INNOSPEC INC., 10-K filed on 17 Feb 21
v3.20.4
Cover Page - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Feb. 10, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Document Annual Report true    
Document Transition Report false    
Current Fiscal Year End Date --12-31    
Document Period End Date Dec. 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   24,598,689  
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    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer Yes    
Entity Public Float     $ 1,061
ICFR Auditor Attestation Flag true    
v3.20.4
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]      
Net sales $ 1,193.1 $ 1,513.3 $ 1,476.9
Cost of goods sold (850.4) (1,047.1) (1,041.9)
Gross profit 342.7 466.2 435.0
Operating expenses:      
Selling, general and administrative (237.0) (280.9) (261.0)
Research and development (30.9) (35.4) (33.4)
Restructuring charge (21.3) (0.0) (7.1)
Impairment of intangible assets (19.8) (0.0) (0.0)
Total operating expenses (309.0) (316.3) (301.5)
Operating income 33.7 149.9 133.5
Other income, net 7.8 5.3 5.0
Interest expense, net (1.8) (4.8) (6.9)
Income before income tax expense 39.7 150.4 131.6
Income tax expense (11.0) (38.2) (46.6)
Net income $ 28.7 $ 112.2 $ 85.0
Earnings per share:      
Basic $ 1.17 $ 4.58 $ 3.48
Diluted $ 1.16 $ 4.54 $ 3.45
Weighted average shares outstanding (in thousands):      
Basic 24,563 24,482 24,401
Diluted 24,779 24,728 24,603
v3.20.4
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Comprehensive Income [Abstract]      
Net income $ 28.7 $ 112.2 $ 85.0
Changes in cumulative translation adjustment, net of tax of $3.9 million, $(0.3) million and $2.7 million, respectively 23.7 (6.0) (22.6)
Changes in derivative instruments, net of tax of $0.0 million, $(0.4) million and $(0.1) million, respectively 0.0 (1.5) 0.3
Amortization of prior service credit, net of tax of $0.1 million, $0.2 million and $0.2 million, respectively (0.4) (0.7) (0.9)
Amortization of actuarial net losses, net of tax of $(0.2) million, $0.0 million and $(0.3) million, respectively 1.5 (0.0) 1.7
Actuarial net (losses)/gains arising during the year, net of tax of $1.9 million, $(2.2) million and $3.3 million, respectively (7.7) 9.5 (15.7)
Total comprehensive income $ 45.8 $ 113.5 $ 47.8
v3.20.4
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Comprehensive Income [Abstract]      
Changes in cumulative translation adjustment, tax $ 3.9 $ 0.3 $ 2.7
Changes in derivative instruments, tax 0.0 0.4 0.1
Amortization of prior service credit, tax 0.1 0.2 0.2
Amortization of actuarial net losses, tax 0.2 0.0 0.3
Actuarial net gains, tax $ 1.9 $ 2.2 $ 3.3
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 105.3 $ 75.7
Trade and other accounts receivable (less allowances of $4.5 million and $3.8 million, respectively) 221.4 292.0
Inventories (less allowances of $19.4 million and $14.5 million, respectively):    
Finished goods 156.3 173.9
Raw materials 63.7 70.7
Total inventories 220.0 244.6
Prepaid expenses 14.9 14.7
Prepaid income taxes 4.2 2.5
Other current assets 0.4 0.8
Total current assets 566.2 630.3
Net property, plant and equipment 210.8 198.7
Operating lease right-of-use assets 40.1 32.4
Goodwill 371.2 363.0
Other intangible assets 75.3 113.5
Deferred tax assets 7.6 9.1
Pension asset 118.0 115.9
Other non-current assets 8.2 5.9
Total assets 1,397.4 1,468.8
Current liabilities:    
Accounts payable 98.7 122.0
Accrued liabilities 129.8 154.0
Current portion of finance leases 0.5 1.0
Current portion of plant closure provisions 6.6 5.6
Current portion of accrued income taxes 5.5 10.3
Current portion of operating lease liabilities 11.3 10.6
Total current liabilities 252.4 303.5
Long-term debt, net of current portion 0.0 58.6
Finance leases, net of current portion 0.1 0.5
Operating lease liabilities, net of current portion 28.9 21.9
Plant closure provisions, net of current portion 51.9 43.7
Accrued income taxes, net of current portion 32.4 36.2
Unrecognized tax benefits, net of current portion 16.0 16.4
Deferred tax liabilities 46.9 49.6
Pension liabilities and post-employment benefits 20.5 17.8
Other non-current liabilities 3.4 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 336.1 330.4
Treasury stock (4,958,599 and 5,047,278 shares at cost, respectively) (93.3) (93.3)
Retained earnings 758.6 755.5
Accumulated other comprehensive loss (57.3) (74.4)
Total Innospec stockholders' equity 944.4 918.5
Non-controlling interest 0.5 0.4
Total equity 944.9 918.9
Total liabilities and equity $ 1,397.4 $ 1,468.8
v3.20.4
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Allowances for doubtful accounts $ 4.5 $ 3.8
Inventory allowances $ 19.4 $ 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 4,958,599 5,047,278
v3.20.4
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Cash Flows from Operating Activities      
Net income $ 28.7 $ 112.2 $ 85.0
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 46.0 47.6 49.6
Impairment of intangible assets 19.8 0.0 0.0
Impairment of tangible assets 2.0 0.0 0.0
Deferred tax (benefit)/expense (2.5) (0.8) 5.5
Cash contributions to defined benefit pension plans (0.0) (0.4) (1.0)
Non-cash income of defined benefit pension plans (4.0) (6.1) (4.3)
Stock option compensation 5.8 6.6 4.9
Changes in assets and liabilities, net of effects of acquired and divested companies:      
Trade and other accounts receivable 74.4 (18.2) (40.1)
Inventories 25.5 2.4 (42.2)
Prepaid expenses (1.0) (3.1) 0.5
Accounts payable and accrued liabilities (45.9) 23.2 38.4
Accrued income taxes (10.3) (2.4) (6.1)
Plant closure provisions 8.5 0.0 3.6
Unrecognized tax benefits (0.4) 2.5 11.5
Other assets and liabilities (0.7) (1.9) (0.4)
Net cash provided by operating activities 145.9 161.6 104.9
Cash Flows from Investing Activities      
Capital expenditures (29.7) (29.9) (28.9)
Business combinations, net of cash acquired (0.0) (0.0) (5.4)
Internally developed software (0.0) (1.1) (1.2)
Net cash used in investing activities (29.7) (31.0) (35.5)
Cash Flows from Financing Activities      
Non-controlling interest 0.1 0.0 0.0
Proceeds from revolving credit facility 15.0 105.5 10.0
Repayments of revolving credit facility (75.0) (171.5) (5.0)
Repayment of term loans 0.0 (82.5) (16.5)
Repayment of finance leases (1.1) (1.7) (2.7)
Refinancing costs (0.3) (1.5) (0.0)
Dividend paid (25.6) (25.0) (21.7)
Issue of treasury stock 2.2 1.2 1.1
Repurchase of common stock (2.1) (2.4) (1.4)
Net cash used in financing activities (86.8) (177.9) (36.2)
Effect of foreign currency exchange rate changes on cash 0.2 (0.1) (0.3)
Net change in cash and cash equivalents 29.6 (47.4) 32.9
Cash and cash equivalents at beginning of year 75.7 123.1 90.2
Cash and cash equivalents at end of year $ 105.3 $ 75.7 $ 123.1
v3.20.4
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 85.0       85.0    
Dividend paid (21.7)       (21.7)    
Changes in cumulative translation adjustment, net of tax (22.6)         (22.6)  
Share of net income 0.1           0.1
Changes in derivative instruments, net of tax 0.3         0.3  
Treasury stock re-issued 1.5   (0.4) 1.9      
Treasury stock repurchased (1.4)     (1.4)      
Stock option compensation 4.9   4.9        
Amortization of prior service credit, net of tax (0.9)         (0.9)  
Amortization of actuarial net losses, net of tax 1.7         1.7  
Actuarial net gains (losses) arising during the year, net of tax (15.7)         (15.7)  
Ending Balance at Dec. 31, 2018 825.5 0.3 324.9 (92.8) 668.3 (75.7) 0.5
Net income 112.2       112.2    
Dividend paid (25.0)       (25.0)    
Changes in cumulative translation adjustment, net of tax (6.0)         (6.0)  
Share of net income (0.1)           (0.1)
Changes in derivative instruments, net of tax (1.5)         (1.5)  
Treasury stock re-issued 0.8   (1.1) 1.9      
Treasury stock repurchased (2.4)     (2.4)      
Stock option compensation 6.6   6.6        
Amortization of prior service credit, net of tax (0.7)         (0.7)  
Amortization of actuarial net losses, net of tax (0.0)            
Actuarial net gains (losses) arising during the year, net of tax 9.5         9.5  
Ending Balance at Dec. 31, 2019 918.9 0.3 330.4 (93.3) 755.5 (74.4) 0.4
Net income 28.7       28.7    
Dividend paid (25.6)       (25.6)    
Changes in cumulative translation adjustment, net of tax 23.7         23.7  
Share of net income 0.1           0.1
Changes in derivative instruments, net of tax 0.0            
Treasury stock re-issued 2.0   (0.1) 2.1      
Treasury stock repurchased (2.1)     (2.1)      
Stock option compensation 5.8   5.8        
Amortization of prior service credit, net of tax (0.4)         (0.4)  
Amortization of actuarial net losses, net of tax 1.5         1.5  
Actuarial net gains (losses) arising during the year, net of tax (7.7)         (7.7)  
Ending Balance at Dec. 31, 2020 $ 944.9 $ 0.3 $ 336.1 $ (93.3) $ 758.6 $ (57.3) $ 0.5
v3.20.4
Consolidated Statements of Equity (Parenthetical) - $ / shares
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Stockholders' Equity [Abstract]      
Dividend paid, per share $ 1.04 $ 1.02 $ 0.89
v3.20.4
Nature of Operations
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations
Note 1.     Nature of Operation
s
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 Octane Additives business manufactures a fuel additive for use in automotive gasoline and provides services in respect of environmental remediation. Our principal reportable segments are Fuel Specialties, Performance Chemicals, Oilfield Services and Octane Additives (ceased trading June 30, 2020).
v3.20.4
Accounting Policies
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
Accounting Policies
Note 2.     Accounting Policies
Basis of preparation:
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. 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.
Use of estimates:
The preparation of the consolidated financial statements, in accordance with GAAP in the United States of America, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Revenue recognition:
Our revenues are primarily derived from the manufacture and sale of specialty chemicals. We recognize revenue when control of the product is transferred to our customer and for an amount that reflects the consideration we expect to collect from the customer. Control is generally transferred to the customer when title transfers (which may include physical possession by the customer), we have a right to payment from the customer, the customer has accepted the product, and the customer has assumed the risks and rewards of ownership. We have supplier managed inventory arrangements with some of our customers to facilitate
on-demand
product availability. In some cases, the inventory resides at a customer site, although title has not transferred, we are not entitled to payment, and we have not invoiced for the product. We have evaluated the contract terms under these arrangements and have determined that control transfers when the customer uses the product, at which time
revenue is recognized. Our contracts generally include one performance obligation, which is providing specialty chemicals. The performance obligation is satisfied at a point in time when products are shipped, delivered, or consumed by the customer, depending on the underlying contracts.
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. The estimates are based on our best judgment at the time of sale, which includes anticipated as well as historical performance.
 
Taxes assessed by a governmental authority which are concurrent with sales to our customers, including sales, use, value-added, and revenue-related excise taxes, are collected by us from the customer and are not included in net sales, but are reflected in accrued liabilities until remitted to the appropriate governmental authority. When we are responsible for shipping and handling costs after title has transferred, we account for those as fulfilment costs and include them in cost of goods sold.
Components of net sales:
All amounts billed to customers relating to shipping and handling are classified as net sales. Shipping and handling costs incurred by the Company are classified as cost of goods sold.
Components of cost of goods sold:
Cost of goods sold is comprised of raw material costs including inbound freight, duty and
non-recoverable
taxes, inbound handling costs associated with the receipt of raw materials, packaging materials, manufacturing costs including labor costs, maintenance and utility costs, plant and engineering overheads, amortization expense for certain other intangible assets, warehousing and outbound shipping costs and handling costs. Inventory losses and provisions and the costs of customer claims are also recognized in the cost of goods line item.
Components of selling, general and administrative expenses:
Selling expenses comprise the costs of the direct sales force, and the sales management and customer service departments required to support them. It also comprises commission charges, the costs of sales conferences and trade shows, the cost of advertising and promotions, amortization expense for certain other intangible assets, and the cost of bad and doubtful debts. General and administrative expenses comprise the cost of support functions including accounting, human resources, information technology and the cost of group functions including corporate management, finance, tax, treasury, investor relations and legal departments. 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 expenses:
Research, development and testing costs are expensed to the income statement as incurred.
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.
Foreign currencies:
The Company’s policy is that foreign exchange differences arising on the translation of the balance sheets of entities that have functional currencies other than the U.S. dollar are taken to a separate equity reserve, the cumulative translation adjustment. In entities where the U.S. dollar is the functional currency no gains or losses on translation occur, and gains or losses on monetary assets relating to currencies other than the U.S. dollar are taken to the income statement in other income/(expense), net. Gains and losses on intercompany foreign currency loans which are long-term in nature, which the Company does not intend to settle in the foreseeable future, are also recorded in accumulated other comprehensive loss. Other foreign exchange gains or losses are also included in other income, net in the income statement.
Stock-based compensation plans:
The Company accounts for employee stock options and stock equivalent units under the fair value method. Stock options are fair valued at the grant date and the fair value is recognized straight-line over the vesting period of the option. Stock equivalent units are fair valued at each balance sheet date and the fair value is spread over the remaining vesting period of the unit.
Business combinations:
The acquisition method of accounting requires that we recognize the assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of consideration transferred over the acquisition date net fair values of the assets acquired and the liabilities assumed.
The determination of the fair values of certain assets and liabilities are usually based on significant estimates provided by management, such as forecast revenue or profit. In determining the fair value of intangible assets, an income approach is generally used and may incorporate the use of a discounted cash flow method. In applying the discounted cash flow method, the estimated future cash flows and residual values for each intangible asset are discounted to a present value using a discount rate appropriate to the business being acquired. These cash flow projections are based on management’s estimates of economic and market conditions including revenue growth rates, operating margins, capital expenditures and working capital requirements.
Cash equivalents:
Investment securities with maturities of three months or less when purchased are considered to be cash equivalents.
Trade and other accounts receivable:
The Company records trade and other accounts receivable at net realizable value and maintains allowances for customers not making required
payments. The Company determines the adequacy of allowances by periodically evaluating each customer receivable considering our customer’s financial condition, credit history and current economic conditions.
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 $4.5 million allowance at 
December 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.
Inventories:
Inventories are stated at the lower of cost (FIFO method) or market value.
Cost
includes materials, labor and an appropriate proportion of plant overheads. The Company accrues volume discounts where it is probable that the required volume will be attained and the amount can be reasonably estimated. The discounts are recorded as a reduction in the cost of materials based on projected purchases over the period of the agreement. Inventories are adjusted for estimated obsolescence and written down to market value based on estimates of future demand and market conditions.
Property, plant and equipment:
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets using the straight-line method and is allocated between cost of goods sold and operating
expenses. The cost of additions and improvements are capitalized. Maintenance and repairs are charged to expenses as incurred. When assets are sold or retired the associated cost and accumulated depreciation are removed from the consolidated financial statements and any related gain or loss is included in earnings. The estimated useful lives of the major classes of depreciable assets are as follows:
 
Buildings
     7
 
to 25
 
years
 
Equipment
     3 to 10
 
years
 
Goodwill:
Goodwill is deemed to have an indefinite life and is subject to at least annual impairment assessments at the reporting unit level. The Company considers that its reporting units are consistent with its reportable segments. The components in each segment (including products, markets and competitors) have similar economic characteristics and the segments, therefore, reflect the lowest level at which operations and cash flows can be sufficiently distinguished, operationally and for financial reporting purposes, from the rest of the Company.
Initially we perform a qualitative assessment to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a 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. Factors utilized in the qualitative assessment process include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and Company specific events.
If a quantitative test is required, we assess the fair value based on projected
post-tax
cash flows discounted at the Company’s weighted average cost of capital. These fair value techniques require management judgment and estimates including revenue growth rates, projected operating margins, changes in working capital and discount rates. We would develop these assumptions by considering recent financial performance and industry growth estimates.
O
ther intangible assets:
Other intangible assets are deemed to have finite lives and are amortized using the straight-line method over their estimated useful lives. The Company capitalizes software development costs as intangible assets, including licenses, subsequent to the establishment of technological feasibility. These assets are tested for potential impairment when events occur or circumstances change, which suggest an impairment may have occurred.
In order to facilitate testing for potential impairment the Company groups together assets at the lowest possible level for which cash flow information is available. Undiscounted future cash flows expected to result from the asset groups are compared with the carrying value of the assets and, if such cash flows are lower, an impairment loss may be recognized. The amount of the impairment loss is the difference between the fair value and the carrying value
of the assets. Fair values are determined using
post-tax
cash flows discounted at the Company’s weighted average cost of capital. If events occur or circumstances change it may cause a reduction in the periods over which the assets are amortized, or result in a
non-cash
impairment of their carrying value. A reduction in the amortization periods would have no impact on cash flows.
The estimated useful lives of the major classes of assets are as follows:
 
Technology
     10
 
to 17
 
years
 
Customer lists
     10
 
to 15
 
years
 
Brand names
     5
 
to 10
 
years
 
Product rights
     9
 
to 10
 
years
 
Internally developed software
     3 to 5
 
years
 
Marketing related
     11 years  
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 as at December 31, 2019, but did not have an impact on our consolidated income statements. The most significant impact was the recognition of ROU assets and lease liabilities and the related deferred taxes thereon for operating leases, while our accounting for finance leases remained substantially unchanged. Operating lease liabilities recognized under the new standard are not considered to be debt.
We determine if an arrangement is a lease at inception. The present value of the future lease payments for operating leases is included in operating lease ROU assets, and operating lease liabilities (current and
non-current)
on our consolidated balance sheet at December 31, 2020. The carrying value of assets under finance leases is included in property, plant and equipment and finance lease liabilities (current and
non-current)
on our consolidated balance sheet at December 31, 2020.
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.
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 amortization charge is included in interest expense in the income statement.
Impairment of long-lived assets:
The Company reviews the carrying value of its long-lived assets, including buildings and equipment, whenever changes in circumstances suggest that the carrying values may be impaired. In order to facilitate this test the Company groups together assets at the lowest possible level for which cash flow information is available. Undiscounted future cash flows expected to result from the asset groups are compared with the carrying value of the asset groups and if they are lower an impairment loss may be recognized. The amount of the impairment loss is the difference between the fair value and the carrying value of the asset groups. Fair values are determined using
post-tax
cash flows discounted at the Company’s weighted average cost of capital.
Derivative instruments:
From time to time,
the Company uses various derivative instruments including forward currency contracts, options, interest rate swaps and commodity swaps to manage certain exposures. These instruments are entered into under the Company’s corporate risk management policy to minimize exposure and are not for speculative trading purposes. The Company recognizes all derivatives as either current or
non-current
assets or liabilities in the consolidated balance sheet and measures those instruments at fair value. Changes in the fair value of derivatives that are not designated as hedges, or do not meet the requirements for hedge accounting, are recognized in earnings. Derivatives which are designated as hedges are tested for effectiveness on a quarterly basis, and marked to market. 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.
Environmental compliance and remediation:
Environmental compliance costs include ongoing maintenance, monitoring and similar costs. We recognize environmental liabilities when they are probable and the costs can be reasonably estimated, and asset retirement obligations when there is a legal obligation and the costs can be reasonably estimated. The vast majority of our plant closure provision relates to our Ellesmere Port site in the United Kingdom.
The Company must comply with environmental legislation in the countries in which it operates or has operated in and annually reassesses the program of work required. This includes estimating the credit-adjusted risk free rate and the timing and cost of performing the remediation work. Management use specialists to develop these estimates and assumptions utilizing the latest information available together with experience of recent costs. While we believe our assumptions for environmental liabilities are reasonable, they are subjective judgements and it is possible that variations in any of the assumptions will result in materially different calculations to the liabilities we have reported. Costs of future obligations are discounted to their present values using the Company’s credit-adjusted risk-free rate.
Pension plans and other post-employment benefits:
The Company recognizes the funded status of defined benefit post-retirement plans on the consolidated balance sheets and changes in the funded status in comprehensive income. The measurement date of the plan’s funded status is the same as the Company’s fiscal
year-end.
The service costs are recognized as employees render the services necessary to earn the post-employment benefits. 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.
Income taxes:
The Company provides for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the relevant tax bases of the assets and liabilities. The Company then evaluates the need for a valuation allowance to reduce deferred tax assets to the amount more likely than not to be realized. The effect on deferred taxes of a change in tax rates is recognized in the period that includes the enactment date. The Company recognizes the tax benefit from a tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes accrued interest and penalties associated with unrecognized tax benefits as part of income taxes in our consolidated statements of income.
v3.20.4
Segment Reporting and Geographical Area Data
12 Months Ended
Dec. 31, 2020
Segment Reporting [Abstract]  
Segment Reporting
Note 3.     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.
Our Fuel Specialties segment develops, manufactures, blends, markets and supplies a range of specialty chemicals products used as additives to a wide range of fuels.
Our Performance
Chemicals
segment provides effective technology-based solutions for our customers’ processes or products focused in the Personal Care, Home Care, Agrochemical and Metal
Extraction
markets.
Our Oilfield Services segment develops and markets chemical solutions for fracturing, stimulation and stimulation operations, products for oil and gas production which aid flow assurance and maintain asset integrity and products to prevent loss of mud in drilling operations.
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.
The Company evaluates the performance of its segments based on operating income. The following table analyzes sales and other financial information by the Company’s reportable segments:
 
(in millions)
  
2020
    
2019
    
2018
 
Net Sales:
                          
Refinery and Performance
   $ 372.9      $ 427.9      $ 432.1  
Other
     139.8        155.8        142.4  
    
 
 
    
 
 
    
 
 
 
Fuel Specialties
     512.7        583.7        574.5  
    
 
 
    
 
 
    
 
 
 
Personal Care
     231.4        228.0        241.4  
Home Care
     87.0        93.4        109.1  
Other
     107.0        107.3        117.6  
    
 
 
    
 
 
    
 
 
 
Performance Chemicals
     425.4        428.7        468.1  
    
 
 
    
 
 
    
 
 
 
Oilfield Services
     255.0        479.9        400.6  
Octane Additives
     0.0        21.0        33.7  
    
 
 
    
 
 
    
 
 
 
     $ 1,193.1      $ 1,513.3      $ 1,476.9  
    
 
 
    
 
 
    
 
 
 
 
(in millions)
  
2020
   
2019
   
2018
 
Gross profit:
                        
Fuel Specialties
   $ 160.3     $ 204.5     $ 195.0  
Performance Chemicals
     103.8       100.1       97.5  
Oilfield Services
     80.8       159.9       130.4  
Octane Additives
     (2.2     1.7       12.1  
    
 
 
   
 
 
   
 
 
 
     $ 342.7     $ 466.2     $ 435.0  
    
 
 
   
 
 
   
 
 
 
Operating income/(expense):
                        
Fuel Specialties
   $ 84.5     $ 116.6     $ 116.3  
Performance Chemicals
     54.8       48.7       44.7  
Oilfield Services
     (9.5     39.7       22.1  
Octane Additives
     (2.8     (0.7     9.9  
Corporate costs
     (52.2     (54.4     (52.4
Restructuring charge
     (21.3     0.0       (7.1
Impairment of intangible assets
     (19.8     0.0       0.0  
    
 
 
   
 
 
   
 
 
 
Total operating income
   $ 33.7     $ 149.9     $ 133.5  
    
 
 
   
 
 
   
 
 
 
Identifiable assets at year end:
                        
Fuel Specialties
   $ 509.7     $ 499.7     $ 470.5  
Performance Chemicals
     391.5       383.3       463.9  
Oilfield Services
     210.8       316.8       296.1  
Octane Additives
     0.0       24.2       39.6  
Corporate
     285.4       244.8       203.3  
    
 
 
   
 
 
   
 
 
 
     $ 1,397.4     $ 1,468.8     $ 1,473.4  
    
 
 
   
 
 
   
 
 
 
Identifiable assets relating to our tetra ethyl lead (“TEL”) operations are included within our Fuel Specialties segment in 2020 and in our Octane Additives segment in 2019 and 2018, as shown in the table above. Octane Additives ceased trading on June 30, 2020 and is no longer a reporting segment after that date. As a result, it is now appropriate to report the identifiable assets relating to the remaining TEL production within Fuel Specialties from July 1, 2020. Our TEL operations historically produced TEL for automotive gasoline, which is reported in our Octane Additives segment for the years presented above, and for our AvTel product line, which is reported in our Fuel Specialties segment.
The Company includes within the corporate costs line item the costs of:
 
   
managing the Group as a company with securities listed on the NASDAQ and registered with the SEC;
 
   
the President/CEO’s office, group finance, group human resources, group legal and compliance counsel, and investor relations;
 
   
running the corporate offices in the U.S. and Europe;
 
   
the corporate development function since they do not relate to the current trading activities of our other reporting segments; and
 
   
the corporate share of the information technology, product technology, safety, health, environment, accounting and human resources departments.
The following tables analyze sales and other financial information by location:
 
(in millions)
  
2020
   
2019
   
2018
 
Net sales by source:
                        
United States & North America
   $ 642.4     $ 897.2     $ 803.1  
United Kingdom
     689.1       810.9       797.5  
Rest of Europe
     83.4       115.7       143.7  
Rest of World
     45.6       47.8       29.5  
Sales between areas
     (267.4     (358.3     (296.9
    
 
 
   
 
 
   
 
 
 
     $ 1,193.1     $ 1,513.3     $ 1,476.9  
    
 
 
   
 
 
   
 
 
 
Income before income taxes:
                        
United States & North America
   $ 0.0     $ 53.9     $ 37.1  
United Kingdom
     16.9       67.0       59.5  
Rest of Europe
     19.7       27.2       32.8  
Rest of World
     3.1       2.3       2.2  
    
 
 
   
 
 
   
 
 
 
     $ 39.7     $ 150.4     $ 131.6  
    
 
 
   
 
 
   
 
 
 
Long-lived assets at year end:
                        
United States & North America
   $ 141.0     $ 156.0     $ 148.6  
United Kingdom
     61.3       70.4       71.6  
Rest of Europe
     123.2       116.6       112.2  
Rest of World
     0.2       0.3       0.3  
    
 
 
   
 
 
   
 
 
 
     $ 325.7     $ 343.3     $ 332.7  
    
 
 
   
 
 
   
 
 
 
 
(in millions)
  
2020
 
  
2019
 
  
2018
 
Identifiable assets at year end:
                        
United States & North America
   $ 368.8     $ 419.5     $ 402.5  
United Kingdom
     455.8       487.2       504.7  
Rest of Europe
     171.0       163.2       173.1  
Rest of World
     30.6       35.9       28.2  
Goodwill
     371.2       363.0       364.9  
     $ 1,397.4     $ 1,468.8     $ 1,473.4  
Sales by geographical area are reported by source, being where the transactions originated. Intercompany sales are priced using an appropriate pricing methodology and are eliminated in the consolidated financial statements.
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.
v3.20.4
Earnings per Share
12 Months Ended
Dec. 31, 2020
Earnings Per Share [Abstract]  
Earnings per Share
Note 4.     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. Per share amounts are computed as follows:
 
    
2020
    
2019
    
2018
 
Numerator (in millions):
                          
Net income available to common stockholders
   $ 28.7      $ 112.2      $ 85.0  
    
 
 
    
 
 
    
 
 
 
Denominator (in thousands):
                          
Weighted average common shares outstanding
     24,563        24,482        24,401  
Dilutive effect of stock options and awards
     216        246        202  
    
 
 
    
 
 
    
 
 
 
Denominator for diluted earnings per share
     24,779        24,728        24,603  
    
 
 
    
 
 
    
 
 
 
Net income per share, basic:
   $ 1.17      $ 4.58      $ 3.48  
    
 
 
    
 
 
    
 
 
 
Net income per share, diluted:
   $ 1.16      $ 4.54      $ 3.45  
    
 
 
    
 
 
    
 
 
 
 
In 2020, 2019 and 2018 the average number
 
of anti-dilutive options excluded from the calculation of diluted earnings per share were
17,980, 6,270
and
0
respectively.
v3.20.4
Restructuring
12 Months Ended
Dec. 31, 2020
Restructuring Charges [Abstract]  
Restructuring
Note 5.     Restructuring
During 2020, the Company recorded
a charge
 of $21.3 million for the restructuring of its Octane Additives segment in line with the end of the manufacturing and sale of TEL for use in
motor gasoline. As a result, the Octane Additives segment ceased trading and is no longer a reporting segment from July 1, 2020. Production of TEL will continue for sales to the aviation market (“AvTel”), as reported within our Fuel Specialties segment.
The restructuring
charge
 comprise
s
the future committed costs of environmental monitoring of $2.0 million, remediation of facilities of $7.5 million, 
contract termination costs o
f
$7.2 million, impairment of tangible assets of $2.0 million and costs of redundancy due to the
down-sizing
 
of the TEL operations of $2.6 million. During the
year
ended
December 31
, 2020 the utilization 
and the unwinding of the discounting was not material.
v3.20.4
Property, Plant and Equipment
12 Months Ended
Dec. 31, 2020
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment
Note 6.     Property, Plant and Equipment
Property, plant and equipment consists of the following:
 
(in millions)
  
2020
   
2019
 
Land
   $ 21.6     $ 19.8  
Buildings
     65.5       60.0  
Equipment
     349.9       330.7  
Work in progress
     27.5       19.0  
    
 
 
   
 
 
 
       464.5       429.5  
Less accumulated depreciation and impairment
     (253.7     (230.8
    
 
 
   
 
 
 
     $ 210.8     $ 198.7  
    
 
 
   
 
 
 
Of the total net book value of equipment at December 31, 2020 $1.0 million (2019 – $1.8 million) are in respect of assets held under finance leases.
Depreciation charges were $24.7 million, $23.6 million and $22.6 million in 2020, 2019 and 2018, 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.
v3.20.4
Leases
12 Months Ended
Dec. 31, 2020
Leases [Abstract]  
Leases
Note 7.     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 10 years, some of which include options to terminate the leases within 1 year.
The components of lease expense were as follows:
 
(in millions)
  
Twelve Months
Ended December 31
    
Twelve Months
Ended December 31
 
    
2020
    
2019
 
Finance lease cost:
                 
Amortization of
right-of-use
assets
   $ 1.0      $ 1.7  
Interest on lease liabilities
     0.0        0.0  
    
 
 
    
 
 
 
Total finance lease cost
     1.0        1.7  
Operating lease cost
     12.8        12.1  
Short-term lease cost
     3.2        2.5  
Variable lease cost
     0.3        0.3  
    
 
 
    
 
 
 
Total lease cost
   $ 17.3      $ 16.6  
    
 
 
    
 
 
 
Supplemental cash flow information related to leases is as follows:
 
(in millions)
  
Twelve Months
Ended December 31
    
Twelve Months
Ended December 31
 
    
2020
    
2019
 
Cash paid for amounts included in the measurement of lease liabilities:
     
Operating cash flows from operating leases
   $ 15.9      $ 14.3  
Operating cash flows from finance leases
     1.2        2.1  
Finance cash flows from finance leases
     0.0        0.0  
Right-of-use
assets obtained in exchange for new lease obligations:
     
Operating leases
   $ 5.7      $ 4.3  
Finance leases
     0.0        0.0  
Supplemental balance sheet information related to leases is as follows:
 
(in millions except lease term and discount rate)
  
December 31
2020
 
 
December 31
2019
 
Operating leases:
                 
Operating lease
right-of-use
assets
   $ 40.1      $ 32.4  
    
 
 
    
 
 
 
Current portion of operating lease liabilities
   $ 11.3      $ 10.6  
Operating lease liabilities, net of current portion
     28.9        21.9  
    
 
 
    
 
 
 
Total operating lease liabilities
   $ 40.2      $ 32.5  
    
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
Finance leases:
                 
Property, plant and equipment at cost
   $ 9.0      $ 9.9  
Accumulated depreciation
     (8.0 )
 
 
 
     (8.1 )
 
 
 
    
 
 
    
 
 
 
Net property, plant and equipment
   $ 1.0    
$
1.8  
    
 
 
   
 
 
 
Current portion of finance leases
  
$
0.5    
$
1.0
 
Finance leases, net of current portion
     0.1      
0.5
 
    
 
 
   
 
 
 
Total finance lease liabilities
  
$
0.6    
$
1.5  
    
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average remaining lease term:
                
Operating leases
     4.1 years       3.3
 years
 
Finance leases
     1.1 years       1.7
years
 
Weighted average discount rate:
                
Operating leases
     3.0     3.1
Finance leases
     2.6
    2.4
Maturities of lease liabilities were as follows as at December 31, 2020:
 
(in millions)
  
Operating
Leases
    
Finance
Leases
 
Within one year
   $ 11.4     
$
0.5  
Year two
     9.4        0.1  
Year three
     8.2        0.0  
Year four
     5.5        0.0  
Year five
     3.8        0.0  
Thereafter
     4.6        0.0  
    
 
 
    
 
 
 
Total lease payments
     42.9        0.6  
Less imputed interest
     (2.7      0.0  
    
 
 
    
 
 
 
Total
  
$
40.2     
$
0.6  
    
 
 
    
 
 
 
As of December 31, 2020, additional operating and finance leases that have not yet commenced are $
0.0
 million.
Future lease payment for all
non-cancellable
operating and finance leases as of December 31, 2019 were as follows:
 
(in millions)
  
Operating

Leases
    
Finance

Leases
 
Within one year
  
$
10.8     
$
1.1  
Year two
     9.1        0.4  
Year three
     5.8       
0.1
 
Year four
     4.4        0.0  
Year five
     2.1        0.0  
Thereafter
     2.5        0.0  
    
 
 
    
 
 
 
Total lease payments
     34.7        1.6  
Less imputed interest
     (2.2
     (0.1
    
 
 
    
 
 
 
Total
  
$
32.5     
$
1.5  
    
 
 
    
 
 
 
 
As of December 31, 2019, additional operating and finance leases that have not yet commenced are $
0.0
million. 
v3.20.4
Goodwill
12 Months Ended
Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill
Note 8.    
Goodwill
The following table analyzes goodwill movement for 2020 and 2019.
 
(in millions)
  
Fuel
Specialties
   
Performance
Chemicals
   
Oilfield
Services
    
Octane
Additives
   
Total
 
At December 31, 2018
                                         
Gross cost
(1)
   $ 207.9    
$
112.2    
$
44.8     
$
236.5    
$
601.4  
Accumulated impairment losses
     0.0       0.0       0.0        (236.5     (236.5
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Net book amount
  
$
207.9    
$
112.2    
$
44.8     
$
0.0    
$
364.9  
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Exchange effect
     (0.2
    (1.7
    0.0        0.0       (1.9
At December 31, 2019
                                         
Gross cost
(1)
  
$
207.7    
$
110.5    
$
44.8     
$
236.5    
$
599.5  
Accumulated impairment losses
     0.0       0.0       0.0        (236.5
    (236.5
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Net book amount
  
$
207.7    
$
110.5    
$
44.8     
$
0.0    
$
363.0  
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Exchange effect
     0.2       8.0       0.0        0.0       8.2  
At December 31, 2020
                                         
Gross cost
(1)
  
$
207.9    
$
118.5    
$
44.8     
$
0.0    
$
371.2  
Accumulated impairment losses
     0.0       0.0       0.0        0.0       0.0  
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Net book amount
  
$
207.9    
$
118.5    
$
44.8     
$
0.0    
$
371.2  
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
(1)
 
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. 
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.
The Company assesses goodwill for impairment on at least an annual basis, initially based on a qualitative assessment to determine whether it is more likely than not that the fair value of a segment is less than the carrying amount. If a potential impairment is identified then an impairment test is performed.
The Company performed its annual impairment assessment in respect of goodwill as at December 31, 2020, 2019 and 2018. 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.
v3.20.4
Other Intangible Assets
12 Months Ended
Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Other Intangible Assets
 
Note 9.     Other Intangible Assets
Other intangible assets comprise the following:
 
(in millions)
  
2020
 
 
2019
Gross cost at January 1
  
$
294.8  
 
$
294.6
 
Additions
 
 
0.0
 
 
 
1.1
 
Exchange effect
  
 
4.1  
 
 
(0.9
Gross cost at December 31
  
 
298.9  
 
 
294.8
 
Accumulated amortization at January 1
  
 
(181.3
 
 
(158.3
Amortization expense
  
 
(20.9
 
 
(23.0
Impairment
  
 
(19.8
 
 
0.0
 
Exchange effect
  
 
(1.6
 
 
0.0
 
Accumulated amortization at December 31
  
 
(223.6
 
 
(181.3
Net book amount at December 31
  
$
75.3  
 
$
113.5
 
Amortization expense
The amortization expense was $20.9 million, $23.0 million and $26.3 million in 2020, 2019 and 2018, respectively. Excluding the impact of foreign exchange translation on the balance sheet, $2.9 million, $3.4 million and $3.4 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. The impaired assets relate to technology ($10.0 million) and customer relationships ($9.8 million). There was no impairment indicated on the other businesses within the Oilfield Services operating segment.
The net book amount by category of other intangible assets is shown in the following table:
 
(in millions)
  
December 31

2020
    
December 31

2019
 
Product rights
   $ 6.3      $ 10.1  
Brand names
     2.3        2.9  
Technology
     19.8        32.6  
Customer relationships
     44.2        60.8  
Internally developed software
     2.7        7.1  
    
 
 
    
 
 
 
     $ 75.3      $ 113.5  
    
 
 
    
 
 
 
Future amortization expense is estimated to be as follows for the next five years:
 
(in millions)
      
2021
   $ 15.9  
2022
   $ 14.3  
2023
   $ 10.9  
2024
   $ 10.2  
2025
   $ 7.2  
v3.20.4
Pension and Post-Employment Benefits
12 Months Ended
Dec. 31, 2020
Retirement Benefits [Abstract]  
Pension and Post-Employment Benefits
Note 10.     Pension and Post-Employment Benefits
United Kingdom plan
The Company maintains a defined benefit pension plan (the “Plan”) covering a number of its current and former employees in the United Kingdom, although it does also have other much smaller pension arrangements in the U.S. and overseas. The Plan is closed to future service accrual but has a large number of deferred and current pensioners. The Projected Benefit Obligation (“PBO”) is based on final salary and years of credited service reduced by social security benefits according to a plan formula. Normal retirement age is 65 but provisions are made for early retirement. The Plan’s assets are invested by several investment management companies in funds holding United Kingdom and overseas equities, United Kingdom and overseas fixed interest securities, index linked securities, property unit trusts and cash or cash equivalents. The trustees’ investment policy is to seek to achieve specified objectives through investing in a suitable mixture of real and monetary assets. The trustees recognize that the returns on real assets, while expected to be greater over the long-term than those on monetary assets, are likely to be more volatile. A mixture across asset classes should nevertheless provide the level of returns required by the Plan to meet its liabilities at an acceptable level of risk for the trustees and an acceptable level of cost to the Company.
In 2020, the Company contributed $0.0 million (2019 – $0.4 million) in cash to the Plan in accordance with an agreement with the trustees.
The net service cost for the twelve months ended December 31, 2020 was $1.2 million (twelve months ended December 31, 2019 – $0.9 million and twelve months ended December 31, 2018 – 1.2 million) and has been recognized in selling, general and administrative expenses within corporate costs.
 
The following table shows the income statement effect recognized within other income, net:
 
(in millions)
  
2020
   
2019
   
2018
 
Plan net pension (credit)/charge:
                        
Interest cost on PBO
   $ 11.2     $ 15.2     $ 15.0  
Expected return on plan assets
     (17.8     (22.0     (22.2
Amortization of prior service credit
     (0.5     (0.9     (1.1
Amortization of actuarial net losses
     0.9       0.0       2.0  
    
 
 
   
 
 
   
 
 
 
     $ (6.2   $ (7.7   $ (6.3
    
 
 
   
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plan assumptions at December 31, (%):
                        
Discount rate
     1.36       1.95       2.78  
Inflation rate
     2.35       2.25       2.25  
Rate of return on plan assets – overall on
bid-value
     2.00       2.50       3.05  
       
Plan asset allocation by category (%):
                        
Debt securities and insurance contracts
     86       86       83  
Equity securities and real estate
     10       10       12  
Cash
     4       4       5  
    
 
 
   
 
 
   
 
 
 
       100       100       100  
    
 
 
   
 
 
   
 
 
 
The discount rate used represents the annualized yield based on a cash flow matched methodology with reference to an AA corporate bond spot curve and having regard to the duration of the Plan’s liabilities. The model used to develop the discount rate for the year ending December 31, 2019 has been updated for the year ending December 31, 2020. Management’s experts have used the same data source as the prior year for the bond rate used to determine the discount rate, however this data source now uses inputs from a different range of categories of bonds. The impact of this change has resulted in an increase of 0.13% in the discount rate assumption, which has resulted in a reduction to the Pension Benefit Obligation of around $14 million.
The inflation rate is derived using a similar cash flow matched methodology as used for the discount rate but having regard to the difference between yields on fixed interest and index linked United Kingdom government gilts.
A 0.25%
change in the discount rate assumption would change the PBO at December 31, 2020 by approximately
 
$26 
million
and the net pension credit for 2021 would change by approximately
$0.4 million. A 0.25%
change in the level of price inflation assumption would change the PBO at December 31, 2020 by approximately
$19 
million and the net pension credit for 2021 by approximately
$1.2 million.
Movements in PBO and fair value of Plan assets are as follows:
 
(in millions)
  
2020
   
2019
 
Change in PBO:
                
Opening balance
   $ 701.0     $ 643.2  
Interest cost
     11.2       15.2  
Service cost
     1.2       0.9  
Benefits paid
     (45.5     (42.1
Plan amendments
     5.5       0.0  
Actuarial losses
     61.1       57.7  
Exchange effect
     24.2       26.1  
    
 
 
   
 
 
 
Closing balance
   $ 758.7     $ 701.0  
    
 
 
   
 
 
 
Fair value of plan assets:
                
Opening balance
   $ 816.9     $ 739.1  
Benefits paid
     (45.5     (42.1
Actual contributions by employer
     0.0       0.4  
Actual return on assets
     77.6       89.1  
Exchange effect
     27.7       30.4  
    
 
 
   
 
 
 
Closing balance
   $ 876.7     $ 816.9  
    
 
 
   
 
 
 
The current
investment
strategy of the
Plan
is to obtain an asset allocation of approximately 85% debt securities and insurance contracts and 15% equity securities and real estate in order to achieve a more predictable return on assets.
The Plan holds approximately 11% (December 31, 2019 – 12%) of the Plan’s assets in debt securities issued by
non-US
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.
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. Corporate debt securities are classified as Level 2 in line with the industry standard.
Equity backed securities
Common and preferred stock for which market prices are readily available at the measurement date are valued at the last reported sale price or official closing price on the primary market or
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.
Other asset backed securities
The Company has invested in insurance contracts, known as
buy-in
contracts. 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. 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:
 
(in millions)
  
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs

(Level 3)
    
Total
 
At December 31, 2020
                                  
Debt securities
:
                                  
Debt securities issued by
non-U.S.
governments and government agencies
   $ 99.5      $       $        $ 99.5  
Corporate debt securities
              488.0                488.0  
Equity backed securities:
                                  
Other financial derivatives
              (2.3              (2.3
Investments measured at net asset
value
(1)
                               51.0  
Other asset backed securities:
                                  
Insurance contracts
                      167.4        167.4  
Real estate
     40.2                         40.2  
    
 
 
    
 
 
   
 
 
    
 
 
 
Total assets at fair value
     139.7        485.7       167.4        843.8  
Cash
     32.9                         32.9  
    
 
 
    
 
 
   
 
 
    
 
 
 
Total plan assets
   $ 172.6      $ 485.7     $ 167.4      $ 876.7