10-Q

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number

1-13879

INNOSPEC INC.

(Exact name of registrant as specified in its charter)


DELAWARE		98-0181725
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization )		Identification No .)

8310 South Valley Highway
Suite 350
Englewood
Colorado		80112
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone

num

ber

, including area code: (303) 792 5554

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	IOSP	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such file. Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding as of April 30, 2021
Common Stock, par value $0.01		24,608,245

Table of Contents

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION	2

Item 1	Condensed Consolidated Financial Statments	2
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statements of Comprehensive Income	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Balance Sheets (continued)	5
	Condensed Consolidated Statements of Cash Flows	6
	Condensed Consolidated Statements of Equity	7
	Notes To The Unaudited Interim Condensed Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended March 31, 2021	20
	Critical Accounting Estimates	20
	Results of Operations	20
	Liquidity and Financial Condition	26
Item 3	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4	Controls and Procedures	29

PART II	OTHER INFORMATION	30

Item 1	Legal Proceedings	30
Item 1A	Risk Factors	30
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3	Defaults Upon Senior Securities	30
Item 4	Mine Safety Disclosures	30
Item 5	Other Information	31
Item 6	Exhibits	31

SIGNATURES		32

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CAUTIONARY STATEMENT RELATIVE TO FORWARD-LOOKING STATEMENTS

This Form

10-Q

contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. Such forward-looking statements include statements (covered by words like “expects,” “estimates,” “anticipates,” “may,” “could,” “believes,” “feels,” “plan,” “intend” or similar words or expressions, for example) which relate to earnings, growth potential, operating performance, events or developments that we expect or anticipate will or may occur in the future. Although forward-looking statements are believed by management to be reasonable when made, they are subject to certain risks, uncertainties and assumptions, including, the effects of the

COVID-19

pandemic, such as its duration, its unknown long-term economic impact, measures taken by governmental authorities to address it and the manner in which the pandemic may precipitate or exacerbate other risks and/or uncertainties, and our actual performance or results may differ materially from these forward-looking statements. Additional information regarding risks, uncertainties and assumptions relating to Innospec and affecting our business operations and prospects are described in Innospec’s Annual Report on Form

10-K

for the year ended December 31, 2020 and other reports filed with the U.S. Securities and Exchange Commission. You are urged to review our discussion of risks and uncertainties that could cause actual results to differ from forward-looking statements under the heading “Risk Factors” in such reports. Innospec undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I FINANCIAL INFORMATION

Item 1 Condensed Consolidated Financial Statements

INNOSPEC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended March 31
(in millions, except share and per share data)	2021			2020
Net sales	$	339.6		$	372.3
Cost of goods sold		(238.8	)		(258.4	)

Gross profit		100.8			113.9
Operating expenses:
Selling, general and administrative		(63.6	)		(64.4	)
Research and development		(9.0	)		(8.6	)

Total operating expenses		(72.6	)		(73.0	)

Operating income		28.2			40.9
Other income, net		3.0			3.9
Interest expense, net		(0.4	)		(0.6	)

Income before income tax expense		30.8			44.2
Income tax expense		(7.4	)		(11.1	)

Net income	$	23.4		$	33.1

Earnings per share:
Basic	$	0.95		$	1.35

Diluted	$	0.94		$	1.34

Weighted average shares outstanding (in thousands):
Basic		24,601			24,529

Diluted		24,840			24,742

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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INNOSPEC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31
(in millions)	2021			2020
Net income	$	23.4		$	33.1

Other comprehensive income/(loss):
Changes in cumulative translation adjustment, net of tax of $1.0 million and $1.6 million, respectively		(11.3	)		(7.9	)
Amortization of prior service cost/(credit), net of tax of $0.0 and $0.0 million, respectively		0.1			(0.2	)
Amortization of actuarial net losses, net of tax of $(0.1) million and $0.0 million, respectively		0.6			0.2

Total other comprehensive loss		(10.6	)		(7.9	)

Total comprehensive income	$	12.8		$	25.2

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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INNOSPEC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


(in millions, except share and per share data)	March 31, 2021		December 31, 2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	117.0	$	105.3
Trade and other accounts receivable (less allowances of $4.1 million and $4.5 million respectively)		247.9		221.4
Inventories (less allowances of $19.4 million and $19.4 million respectively):
Finished goods		158.5		156.3
Raw materials		64.6		63.7

Total inventories		223.1		220.0
Prepaid expenses		12.3		14.9
Prepaid income taxes		5.0		4.2
Other current assets		2.3		0.4

Total current assets		607.6		566.2
Net property, plant and equipment		209.9		210.8
Operating lease right-of-use assets		36.7		40.1
Goodwill		367.2		371.2
Other intangible assets		70.2		75.3
Deferred tax assets		7.4		7.6
Pension asset		119.6		118.0
Other non-current assets		7.5		8.2

Total assets	$	1,426.1	$	1,397.4

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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INNOSPEC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS - (Continued)


(in millions, except share and per share data)	March 31, 2021			December 31, 2020
	(Unaudited)
Liabilities and Equity
Current liabilities:
Accounts payable	$	114.5		$	98.7
Accrued liabilities		131.8			129.8
Current portion of finance leases		0.4			0.5
Current portion of plant closure provisions		6.6			6.6
Current portion of accrued income taxes		8.8			5.5
Current portion of operating lease liabilities		12.2			11.3

Total current liabilities		274.3			252.4
Long-term debt		0.0			0.0
Finance leases, net of current portion		0.0			0.1
Operating lease liabilities, net of current portion		24.6			28.9
Plant closure provisions, net of current portion		51.3			51.9
Accrued income taxes, net of current portion		32.4			32.4
Unrecognized tax benefits		16.0			16.0
Deferred tax liabilities		46.5			46.9
Pension liabilities and post-employment benefits		19.5			20.5
Other non-current liabilities		2.4			3.4
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		337.8			336.1
Treasury stock (4,946,360 and 4,958,599 shares at cost, respectively)		(93.6	)		(93.3	)
Retained earnings		782.0			758.6
Accumulated other comprehensive loss		(67.9	)		(57.3	)

Total Innospec stockholders’ equity		958.6			944.4
Non-controlling interest		0.5			0.5

Total equity		959.1			944.9

Total liabilities and equity	$	1,426.1		$	1,397.4

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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INNOSPEC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31
(in millions)	2021			2020
Cash Flows from Operating Activities
Net income	$	23.4		$	33.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10.3			12.0
Deferred tax expense		0.1			0.7
Non-cash movements on defined benefit pension plans		(0.8	)		(1.2	)
Stock option compensation		1.6			1.2
Changes in assets and liabilities, net of effects of acquired and divested companies:
Trade and other accounts receivable		(30.7	)		(7.9	)
Inventories		(5.5	)		(5.0	)
Prepaid expenses		2.4			2.1
Accounts payable and accrued liabilities		20.2			(36.0	)
Accrued income taxes		3.7			1.6
Plant closure provisions		(0.2	)		0.1
Other assets and liabilities		(1.8	)		1.7

Net cash provided by operating activities		22.7			2.4

Cash Flows from Investing Activities
Capital expenditures		(10.3	)		(7.8	)

Net cash used in investing activities		(10.3	)		(7.8	)

Cash Flows from Financing Activities
Non-controlling interest		0.0			0.1
Repayments of finance leases		(0.2	)		(0.3	)
Issue of treasury stock		0.5			0.7
Repurchase of common stock		(0.6	)		(2.1	)

Net cash used in financing activities		(0.3	)		(1.6	)
Effect of foreign currency exchange rate changes on cash		(0.4	)		(0.6	)

Net change in cash and cash equivalents		11.7			(7.6	)
Cash and cash equivalents at beginning of period		105.3			75.7

Cash and cash equivalents at end of period	$	117.0		$	68.1

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

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INNOSPEC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


(in millions)	Common Stock		Additional Paid-In Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Loss			Non- Controlling Interest		Total Equity
Balance at December 31, 2020	$	0.3	$	336.1	$	(93.3	)	$	758.6	$	(57.3	)	$	0.5	$	944.9
Net income									23.4							23.4
Changes in cumulative translation adjustment, net of tax											(11.3	)				(11.3	)
Treasury stock reissued				0.1		0.3										0.4
Treasury stock repurchased						(0.6	)									(0.6	)
Stock option compensation				1.6												1.6
Amortization of prior service cost, net of tax											0.1					0.1
Amortization of actuarial net losses, net of tax											0.6					0.6

Balance at March 31, 2021	$	0.3	$	337.8	$	(93.6	)	$	782.0	$	(67.9	)	$	0.5	$	959.1


(in millions)	Common Stock		Additional Paid-In Capital			Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Loss			Non- Controlling Interest		Total Equity
Balance at December 31, 2019	$	0.3	$	330.4		$	(93.3	)	$	755.5	$	(74.4	)	$	0.4	$	918.9
Net income										33.1							33.1
Changes in cumulative translation adjustment, net of tax												(7.9	)				(7.9	)
Share of net income															0.1		0.1
Treasury stock reissued				(0.4	)		1.4										1.0
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

Balance at March 31, 2020	$	0.3	$	331.2		$	(94.0	)	$	788.6	$	(82.3	)	$	0.5	$	944.3

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements

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INNOSPEC INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, 2020 filed on February 17, 2021 (the “2020 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.

NOTE 2 – SEGMENT REPORTING

The Company reports its financial performance based on the following three reportable segments: Fuel Specialties, Performance Chemicals and Oilfield Services.

The Fuel Specialties, Performance Chemicals and Oilfield Services segments operate in markets where we actively seek growth opportunities although their ultimate customers are different. Our previously reported Octane Additives segment ceased trading in the second quarter of 2020.

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)	2021			2020
Net Sales:
Refinery and Performance	$	99.3		$	108.6
Other		40.0			38.4

Fuel Specialties		139.3			147.0

Personal Care		68.2			63.0
Home Care		23.0			21.6
Other		34.7			28.5

Performance Chemicals		125.9			113.1


Oilfield Services		74.4			112.2

	$	339.6		$	372.3

Gross profit/(loss):
Fuel Specialties	$	44.9		$	51.2
Performance Chemicals		31.4			27.6
Oilfield Services		24.5			36.2
Octane Additives		0.0			(1.1	)

	$	100.8		$	113.9

Operating income/(loss):
Fuel Specialties	$	23.8		$	32.1
Performance Chemicals		18.3			15.6
Oilfield Services		1.2			7.2
Octane Additives		0.0			(1.2	)
Corporate costs		(15.1	)		(12.8	)

Total operating income	$	28.2		$	40.9

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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

SEC Form 10-Q filed by Innospec Inc.