 31.7 32.4
Goodwill 361.2 363.0
Other intangible assets 107.1 113.5
Deferred tax assets 8.8 9.1
Pension asset 117.3 115.9
Other non-current assets 4.7 5.9
Total assets 1,455.3 1,468.8
Current liabilities:    
Accounts payable 108.4 122.0
Accrued liabilities 127.9 154.0
Current portion of finance leases 0.8 1.0
Current portion of plant closure provisions 5.6 5.6
Current portion of accrued income taxes 12.3 10.3
Current portion of operating lease liabilities 11.1 10.6
Total current liabilities 266.1 303.5
Long-term debt 58.7 58.6
Finance leases, net of current portion 0.4 0.5
Plant closure provisions, net of current portion 43.7 43.7
Accrued income taxes, net of current portion 36.2 36.2
Unrecognized tax benefits 16.4 16.4
Operating lease liabilities, net of current portion 20.7 21.9
Deferred tax liabilities 49.9 49.6
Pension liabilities and post-employment benefits 17.4 17.8
Other non-current liabilities 1.5 1.7
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 331.2 330.4
Treasury stock (4,993,670 and 5,047,278 shares at cost, respectively) (94.0) (93.3)
Retained earnings 788.6 755.5
Accumulated other comprehensive loss (82.3) (74.4)
Total Innospec stockholders' equity 943.8 918.5
Non-controlling interest 0.5 0.4
Total equity 944.3 918.9
Total liabilities and equity $ 1,455.3 $ 1,468.8
v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Allowances for doubtful accounts $ 3.8 $ 3.8
Inventory allowances $ 14.7 $ 14.5
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 4,993,670 5,047,278
v3.20.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash Flows from Operating Activities    
Net income $ 33.1 $ 28.7
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 12.0 11.6
Deferred tax expense 0.7 0.2
Cash contributions to defined benefit pension plans (0.0) (0.3)
Non-cash movements on defined benefit pension plans (1.2) (1.6)
Stock option compensation 1.2 1.6
Changes in assets and liabilities, net of effects of acquired and divested companies:    
Trade and other accounts receivable (7.9) (18.5)
Inventories (5.0) (1.8)
Prepaid expenses 2.1 (0.1)
Accounts payable and accrued liabilities (36.0) (10.9)
Accrued income taxes 1.6 4.4
Plant closure provisions 0.1 0.4
Unrecognized tax benefits (0.0) 0.3
Other assets and liabilities 1.7 (0.8)
Net cash provided by operating activities 2.4 13.2
Cash Flows from Investing Activities    
Capital expenditures (7.8) (10.7)
Internally developed software (0.0) (0.5)
Net cash used in investing activities (7.8) (11.2)
Cash Flows from Financing Activities    
Non-controlling interest 0.1 0.0
Repayments of finance leases (0.3) (0.6)
Issue of treasury stock 0.7 1.0
Repurchase of common stock (2.1) (1.9)
Net cash used in financing activities (1.6) (1.5)
Effect of foreign currency exchange rate changes on cash (0.6) (0.1)
Net change in cash and cash equivalents (7.6) 0.4
Cash and cash equivalents at beginning of period 75.7 123.1
Cash and cash equivalents at end of period $ 68.1 $ 123.5
v3.20.1
Condensed Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Cash Flows [Abstract]    
Amortization of deferred finance costs $ 0.1 $ 0.2
v3.20.1
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, 2018 $ 825.5 $ 0.3 $ 324.9 $ (92.8) $ 668.3 $ (75.7) $ 0.5
Net income 28.7       28.7    
Changes in cumulative translation adjustment, net of tax (5.0)         (5.0)  
Changes in unrealized gains on derivative instruments, net of tax (0.5)         (0.5)  
Treasury stock reissued 0.7   (0.5) 1.2      
Treasury stock repurchased (1.9)     (1.9)      
Stock option compensation 1.6   1.6        
Amortization of prior service credit, net of tax (0.2)         (0.2)  
Amortization of actuarial net losses, net of tax (0.0)         (0.0)  
Ending Balance at Mar. 31, 2019 848.9 0.3 326.0 (93.5) 697.0 (81.4) 0.5
Beginning Balance at Dec. 31, 2019 918.9 0.3 330.4 (93.3) 755.5 (74.4) 0.4
Net income 33.1       33.1    
Changes in cumulative translation adjustment, net of tax (7.9)         (7.9)  
Non-controlling interest investment 0.1           0.1
Changes in unrealized gains on derivative instruments, net of tax 0.0            
Treasury stock reissued 1.0   (0.4) 1.4      
Treasury stock repurchased (2.1)     (2.1)      
Stock option compensation 1.2   1.2        
Amortization of prior service credit, net of tax (0.2)         (0.2)  
Amortization of actuarial net losses, net of tax 0.2         0.2  
Ending Balance at Mar. 31, 2020 $ 944.3 $ 0.3 $ 331.2 $ (94.0) $ 788.6 $ (82.3) $ 0.5
v3.20.1
Basis of Presentation
3 Months Ended
Mar. 31, 2020
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, 2019 filed on February 19, 2020 (the “2019 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.
Credit losses
With an effective date of January 1, 2020, we have applied Accounting Standards Update (ASU) No. 2016-13, 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 $3.8 million allowance at March 31, 2020. The allowance remains immaterial to the financial statements.
The Company is exposed to credit losses primarily through sales of products. The Company’s expected loss allowance methodology for trade and other accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers’ receivables. Due to the short-term nature of such receivables, the estimate of accounts receivable amounts that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. 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.
v3.20.1
Segment Reporting
3 Months Ended
Mar. 31, 2020
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 revenues may conclude in 2020 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
March 31
 
(in millions)
 
2020
 
 
2019
 
Net Sales:
   
     
 
Refinery and Performance
   
108.6
    $
117.3
 
Other
   
38.4
     
38.7
 
                 
Fuel Specialties
   
147.0
     
156.0
 
                 
Personal Care
   
63.0
     
61.0
 
Home Care
   
21.6
     
27.0
 
Other
   
28.5
     
30.1
 
                 
Performance Chemicals
   
113.1
     
118.1
 
                 
Oilfield Services
   
112.2
     
114.2
 
                 
 
  $
372.3
    $
388.3
 
                 
Gross profit/(loss):
   
     
 
Fuel Specialties
  $
51.2
    $
55.7
 
Performance Chemicals
   
27.6
     
26.6
 
Oilfield Services
   
36.2
     
37.7
 
Octane Additives
   
(1.1
)    
(2.2
)
                 
 
  $
113.9
    $
117.8
 
                 
Operating income/(loss):
   
     
 
Fuel Specialties
  $
32.1
    $
32.9
 
Performance Chemicals
   
15.6
     
13.5
 
Oilfield Services
   
7.2
     
7.8
 
Octane Additives
   
(1.2
)    
(2.8
)
Corporate costs
   
(12.8
)    
(15.2
)
                 
Total operating income
  $
40.9
    $
36.2
 
                 
The following table presents a summary of the depreciation and amortization charges incurred by the Company’s reportable segments:
                 
 
Three Months Ended
March 31
 
(in millions)
 
2020
 
 
2019
 
Depreciation:
 
 
 
 
 
 
Fuel Specialties
  $
 
1.0
    $
0.9
 
Performance Chemicals
   
2.8
     
2.5
 
Oilfield Services
   
1.7
     
1.7
 
Octane Additives
   
0.3
     
0.3
 
Corporate
   
0.3
     
0.3
 
                 
  $
6.1
    $
5.7
 
                 
Amortization:
 
 
 
 
 
 
Performance Chemicals
   
2.2
     
2.2
 
Oilfield Services
   
2.6
     
2.6
 
Corporate
   
1.0
     
0.9
 
                 
  $
5.8
    $
5.7
 
                 
 
 
 
v3.20.1
Earnings per Share
3 Months Ended
Mar. 31, 2020
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
March 31
 
 
2020
 
 
2019
 
Numerator (in millions):
   
     
 
Net income available to common stockholders
  $
 33.1
    $
 28.7
 
                 
Denominator (in thousands):
   
     
 
Weighted average common shares outstanding
   
24,529
     
24,437
 
Dilutive effect of stock options and awards
   
213
     
157
 
                 
Denominator for diluted earnings per share
   
24,742
     
24,594
 
                 
Net income per share, basic:
  $
 1.35
    $
 1.17
 
                 
Net income per share, diluted:
  $
 1.34
    $
 1.17
 
                 
 
 
 
In the three months ended March 31, 2020, the average number of anti-dilutive options excluded from the calculation of diluted earnings per share
was
17,636 (three months ended March 31, 2019 – 12,539).
v3.20.1
Goodwill
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill
NOTE 4 – GOODWILL
The following table summarizes the goodwill movements:
                         
(in millions)
 
Gross Cost
 
 
Accumulated
Impairment
Losses
 
 
Net Book
Amount
 
Opening balance at January 1
  $
599.5
    $
(236.5
)   $
363.0
 
Exchange effect
   
(1.8
)    
0.0
     
(1.8
)
                         
Closing balance at March 31
  $
597.7
    $
(236.5
)   $
361.2
 
                         
 
 
 
v3.20.1
Other Intangible Assets
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Other Intangible Assets
NOTE 5 – OTHER INTANGIBLE ASSETS
The following table summarizes the other intangible assets movements:
(in millions)
 
2020
 
Gross cost at January 1
  $
294.8
 
Exchange effect
   
(0.9
)
Gross cost at March 31
   
293.9
 
Accumulated amortization at January 1
   
(181.3
)
Amortization expense
   
(5.8
)
Exchange effect
   
0.3
 
Accumulated amortization at March 31
   
(186.8
)
         
Net book amount at March 31
  $
107.1
 
         
The amortization expense for the three months ended March 31, 2020 was $5.8 million (three months ended March 31, 2019 – $5.7 million)
.
The net book amount by category of other intangible asset
s
is shown in the following table:
(in millions)
 
March 31
2020
 
 
December 31
2019
 
Product rights
  $
9.1
    $
10.1
 
Brand names
   
2.7
     
2.9
 
Technology
   
31.7
     
32.6
 
Customer relationships
   
57.7
     
60.8
 
Internally developed software
   
5.9
     
7.1
 
  $
107.1
    $
113.5
 
                 
v3.20.1
Pension and Post-Employment Benefits
3 Months Ended
Mar. 31, 2020
Retirement Benefits [Abstract]  
Pension and Post-Employment Benefits
NOTE 6 – 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 months ended March 31, 2020 was $0.3 million (three months ended March 31, 2019 – $0.2 million) and has been recognized in selling, general and administrative expenses within corporate costs. The following table shows the income statement effect recognized within other income, net:
 
Three Months Ended
March 31
 
(in millions)
 
2020
 
 
2019
 
Plan net pension credit/(charge):
   
     
 
Interest cost on projected benefit obligation
  $
(2.8
)   $
(3.9
)
Expected return on plan assets
   
4.5
     
5.6
 
Amortization of prior service credit
   
0.2
     
0.2
 
Amortization of actuarial net losses
   
(0.2
)    
0.0
 
                 
  $
1.7
    $
1.9
 
                 
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 months ended March 31, 2020 was $0.0 million (three months ended March 31, 2019 – $0.0 million) 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
March 31
 
(in millions)
 
2020
 
 
2019
 
Plan net pension charge:
   
     
 
Interest cost on projected benefit obligation
  $
0.0
    $
(0.1
)
Amortization of actuarial net losses
   
(0.2
)    
(0.1
)
                 
  $
(0.2
)   $
(0.2
)
                 
As at March 31, 2020, our Performance Chemicals segment has obligations for post-employment benefits in its European businesses with a liability of $4.5 million (December 31, 2019 – $4.5 million).
v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes
NOTE 7 – 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
  $
14.4
    $
2.0
    $
16.4
 
Additions for tax positions of prior periods
   
0.0
     
0.0
     
0.0
 
                         
Closing balance at March 31
   
14.4
     
2.0
     
16.4
 
Current
   
0.0
     
0.0
     
0.0
 
                         
Non-current
  $
14.4
    $
2.0
    $
16.4
 
                         
All of the $16.4 million of unrecognized tax benefits, interest and penalties would impact our effective tax rate if recognized.
As previously disclosed, a non-U.S. subsidiary, Innospec Performance Chemicals Italia Srl, is subject to an ongoing tax audit in relation to the period 2011 to 2014 inclusive. The Company has determined that additional tax, interest and penalties totaling $3.1 million may arise as a consequence of the tax audit. This includes a reduction in interest accrued of $0.2 million recorded in the three months to March 31, 2020. As any additional tax arising as a consequence of the tax audit would be reimbursed by the previous owner under the terms of the sale and purchase agreement, an indemnification asset of the same amount is recorded in the financial statements to reflect this arrangement.
As previously disclosed, in 2018 the Company recorded an unrecognized tax benefit of $10.8 million which 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 $0.2 million in the three months to March 31, 2020 relating to this matter.
The Company and its U.S. subsidiaries remain open to examination by the IRS for years 2016 onwards under the statute of limitations. The Company’s subsidiaries in foreign tax jurisdictions are open to examination including Germany (2015 onwards), Switzerland (2015 onwards), Spain (2016 onwards), France (2017 onwards) and the United Kingdom (2018 onwards).
v3.20.1
Long-Term Debt
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Long-Term Debt
NOTE 8 – LONG-TERM DEBT
Long-term debt consists of the following:
(in millions)
 
March 31,
2020
 
 
December 31,
2019
 
Revolving credit facility
  $
60.0
    $
60.0
 
Deferred finance costs
   
(1.3
)    
(1.4
)
                 
   
58.7
     
58.6
 
Less current portion
   
0.0
     
0.0
 
                 
  $
58.7
    $
58.6
 
                 
v3.20.1
Plant Closure Provisions
3 Months Ended
Mar. 31, 2020
Restructuring and Related Activities [Abstract]  
Plant Closure Provisions
NOTE 9 – PLANT CLOSURE PROVISIONS
The Company has continuing plans to close some of its manufacturing facilities at sites around the world as and when those operations are expected to be decommissioned. The liability for estimated closure costs of Innospec’s manufacturing facilities includes costs for decontamination and environmental remediation activities (“remediation”).
As a result, the principal site giving rise to remediation liabilities is the manufacturing site at Ellesmere Port in the United Kingdom. There are also remediation liabilities on a much smaller scale in respect of our other manufacturing sites in the U.S. and Europe.
Movements in the provisions are summarized as follows:
(in millions)
 
2020
 
Total at January 1
  $
49.3
 
Charge for the period
   
1.1
 
Utilized in the period
   
(1.0
)
Exchange effect
   
(0.1
)
         
Total at March 31
   
49.3
 
Due within one year
   
(5.6
)
         
Due after one year
  $
43.7
 
         
The charge for the three months ended March 31, 2020 was $1.1 million (three months ended March 31, 2019 – $1.0 million)
Amounts due within one year refer to provisions where expenditure is expected to arise within one year of the balance sheet date.
v3.20.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements
NOTE 10 – FAIR VALUE MEASUREMENTS
The following table presents the carrying amount and fair values of the Company’s financial assets and liabilities measured on a recurring basis:
                                 
 
March 31, 2020
   
December 31, 2019
 
(in millions)
 
Carrying
Amount
 
 
Fair
Value
 
 
Carrying
Amount
 
 
Fair
Value
 
Assets
   
     
     
     
 
Non-derivatives:
   
     
     
     
 
Cash and cash equivalents
  $
68.1
    $
68.1
    $
75.7
    $
75.7
 
Derivatives (Level 1 measurement):
   
     
     
     
 
Other current and non-current assets:
   
     
     
     
 
Foreign currency forward exchange contracts
   
0.0
     
0.0
     
0.8
     
0.8
 
                                 
Liabilities
   
     
     
     
 
Non-derivatives:
   
     
     
     
 
Long-term debt (including current portion)
  $
58.7
    $
58.7
    $
58.6
    $
58.6
 
Finance leases (including current portion)
   
1.2
     
1.2
     
1.5
     
1.5
 
Derivatives (Level 1 measurement):
   
     
     
     
 
Other current and non-current liabilities:
   
     
     
     
 
Foreign currency forward exchange contracts
   
1.3
     
1.3
     
0.0
     
0.0
 
Non-financial liabilities (Level 3 measurement):
   
     
     
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other current and non-current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Stock equivalent units
   
12.0
     
12.0
     
24.6
     
24.6
 
 
The following methods and assumptions were used to estimate the fair values of financial instruments:
Cash and cash equivalents:
The carrying amount approximates fair value because of the short-term maturities of such instruments.
Derivatives:
The fair value of derivatives relating to foreign currency forward exchange contracts and interest rate swaps are derived from current settlement prices and comparable contracts using current assumptions. Foreign currency forward exchange contracts primarily relate to contracts entered into to hedge future known transactions or hedge balance sheet net cash positions. The movements in the carrying amounts and fair values of these contracts are largely due to changes in exchange rates against the U.S. dollar.
Long-term debt and finance leases:
Long-term debt comprises the revolving credit facility, which is shown net of deferred finance costs that have been capitalized. 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.
Stock equivalent units:
The fair values of stock equivalent units are calculated at each balance sheet date using either the Black-Scholes or Monte Carlo method depending on the terms of each grant.
v3.20.1
Derivative Instruments and Risk Management
3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Risk Management
NOTE 11 – DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
The Company enters into various foreign currency forward exchange contracts to minimize currency exchange rate exposure from expected future cash flows. As at March 31, 2020 the contracts have maturity dates of up to twelve months at 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 the first three months of 2020 was a gain of $1.9 million (first three months of 2019: gain of $0.2 million).
As at March 31, 2020 and December 31, 2019 the Company did not hold any interest rate swaps. In prior years, the Company entered into interest rate swaps to minimize interest rate exposure related to a portion of
its
borrowing requirements. These interest rate swaps were designated as hedging instruments, and their impact on accumulated other comprehensive loss for the first three months of 2019 was a loss of $0.7 million.
v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Legal matters
While we are involved from time to time in claims and legal proceedings that result from, and are incidental to, the conduct of our business including business and commercial litigation, employee and product liability claims, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party, or of which any of their property is subject. It is possible, however, that an adverse resolution of an unexpectedly large number of such individual claims or proceedings could in the aggregate have a material adverse effect on the results of operations for a particular year or quarter.
Guarantees
The Company and certain of the Company’s consolidated subsidiaries are contingently liable for certain obligations of affiliated companies primarily in the form of guarantees of debt and performance under contracts entered into as a normal business practice. This includes guarantees of non-U.S. excise taxes and customs duties. As at March 31, 2020, such guarantees which are not recognized as liabilities in the condensed consolidated financial statements amounted to $4.6 million (December 31, 2019–$4.7 million). The remaining terms of the fixed maturity guarantees vary from 1 month to 4 years, with some further guarantees having no fixed expiry date.
Under the terms of the guarantee arrangements, generally the Company would be required to perform should the affiliated company fail to
fulfill
its obligations under the arrangements. In some cases, the guarantee arrangements have recourse provisions that would enable the Company to recover any payments made under the terms of the guarantees from securities held of the guaranteed parties’ assets.
The Company and its affiliates have numerous long-term sales and purchase commitments in their various business activities, which are expected to be fulfilled with no adverse consequences material to the Company.
v3.20.1
Stock-Based Compensation Plans
3 Months Ended
Mar. 31, 2020
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation Plans
NOTE 13 – STOCK-BASED COMPENSATION PLANS
The Company grants stock options and stock equivalent units (“SEUs”) from time to time as a long-term performance incentive. In certain cases the grants are subject to performance conditions such as the Company’s stock price. Where performance conditions apply the Monte Carlo simulation model is used to determine the fair values. Otherwise the Black-Scholes model is used to determine the fair values.
Stock option plans
The following table summarizes the transactions of the Company’s stock option plans for the three months ended March 31, 2020:
 
Number
of
Options
 
 
Weighted
Average
Exercise
Price
 
 
Weighted
Average
Grant-
Date Fair
Value
 
Outstanding at December 31, 2019
   
504,459
    $
33.05
    $
41.35
 
Granted – at discount
   
61,678
    $
0.00
    $
77.83
 
– at market value
   
10,419
    $
95.70
    $
18.69
 
Exercised
   
(74,074
)   $
9.11
    $
52.83
 
Forfeited
   
(10,250
)   $
13.80
    $
47.17
 
                         
Outstanding at March 31, 2020
   
492,232
    $
34.24
    $
43.59
 
                         
At March 31, 2020, there were 49,444 stock options that were exercisable, of which 12,519 had performance conditions attached.
The stock option compensation cost for the first three months of 2020 was $1.2 million (first three months of 2019 – $1.6 million). The total intrinsic value of options exercised in the first three months of 2020 was $4.2 million (first three months of 2019 – $2.1 million).
The total compensation cost related to non-vested stock options not yet recognized at March 31, 2020 was $11.9 million and this cost is expected to be recognized over the weighted-average period of 2.11 years.
Stock equivalent units
The following table summarizes the transactions of the Company’s SEUs for the three months ended March 31, 2020:
 
Number
of SEUs
 
 
Weighted
Average
Exercise
Price
 
 
Weighted
Average
Grant-
Date Fair
Value
 
Outstanding at December 31, 2019
   
390,816
    $
3.69
    $
59.91
 
Granted – at discount
   
103,607
    $
0.00
    $
77.33
 
– at market value
   
3,634
    $
95.70
    $
18.69
 
Exercised
   
(81,557
)   $
0.94
    $
60.35
 
Forfeited
   
(9,536
)   $
1.53
    $
58.85
 
                         
Outstanding at March 31, 2020
   
406,964
    $
4.17
    $
63.92
 
                         
At March 31, 2020 there were 63,196 SEUs that are exercisable, of which 56,664 had performance conditions attached.
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 for the first three months of 2020 was $6.0 million credit (first three months of 2019 – $7.5 million charge). The total intrinsic value of SEUs exercised in the first three months of 2020 was $5.6 million (first three months of 2019 – $6.2 million).
The weighted-average remaining vesting period of non-vested SEUs is 2.39 years.
v3.20.1
Reclassifications out of Accumulated Other Comprehensive Loss
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Reclassifications out of Accumulated Other Comprehensive Loss
NOTE 14 – RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS
Reclassifications out of accumulated other comprehensive loss for the first quarter of 2020 were:
(in millions)
Details about AOCL Components
 
Amount
Reclassified
from
AOCL
 
 
Affected Line Item in
the Statement where
Net Income is
Presented
 
Defined benefit pension plan items:
 
 
 
 
Amortization of prior service credit
  $
(0.2
)    
See (¹) below
 
Amortization of actuarial net losses
   
0.2
     
See (¹) below
 
                 
   
0.0
     
Total before tax
 
   
0.0
     
Income tax expense
 
                 
Total reclassifications
  $
0.0
     
Net of tax
 
                 
(1)
These items are included in other income and expense. See Note 6 of the Notes to the Condensed Consolidated Financial Statements for additional information.
Changes in accumulated other comprehensive loss for the first three months of 2020, net of tax, were:
(in millions)
 
Defined
Benefit
Pension Plan
Items
 
 
Cumulative
Translation
Adjustments
 
 
Total
 
Balance at December 31, 2019
  $
(9.3
)   $
(65.1
)   $
(74.4
)
                         
Other comprehensive income before
reclassifications
   
0.0
     
(7.9
)    
(7.9
)
Amounts reclassified from AOCL
   
0.0
     
0.0
     
0.0
 
                         
Total other comprehensive income
   
0.0
     
(7.9
)    
(7.9
)
                         
Balance at March 31, 2020
  $
(9.3
)   $
(73.0
)   $
(82.3
)
                         
v3.20.1
Recently Issued Accounting Pronouncements
3 Months Ended
Mar. 31, 2020
Accounting Changes and Error Corrections [Abstract]  
Recently Issued Accounting Pronouncements
NOTE 15 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326). As disclosed in the Basis of Preparation, the Company adopted this standard from January 1, 2020.
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on the Company’s disclosures.
v3.20.1
Related Party Transactions
3 Months Ended
Mar. 31, 2020
Related Party Transactions [Abstract]  
Related Party Transactions
NOTE 16 – RELATED PARTY TRANSACTIONS
Mr. Patrick S. Williams has been an executive director of the Company since April 2009 and has been a non-executive director of AdvanSix, a chemicals manufacturer, since February 2020. In the first three months of 2020 the Company purchased product from AdvanSix for $0.1 million. As at March 31, 2020, the Company owed $0.0 million to AdvanSix.
Mr. Robert I. Paller has been a non-executive director of the Company since November 1, 2009. The Company has retained and continues to retain Smith, Gambrell & Russell, LLP (“SGR”), a law firm with which Mr. Paller holds a position. In the first three months of 2020 the Company incurred fees from SGR of $0.1 million (first three months of 2019 – $0.2 million). As at March 31, 2020, the Company owed $0.0 million to SGR (December 31, 2019 – $0.0 million).
Mr. David F. Landless has been a non-executive director of the Company since January 1, 2016 and is a non-executive director of Ausurus Group Limited which owns European Metal Recycling Limited (“EMR”). The Company has sold scrap metal to EMR in
 the first three months of
2020 for a value of $0.1 million (first three months of 2019 – $0.3 million). A tendering process is operated periodically to select the best buyer for the sale of scrap metal by the Company. As at March 31, 2020 EMR owed $0.1 million for scrap metal purchased from the Company (December 31, 2019 – $0.0 million).
v3.20.1
Segment Reporting (Tables)
3 Months Ended
Mar. 31, 2020
Segment Reporting [Abstract]  
Segment Reporting
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
March 31
 
(in millions)
 
2020
 
 
2019
 
Net Sales:
   
     
 
Refinery and Performance
   
108.6
    $
117.3
 
Other
   
38.4
     
38.7
 
                 
Fuel Specialties
   
147.0
     
156.0
 
                 
Personal Care
   
63.0
     
61.0
 
Home Care
   
21.6
     
27.0
 
Other
   
28.5
     
30.1
 
                 
Performance Chemicals
   
113.1
     
118.1
 
                 
Oilfield Services
   
112.2
     
114.2
 
                 
 
  $
372.3
    $
388.3
 
                 
Gross profit/(loss):
   
     
 
Fuel Specialties
  $
51.2
    $
55.7
 
Performance Chemicals
   
27.6
     
26.6
 
Oilfield Services
   
36.2
     
37.7
 
Octane Additives
   
(1.1
)    
(2.2
)
                 
 
  $
113.9
    $
117.8
 
                 
Operating income/(loss):
   
     
 
Fuel Specialties
  $
32.1
    $
32.9
 
Performance Chemicals
   
15.6
     
13.5
 
Oilfield Services
   
7.2
     
7.8
 
Octane Additives
   
(1.2
)    
(2.8
)
Corporate costs
   
(12.8
)    
(15.2
)
                 
Total operating income
  $
40.9
    $
36.2
 
                 
Summary of Segment Depreciation and Amortization
The following table presents a summary of the depreciation and amortization charges incurred by the Company’s reportable segments:
                 
 
Three Months Ended
March 31
 
(in millions)
 
2020
 
 
2019
 
Depreciation:
 
 
 
 
 
 
Fuel Specialties
  $
 
1.0
    $
0.9
 
Performance Chemicals
   
2.8
     
2.5
 
Oilfield Services
   
1.7
     
1.7
 
Octane Additives
   
0.3
     
0.3
 
Corporate
   
0.3
     
0.3
 
                 
  $
6.1
    $
5.7
 
                 
Amortization:
 
 
 
 
 
 
Performance Chemicals
   
2.2
     
2.2
 
Oilfield Services
   
2.6
     
2.6
 
Corporate
   
1.0
     
0.9
 
                 
  $
5.8
    $
5.7
 
                 
 
 
 
v3.20.1
Earnings per Share (Tables)
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Summary of Earnings Per Share Per share amounts are computed as follows:
                 
 
Three Months Ended
March 31
 
 
2020
 
 
2019
 
Numerator (in millions):
   
     
 
Net income available to common stockholders
  $
 33.1
    $
 28.7
 
                 
Denominator (in thousands):
   
     
 
Weighted average common shares outstanding
   
24,529
     
24,437
 
Dilutive effect of stock options and awards
   
213
     
157
 
                 
Denominator for diluted earnings per share
   
24,742
     
24,594
 
                 
Net income per share, basic:
  $
 1.35
    $
 1.17
 
                 
Net income per share, diluted:
  $
 1.34
    $
 1.17
 
                 
 
 
 
v3.20.1
Goodwill (Tables)
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Summary of Goodwill
The following table summarizes the goodwill movements:
                         
(in millions)
 
Gross Cost
 
 
Accumulated
Impairment
Losses
 
 
Net Book
Amount
 
Opening balance at January 1
  $
599.5
    $
(236.5
)   $
363.0
 
Exchange effect
   
(1.8
)    
0.0
     
(1.8
)
                         
Closing balance at March 31
  $
597.7
    $
(236.5
)   $
361.2