item 14 exhibits financial statement schedules reports form 8k 1 financial statements consolidated financial statements octel corp subsidiaries related notes thereto together report thereon pricewaterhousecoopers dated february 9 1999 appearing pages 14 47 1998 annual report stockholders incorporated reference item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulation sx 3 exhibits 21 transfer distribution agreement dated april 24 1998 great lakes chemical corporation glcc registrant 3 31 amended restated certificate incorporation registrant 1 32 amended restated bylaws registrant 1 41 form common stock certificate 2 42 form rights agreement registrant first chicago trust company new york rights agent 2 43 form certificate designations rights preferences series junior participating preferred stock registrant 2 44 indenture dated may 1 1998 among registrant octel developments plc ibj schroder bank trust company trustee 4 45 form 10 senior notes contained exhibit 44 exhibit 4 46 registration rights agreement dated april 30 1998 among registrant octel developments plc initial purchasers 1 47 purchase agreement dated april 30 1998 among initial purchasers octel developments plc registrant 4 101 tax disaffiliation agreement glcc registrant 1 102 corporate services transition agreement glcc registrant 1 103 supply agreement glcc registrant supply ethylene dibromide 1 104 supply agreement glcc registrant supply anhydrous hydrogen bromide 1 105 supply agreement supply 10 sodium hydroxide solution 1 106 ethyl corporation market sales agreement 4 107 octel corp non employee directors stock option plan 4 108 employment agreement associated octel limited steve w williams geoff j hignett graham leathes robert lee 1 109 employment agreement associated octel limited dennis j kerrison 1 1010 agreement glcc registrant toll manufacture stadis product 4 1011 octel corp time restricted stock option plan 3 1012 octel corp performance related stock option plan 3 1013 associated octel savingsrelated stock option plan 3 1014 form octel corp approved company share option plan 1015 form octel corp profit sharing share scheme 121 statement regarding computation financial ratios 131 1998 annual report octel corp 132 opinion ernst young llp 1997 combined financial statements 211 subsidiaries registrant 241 powers attorney directors officers registrant 4 271 consolidated financial data schedule 1 incorporated reference companys amendment dated april 21 1998 previously filed form 10a 2 incorporated reference companys form 10a previously filed april 10 1998 3 incorporated reference companys amendment dated may 4 1998 previously filed form 10a 4 incorporated reference companys form s4 previously filed october 1 1998 5 filed companys form 10q november 10 1998 b reports form 8k company file current reports form 8k last quarter period covered report signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized octel corp dennis j kerrison registrant president chief date march 19 1999 executive officer director pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated march 19 1999 alan g jarvis alan g jarvis vice president chief financial officer march 19 1999 robert e bew dr robert e bew chairman director march 19 1999 dennis j kerrison dennis j kerrison president chief executive officer director march 19 1999 martin hale martin hale director march 19 1999 thomas fulton thomas fulton director james puckridge march 19 1999 james puckridge director march 19 1999 benito fiore dr benito fiore director march 19 1999 charles hale charles hale director march 19 1999 steven w williams steven w williams vice president group operations march 19 1999 h alan hanslip h alan hanslip vice president human resources march 19 1999 geoffrey j hignett dr geoffrey j hignett vice president specialty chemicalsitem 14 exhibits financial statement schedules reports form 8k 1 financial statements consolidated financial statements octel corp subsidiaries related notes thereto together report thereon pricewaterhousecoopers dated february 9 2000 appearing pages 14 43 1999 annual report stockholders incorporated reference item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulations sx 3 exhibits 21 transfer distribution agreement dated april 24 1998 great lakes chemical corporation glcc registrant 3 31 amended restated certificate incorporation registrant 1 32 amended restated bylaws registrant 1 41 form common stock certificate 2 42 form rights agreement registrant first chicago trust company new york rights agent 2 43 form certificate designations rights preferences series junior participating preferred stock registrant 2 44 indenture dated may 1 1998 among registrant octel developments plc ibj schroder bank trust company trustee 4 45 form 10 senior notes contained exhibit 44 exhibit 4 46 registration rights agreement dated april 30 1998 among registrant octel developments plc initial purchasers 1 47 purchase agreement dated april 30 1998 among initial purchasers octel developments plc registrant 4 71 share purchase agreement oboadler holdings limited associated octel company limited relating sale purchase whole issued share capital oboadler company limited dated june 1 1999 6 72 100000000 term loan agreement octel corp octel associates barclays capital barclays bank plc others dated june 3 1999 6 101 tax disaffiliation agreement glcc registrant 1 102 corporate services transition agreement glcc registrant 1 103 supply agreement glcc registrant supply ethylene dibromide 1 104 supply agreement glcc registrant supply anhydrous hydrogen bromide 1 105 supply agreement supply 10 sodium hydroxide solution 1 106 ethyl corporation market sales agreement 4 107 octel corp non employee directors stock option plan 4 108 employment agreement associated octel limited steve w williams geoff j hignett graham leathes robert lee 1 109 employment agreement associated octel limited dennis j kerrison 1 1010 agreement glcc registrant toll manufacturing stadis product 4 1011 octel corp time restricted stock option plan 3 1012 octel corp performance related stock option plan 3 1013 associated octel savingsrelated stock option plan 3 1014 form octel corp approved company share option plan8 1015 form octel corp profit sharing share scheme8 1016 employment agreement associated octel company limited alan g jarvis 1017 employment offer letter associated octel company limited john p tayler 1018 consultancy agreement octel corp robert e bew 121 statement regarding computation financial ratios 131 1999 annual report octel corp 132 opinion ernst young llp 1997 combined financial statements 211 subsidiaries registrant 241 powers attorney directors officers registrant 4 271 consolidated financial data schedule 991 consolidated financial statements oboadler company limited june 30 1999 year ended 7 1 incorporated reference companys amendment dated april 21 1998 previously filed form 10a 2 incorporated reference companys form 10a previously filed april 10 1998 3 incorporated reference companys amendment dated may 4 1998 previously filed form 10a 4 incorporated reference companys form s4 previously filed october 1 1998 5 filed companys form 10q november 10 1998 6 filed companys form 8k november 12 1999 7 filed companys form 8ka january 20 2000 8 filed companys form 10k march 26 1999 b reports form 8k form 8k filed november 12 1999 announcing november 9 1999 acquisition oboadler company limited form 8ka filed january 29 2000 provided audited financial statements proforma financial statements related acquired business combined company respectively signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized octel corp dennis j kerrison registrant dennis j kerrison date president chief executive officer march 20 2000 director pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated march 20 2000 alan g jarvis alan g jarvis vice president chief financial officer march 20 2000 robert e bew dr robert e bew chairman director march 20 2000 dennis j kerrison dennis j kerrison president chief executive officer director march 20 2000 martin hale martin hale director march 20 2000 thomas fulton martin hale director march 20 2000 james puckridge james puckridge director march 20 2000 benito fiore dr benito fiore director march 20 2000 charles hale charles hale director march 20 2000 steven w williams steven w williams vice president group operations march 20 2000 h alan hanslip h alan hanslip vice president human resources march 20 2000 geoffrey j hignett dr geoffrey j hignett vice president specialty chemicalsitem 14 control procedures controls procedures pages 22 23 report incorporated reference item 15item 14 principal accountant fees services information respect fees services related company’s independent auditors pricewaterhousecoopers llp contained audit committee report heading “principal accountant’s fees services” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information respect fees services related company’s independent registered public accounting firm pricewaterhousecoopers llp contained audit committee report heading “principal accountant’s fees services” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information respect fees services related company’s independent registered public accounting firm pricewaterhousecoopers llp contained audit committee report heading “principal accountant fees services” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information respect fees services related company’s independent registered public accounting firm pricewaterhousecoopers llp contained audit committee report heading “principal accountant fees services” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information respect fees services related company’s independent registered public accounting firm pricewaterhousecoopers llp contained audit committee report heading “principal accountant fees services” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information respect fees services related company’s independent registered public accounting firm pricewaterhousecoopers llp contained audit committee report heading “principal accountant fees services” proxy statement incorporated herein reference information respect audit committee’s preapproval policies procedures contained audit committee report heading “audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information respect fees services related company’s independent registered public accounting firm pricewaterhousecoopers llp contained heading “audit committee report principal accountant fees services” proxy statement incorporated herein reference information respect audit committee’s preapproval policies procedures contained heading “audit committee report audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information respect fees services related company’s independent registered public accounting firm kpmg audit plc contained heading “principal accountant fees services” proxy statement incorporated herein reference information respect audit committee’s preapproval policies procedures contained heading “audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding fees services related company’s independent registered public accounting firm kpmg audit plc provided heading “principal accountant fees services” proxy statement incorporated herein reference information regarding audit committee’s preapproval policies procedures provided heading “audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding fees services related company’s independent registered public accounting firm kpmg audit plc provided heading “principal accountant fees services” proxy statement incorporated herein reference information regarding audit committee’s preapproval policies procedures provided heading “audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding fees services related company’s independent registered public accounting firm kpmg audit plc provided heading “principal accountant fees services” proxy statement incorporated herein reference information regarding audit committee’s preapproval policies procedures provided heading “audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding fees services related company’s independent registered public accounting firm kpmg audit plc provided heading “principal accountant fees services” proxy statement incorporated herein reference information regarding audit committee’s preapproval policies procedures provided heading “audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding fees services related company’s independent registered public accounting firm kpmg audit plc provided heading “principal accountant fees services” proxy statement incorporated herein reference information regarding audit committee’s preapproval policies procedures provided heading “audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services previous years independent registered public accounting firm kpmg audit plc due internal reorganization kpmg’s uk operations kpmg llp replaced kpmg audit plc company’s independent registered public accounting firm year ended december 31 2018 information regarding fees services related company’s independent registered public accounting firm kpmg llp provided heading “principal accountant fees services” proxy statement incorporated herein reference information regarding audit committee’s preapproval policies procedures provided heading “audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15item 14 exhibits financial statement schedules reports form 8k a1 financial statements consolidated financial statements octel corp subsidiaries related notes thereto together report thereon pricewaterhousecoopers dated february 8 2001 appearing pages 14 40 2000 annual report stockholders incorporated reference item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulations sx 3 exhibits 21 transfer distribution agreement dated april 24 1998 great lakes chemical corporation glcc registrant 3 31 amended restated certificate incorporation registrant 1 32 amended restated bylaws registrant 1 41 form common stock certificate 2 42 form rights agreement registrant first chicago trust company new york rights agent 2 43 form certificate designations rights preferences series junior participating preferred stock registrant 2 44 indenture dated may 1 1998 among registrant octel developments plc ibj schroder bank trust company trustee 4 45 form 10 senior notes contained exhibit 44 exhibit 4 46 registration rights agreement dated april 30 1998 among registrant octel developments plc initial purchasers 1 47 purchase agreement dated april 30 1998 among initial purchasers octel developments plc registrant 4 71 share purchase agreement oboadler holdings limited associated octel company limited relating sale purchase whole issued share capital oboadler company limited dated june 1 1999 6 72 100000000 term loan agreement octel corp octel associates barclays capital barclays bank plc others dated june 3 1999 6 101 tax disaffiliation agreement glcc registrant 1 102 corporate services transition agreement glcc registrant 1 103 supply agreement glcc registrant supply ethylene dibromide 1 104 supply agreement glcc registrant supply anhydrous hydrogen bromide 1 105 supply agreement supply 10 sodium hydroxide solution 1 106 ethyl corporation market sales agreement 4 107 octel corp non employee directors stock option plan 4 108 employment agreement associated octel limited steve w williams geoff j hignett graham leathes robert lee 1 109 employment agreement associated octel limited dennis j kerrison 1 1010 agreement glcc registrant toll manufacturing stadis product 4 1011 octel corp time restricted stock option plan 3 1012 octel corp performance related stock option plan 3 1013 associated octel savingsrelated stock option plan 3 1014 form octel corp approved company share option plan 8 1015 form octel corp profit sharing share scheme 8 1016 employment agreement associated octel company limited alan g jarvis 9 1017 employment offer letter associated octel company limited john p tayler 9 1018 consultancy agreement octel corp robert e bew 9 1019 employment offer letter associated octel company limited ian watling 1020 employment offer letter associated octel company limited philip j boon 121 statement regarding computation financial ratios 131 2000 annual report octel corp 132 opinion ernst young llp 1997 combined financial statements 9 211 subsidiaries registrant 241 powers attorney directors officers registrant 4 271 consolidated financial data schedule 991 consolidated financial statements oboadler company limited june 30 1999 year ended 7 1 incorporated reference companys amendment dated april 21 1998 previously filed form 10a 2 incorporated reference companys form 10a previously filed april 10 1998 3 incorporated reference companys amendment dated may 4 1998 previously filed form 10a 4 incorporated reference companys form s4 previously filed october 1 1998 5 filed companys form 10q november 10 1998 6 filed companys form 8k november 12 1999 7 filed companys form 8ka january 20 2000 8 filed companys form 10k march 26 1999 9 filed companys form 10k march 27 2000 b reports form 8k form 8k filed november 12 1999 announcing november 9 1999 acquisition oboadler company limited form 8ka filed january 29 2000 provided audited financial statements proforma financial statements related acquired business combined company respectively july 21 2000 form 8k filed announcing amendment companys rights plan raising threshold acquiring person provision 15 22 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized octel corp dennis j kerrison registrant dennis j kerrison date president chief executive officer march 20 2001 director pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated march 20 2001 alan g jarvis alan g jarvis vice president chief financial officer march 20 2001 robert e bew dr robert e bew chairman director march 20 2001 dennis j kerrison dennis j kerrison president chief executive officer director march 20 2001 martin hale martin hale director march 20 2001 thomas fulton thomas fulton director march 20 2001 james puckridge james puckridge director march 20 2001 benito fiore dr benito fiore director march 20 2001 charles hale charles hale director march 20 2001 h alan hanslip h alan hanslip vice president human resources march 20 2001 geoffrey j hignett dr geoffrey j hignett director corporate development march 20 2001 john p tayler corporate secretary general counsel march 20 2001 philip j boon philip j boon business director petroleum specialties march 20 2001 ian watling ian watling business director performance chemicalsitem 14 principal accountant fees services information respect fees services related company’s independent registered public accounting firm pricewaterhousecoopers llp contained audit committee report heading “principal accountant’s fees services” proxy statement incorporated herein reference part iv item 15item 14 exhibits financial statement schedules reports form 8k 1 financial statements consolidated financial statements octel corp subsidiaries related notes thereto together report thereon pricewaterhousecoopers dated february 7 2002 appearing pages 22 54 2001 annual report stockholders incorporated reference item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulations sx 3 exhibits 21 transfer distribution agreement dated april 24 1998 great lakes chemical corporation glcc registrant 3 31 amended restated certificate incorporation registrant 1 32 amended restated bylaws registrant 1 41 form common stock certificate 2 42 form rights agreement registrant first chicago trust company new york rights agent 2 43 form certificate designations rights preferences series junior participating preferred stock registrant 2 44 indenture dated may 1 1998 among registrant octel developments plc ibj schroder bank trust company trustee 4 45 form 10 senior notes contained exhibit 44 exhibit 4 46 registration rights agreement dated april 30 1998 among registrant octel developments plc initial purchasers 1 47 purchase agreement dated april 30 1998 among initial purchasers octel developments plc registrant 4 71 share purchase agreement oboadler holdings limited associated octel company limited relating sale purchase whole issued share capital oboadler company limited dated june 1 1999 6 72 100000000 term loan agreement octel corp octel associates barclays capital barclays bank plc others dated june 3 1999 6 73 us250000000 facilities agreement dated 29 october 2001 octel corp barclays capital acting mandated lead arranger barclays bank plc acting agent security agent 101 tax disaffiliation agreement glcc registrant 1 102 corporate services transition agreement glcc registrant 1 103 supply agreement glcc registrant supply ethylene dibromide 1 104 supply agreement glcc registrant supply anhydrous hydrogen bromide 1 105 supply agreement supply 10 sodium hydroxide solution 1 106 ethyl corporation market sales agreement 4 107 octel corp non employee directors stock option plan 4 108 employment agreement associated octel limited steve w williams geoff j hignett graham leathes robert lee 1 109 employment agreement associated octel limited dennis j kerrison 1 1010 agreement glcc registrant toll manufacturing stadis product 4 1011 octel corp time restricted stock option plan 3 1012 octel corp performance related stock option plan 3 1013 associated octel savingsrelated stock option plan 3 1014 form octel corp approved company share option plan 8 1015 form octel corp profit sharing share scheme 8 1016 employment agreement associated octel company limited alan g jarvis 9 1017 employment offer letter associated octel company limited john p tayler 9 1018 consultancy agreement octel corp robert e bew 9 1019 employment offer letter associated octel company limited ian watling 1020 employment offer letter associated octel company limited philip j boon 121 statement regarding computation financial ratios 131 2001 annual report octel corp 132 opinion ernst young llp 1997 combined financial statements 9 211 subsidiaries registrant 241 powers attorney directors officers registrant 4 991 consolidated financial statements oboadler company limited june 30 1999 year ended 7 1 incorporated reference companys amendment dated april 21 1998 previously filed form 10a 2 incorporated reference companys form 10a previously filed april 10 1998 3 incorporated reference companys amendment dated may 4 1998 previously filed form 10a 4 incorporated reference companys form s4 previously filed october 1 1998 5 filed companys form 10q november 10 1998 6 filed companys form 8k november 12 1999 7 filed companys form 8ka january 20 2000 8 filed companys form 10k march 26 1999 9 filed companys form 10k march 27 2000 b reports form 8k reports form 8k filed year signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized octel corp dennis j kerrison registrant dennis j kerrison date president chief executive officer march 20 2002 director pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated march 20 2002 alan g jarvis alan g jarvis vice president chief financial officer march 20 2002 robert e bew dr robert e bew chairman director march 20 2002 dennis j kerrison dennis j kerrison president chief executive officer director march 20 2002 martin hale martin hale director march 20 2002 thomas fulton martin hale director march 20 2002 james puckridge james puckridge director march 20 2002 benito fiore dr benito fiore director march 20 2002 charles hale charles hale director march 20 2002 h alan hanslip h alan hanslip vice president human resources march 20 2002 geoffrey j hignett dr geoffrey j hignett director corporate development march 20 2002 john p tayler corporate secretary general counsel march 20 2002 philip j boon business director petroleum specialties march 20 2002 ian watling business director performance chemicalsitem 14 principal accountant fees services information regarding fees services related company’s independent registered public accounting firm kpmg audit plc provided heading “principal accountant fees services” proxy statement incorporated herein reference information regarding audit committee’s preapproval policies procedures provided heading “audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding fees services related company’s independent registered public accounting firm pricewaterhousecoopers llp kpmg llp provided heading “principal accountant fees services” proxy statement incorporated herein reference information regarding audit committee’s preapproval policies procedures provided heading “audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15item 14 principal accountant fees services information regarding fees services related company’s independent registered public accounting firms pricewaterhousecoopers llp kpmg llp provided heading “principal accountant fees services” proxy statement incorporated herein reference information regarding audit committee’s preapproval policies procedures provided heading “audit committee preapproval policies procedures” proxy statement incorporated herein reference part iv item 15 item 7 managements discussion analysis results operations financial condition discussion pages 14 23 report incorporated herein reference includes following cautionary statement regarding forward looking statements information presented annual report constitutes forwardlooking comments within meaning private litigation reform act 1995 although company believes expectations based reasonable assumptions within bounds knowledge business operations assurance actual results differ materially expectations factors could cause actual results differ expectations include without limitation timing orders received customers gain loss significant customers competition manufacturers changes demand companys products including rate decline demand tel addition increases cost product changes market general significant changes new product introduction could result actual results varying expectations item 7aitem 7 managements discussion analysis results operation financial condition discussion pages 14 21 report incorporated herein reference item 7aitem 7 managements discussion analysis results operation financial condition discussion pages 18 23 report incorporated herein reference liquidity financial condition companys results year historically affected significantly noncash costs depreciation amortization reviewing cash flows company looked ebitda useful measure cash contribution operations reconciliation net cash provided operating activities ebitda set exhibit 121 companys principal credit facility comprises term loan remaining balance 122 million revolving facility 40 million 25 million drawn december 31 2002 credit facility contains terms breached would result loan becoming repayable demand requires among matters compliance certain financial ratio covenants specifically operating cashnet finance charge ratio ebitdanet interest expense ratio net debtebitda ratio rolling twelve month basis calculated quarterly reported september form 10q company compliance operating cashnet finance charge ratio covenant credit facility september 30 2002 however company requested received waiver covenant breach lenders waived right remedies resulting breach company compliance covenants december 31 2002 company concerned uncertainties venezuela impact companys ability meet covenant requirements facility short term company taken opportunity review bank syndicate covenant requirements scheduled repayments facility march 27 2003 company obtained agreement rescheduling debt repayments originally scheduled take place 2003 later 2003 2004 amendments parameters covenant ratios 2003 company confident compliance revised terms throughout 2003 note 12 financial statements incorporated herein reference projected annual maturities note 12 anticipate rescheduling loan repayments table amended reflect new term loan profile set millions 2003 268 2004 1264 2005 17 2006 17 2007 17 thereafter 09 1592 critical accounting policies managements discussion analysis financial condition results operations discusses octels consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related environmental remediation impairment goodwill intangible assets pension accounting restructuring costs marketing agreements ethyl management bases estimates judgments historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions note 1 notes financial statements includes summary significant accounting policies methods used preparation financial statements critical accounting policies pages 20 21 report incorporated herein reference contractual commitments contractual commitments page 22 report note 8 notes financial statements incorporated reference item 7aitem 7 management’s discussion analysis financial condition results operations discussion pages 18 25 report incorporated herein reference liquidity financial condition discussion pages 21 22 report incorporated herein reference critical accounting policies management’s discussion analysis financial condition results operations discusses octel’s consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related environmental remediation impairment goodwill intangible assets pension accounting restructuring costs marketing agreements ethyl management bases estimates judgments historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions note 1 financial statements includes summary significant accounting policies methods used preparation financial statements “critical accounting policies estimates” pages 22 23 report incorporated herein reference contractual commitments “contractual commitments” page 24 report note 18 notes financial statements incorporated herein reference item 7aitem 7 management’s discussion analysis financial condition results operations discussion pages 22 37 report incorporated herein reference liquidity financial condition discussion page 30 report incorporated herein reference critical accounting estimates management’s discussion analysis financial condition results operations discusses octel’s consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related environmental remediation impairment goodwill intangible assets pension accounting restructuring costs marketing agreements ethyl management bases estimates judgments historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions note 1 financial statements includes summary significant accounting policies methods used preparation financial statements “critical accounting estimates” pages 31 32 report incorporated herein reference contractual commitments “contractual commitments” page 34 report note 19 notes financial statements incorporated herein reference item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto included elsewhere herein factors affecting results primary factor affecting results operations continuing transformation company’s business one focused octane additives one fuel specialties performance chemicals segments play increasingly predominant role year ended december 31 2006 combined operating income fuel specialties performance chemicals segments business rose 89 compared year ended december 31 2005 comparison year ended december 31 2006 operating income octane additives segment 345 million represents decline approximately 50 operating income octane additives segment business year ended december 31 2005 expect role octane additives segment business continue decline coming years expect cease sales tel use automotive gasoline time future continue writeoff business goodwill octane additives business prior point company’s strategic plan growth fuel specialties performance chemicals segments offset decline octane additives business revision classification certain items final quarter 2006 company revised classification certain shipping handling costs commission charges results 2006 comparable information 2005 2004 previously charges netted sales charged cost goods sold selling expenses respectively impact 2006 prior periods’ reported income taxes net income earnings per share net cash provided operating activities balance sheet category classification charges 286 million 371 million 288 million years ended december 31 2006 2005 2004 respectively 1 respect shipping handling costs revised reduction net sales increase costs goods sold 231 million 265 million 218 million respectively 2 respect commission charges revised reduction net sales increase selling expenses 55 million 106 million 70 million respectively company undertook analysis aggregate effect reclassifications gross margin 2006 2005 2004 originally reported gross margin year ended december 31 2005 359 giving effect reclassifications gross margin would decline absolute amount 05 percentage points 354 represents 13 reduction gross margin relative originally reported similarly year ended december 31 2004 gross margin giving effect reclassifications declined 440 429 absolute reduction 11 percentage points represents 26 reduction gross margin relative gross margin originally reported financial statements results operations results operations fiscal 2006 compared fiscal 2005 following table showing operating income reporting business also applies comparative results operations 2005 2004 product group data net sales fuel specialties far largest business unit accounting well half revenues revenue increase 21 achieved business unit focused europe middle east africa “emea” region americas region delivered revenue growth 17 21 respectively also strong sales asia pacific “aspac” region delivered revenue growth 60 albeit much lower base americas sales driven strong marketleading position diesel fuel additives us government’s adoption early 2006 new ultra low sulfur diesel regulations approximately half emea sales growth due oneoff contract single customer aspac growth due benefit generated customer contracts entered early 2006 performance chemicals sales growth 2006 spread across individual operations comprise business absolute dollar terms however growth focused aroma fine chemicals aroma fragrances business finetex surfactants emollients business aroma fine chemicals benefited price increases throughout 2006 greater production capacity came stream latter stages year 2006 finetex leveraged customer base increase sales prices volumes across almost product range octane additives sales decline limited 49 dollar terms despite volumes decreasing 63 primarily due richer sales mix 2006 compared 2005 moderate price increases achieved 2006 sales volumes adversely impacted south africa leaving market tel use automotive gasoline start year absence 2006 significant shipments south east asia however sales middle east 2006 remained resilient aggregate terms sales decline limited 327 million 6 combined sales growth fuel specialties performance chemicals businesses 652 million 18 went long way mitigating expected continued sales decline octane additives business gross profit 27 increase gross profit generated fuel specialties business outstripped 21 sales growth achieved due improved margins increase 16 percentage points fuel specialties gross margin focused americas region offset lower margins seen emea aspac regions americas gross margin benefited sales prices increases implemented early 2006 tight control material costs throughout year emea gross margin diluted impact oneoff contract single customer aspac gross margin impacted product mix performance chemicals business delivered 29 increase gross profit significantly excess 10 sales growth increase generated 28 percentage points improvement gross margins spread across individual operations comprise business segment gross margin improvement focused finetex innospec leuna prochem latter two businesses benefiting product mix improvements 42 decline gross profit octane additives business compares favourably 49 decrease sales due 77 percentage points improvement gross margin reflects richer sales mix moderate price increases achieved 2006 overall gross profit declined 7 1867 million compared sales decline 6 despite businesses actually managing increase gross margins due fact higher margin octane additives sales formed smaller proportion total sales reducing 35 19 mix effect depressing aggregate gross margin 03 percentage points operating expenses increases operating expenses fuel specialties performance chemicals businesses limited 6 2 respectively despite sales growth 21 10 respectively sales growth tight cost control achieved leveraging infrastructures businesses 33 reduction operating expenses octane additives compares 49 sales decline experienced business majority savings generated reduced commission charges caused absence sales south east asia accordance fas 87 required recognize noncash charge 17 million 2005 primarily respect amortization prior service cost similar charge required recognized 2006 reduction achieved corporate costs results restructuring corporate functions reduced costs relation sarbanes oxley compliance also significant costs recognized 2005 special investigation transfer funds south africa former ceo restructuring charge restructuring costs 45 million 2006 substantially reduced 313 million incurred 2005 comprised severance restructuring costs 24 million 21 million respectively severance costs included 16 million respect cost reduction programs manufacturing support activities uk octane additives manufacturing site 06 million respect additional salary emoluments paid former ceo 02 million relation severance corporate staff restructuring costs comprised 14 million respect site clearance uk 04 million relation costs associated plan consolidate manufacturing activities one site one us businesses 03 million respect relocation european headquarters ellesmere port site amortization intangible assets amortization charge 127 million 2006 2005 years charge 101 million recognized respect veritel intangible asset amortized straightline basis comparable year remaining 26 million years relates amortization intangible assets recognized acquisition accounting respect finetex aroma fine chemicals innospec fuel specialties formerly known octel starreon impairment octane additives business goodwill company recognized charge 367 million impairment octane additives business goodwill 2006 compares charge 1344 million 2005 since end 2005 significant changes estimates used detailed forecast model calculate impairment charges charge significantly higher 2005 due loss anticipated sales associated cash flows venezuela major customer second quarter 2005 remaining balance octane additives business goodwill 248 million company continue test value octane additives business goodwill end quarter expects recognize charge approximately 14 18 million 12 months ending december 31 2007 actual cash flows line company’s current forecasts charge remains critically dependent upon developments affect company’s best estimates future volumes octane additives future revenue gross margins selling administrative costs well fixed working capital requirements business including level compensation paid ethyl tel marketing agreements profitsloss disposal net company recognized 96 million profit following disposal surplus real estate uk partially offset prepaid disposal costs 04 million interest expense net interest expense 2006 68 million 08 million lower 76 million incurred 2005 reduction primarily due fact average net debt lower 2006 compared 2005 also due inclusion 2006 net charge repayment interest 06 million charged tax balance net debt fell 252 million end 2005 2006 primarily due 364 million cash flows operating activities generated businesses 96 million proceeds disposal surplus real estate uk offset 156 million common stock repurchased moreover reduced net interest expense achieved despite fact us base interest rate rose corresponding periods net incomeexpense 2006 net income 68 million generated 76 million related foreign exchange gains offset 08 million sundry expenses 2005 net expense 126 million comprised 55 million charge writeoff company’s investment stylacats third quarter charge 12 million fully provide two investments 37 million charge exchange losses forward foreign exchange contracts 22 million sundry expenses income taxes company recognized tax charge 204 million 2006 162 million greater 42 million incurred 2005 headline rate income tax 642 compared 35 2005 however effective rate tax 2006 excluding impairment octane additives business goodwill 298 compared 258 2005 tax relief available impairment charge accordingly believe effective rate tax best calculated adjusting noncash charge adjusted effective rate increased 40 percentage points corresponding periods due disposition profits exhaustion us net operating losses increased profitability us based fuel specialties business suffers standard federal tax rate 35 together state taxes results operations fiscal 2005 compared fiscal 2004 following table presented show incremental impact acquisitions leuna aroma fine chemicals “afc” finetex 2005 effect acquisitions 2005 group results compared 2004 table includes impact acquisition leuna results consolidated six months 2004 results afc results consolidated four months 2004 results finetex acquired january 2005 impact acquisition remaining 50 shares innospec fuel specialties llc formerly known octel starreon llc included results innospec fuel specialties llc fully consolidated company since inception joint venture 1999 corresponding charge minority interest line item minority interest charge period full acquisition innospec fuel specialties llc july 8 2004 19 million accordingly table impact acquisitions presented fuel specialties business effect acquisitions 2005 performance chemicals business results compared 2004 follows net sales fuel specialties sales 2571 million 482 million 231 higher 2004 sales americas grew 362 due higher sales cetane number improver additives diesel ahead new legislation sales emea region grew 168 sales asia pacific region grew 116 subsidiaries acquired 2004 beginning 2005 afc leuna finetex contributed 595 million 608 million additional performance chemicals sales year octane additives sales volumes 257 2004 volumes sales value declined 172 mainly due price increases sales volumes americas 908 due loss business venezuela sales asia pacific proved resilient volumes actually 64 higher 2004 shipments middle east 957 ahead shipments 2004 sales africa fell 199 2004 level 2006 south africa left market use tel automotive gasoline total net sales 2005 5648 million 679 million 137 ahead 2004 sales gross profit fuel specialties gross profit increased 134 million 191 though gross margin fell 11 percentage points 336 325 gross margin impacted rapid growth sales relatively lower margin cetane number improvers usa loss manufacturing margin result bycosin disposal 2004 performance chemicals effect acquisitions gross margin seen gross profit margin including impact acquisitions reduced 2 percentage points 161 181 achieved 2004 due fact acquisitions operate markets generate lower gross margins previously existing businesses business unit however also operate lower overhead cost bases gross profit octane additives business 990 million 351 million 262 lower 2004 despite sales declining 172 comparable period gross margin decreased 61 percentage points 560 499 results 2004 boosted release 64 million surplus remediation provision relating former octane additives manufacturing site doberitz germany addition 2004 32 million provision related take pay contract materials released following review likely material requirements following loss venezuela volumes 2005 review contract performed result provision 17 million recognized second quarter 2005 excluding impact items gross margin still declined due combination higher unit production raw material costs total gross profit 2005 2001 million 129 million 61 2004 overall gross margin declined 75 percentage points 429 354 decline caused lower margins generated three business units 2005 compared 2004 also higher margin octane additives sales forming smaller proportion overall sales 2005 compared 2004 351 482 operating expenses operating expenses consist selling general administrative expenses research development expenses operating expenses increased within fuel specialties business unit due inclusion legal costs associated company’s voluntary disclose ofac performance chemicals effect acquisitions operating expenses seen table impact represents majority increase operating expenses seen business unit since existing operations held cost bases octane additives business unit operating expenses essentially flat benefit obtained reduced selling expenses following closure certain sales offices offset additional commission charges sales south east asia due high proportion inactive members company’s principal defined benefit pension plan uk net pension charge credit associated reported separately net pension credit 2004 27 million compared net pension charge 17 million 2005 reversal pension credit pension charge mainly due derisking pension fund result decision invest higher proportion bonds rather equities corporate costs declined 63 million 191 330 million 2004 267 million 2005 decline primarily reflects effect relocation 2005 european headquarters ellesmere port site streamlining executive structure overall operating expenses increased 127 million 119 2005 1194 million 61 million increase due effect acquisitions restructuring charge company incurred restructuring costs 313 million 2005 costs comprised 22 million relation cost reduction program manufacturing support activities uk octane additives manufacturing site 16 million respect severance corporate staff charge 14 million recognized fas 146 previous cost reduction program leavers stayed longer contractual notice periods associated 2005 severance programs pension charge 125 million recognized fas 88 curtailment event due significant restructuring activity uk 2005 charge 12 million recognized relation closure european headquarters manchester uk charge represented writeoff fixed assets value impaired closure costs closure charge 09 million recognized relating fixed asset writeoffs resulting closure fuel technology centre bletchley uk charge 11 million recognized relating severance costs arising decision relocate research technology activities previously carried site ellesmere port uk site charge 20 million recognized relation decision dispose adastra diesel particulate filters business included 16 million fixed asset writeoffs 04 million severance costs charge 04 million recognized relation severance costs associated plan consolidate manufacturing activities one site one us businesses charges relate costs site clearance uk 34 million non uk severance fuel specialties business 06 million charge 40 million recognized relating costs salary additional costs professional advice emoluments paid former ceo pursuant agreement governing terms former ceo’s resignation dated april 8 2005 amortization intangible assets amortization charge 2005 127 million 15 million higher 112 million recognized 2004 years charge 101 million recognized respect veritel intangible asset amortized straightline basis comparable year remaining 26 million relates amortization intangible assets recognized acquisition accounting respect finetex aroma fine chemicals octel starreon called innospec fuel specialties impairment octane additives business goodwill company recognized charge 1344 million impairment octane additives business goodwill 2005 loss anticipated sales venezuela principal reason unexpectedly high charge reflects loss anticipated future cash flows previously assumed detailed forecast model supported value octane additives business goodwill end 2004 charge 2004 407 million interest expense interest income 76 million net interest expense 20 million higher 2004 principally higher average level net debt 2005 compared equivalent period 2004 following acquisition outflows second half 2004 early 2005 increase us base interest rate 2005 interest expense 95 million interest income 19 million 2004 interest expense 64 million interest income 08 million expense net income expense 126 million consists mainly 55 million charge writeoff company’s investment stylacats third quarter charge 12 million fully provide two investments 22 million sundry charges 37 million charge exchange losses forward foreign exchange contracts income taxes headline rate income tax 35 2005 compared 628 2004 change effective tax rate reason company paying taxes loss making operation charge impairment octane additives business goodwill allowable deduction tax purposes effective rate tax 2005 excluding impact octane additives business goodwill impairment charge 258 compared 276 2004 discontinued operations loss 14 million relates disposal octel performance chemicals inc gamlen waste water treatment business cash flows discussion generated cash operating activities 364 million 438 million 624 million 2006 2005 2004 respectively 2006 net cash provided operating activities declined 74 million 438 million 2005 364 million 2006 despite return profitability primary reason decline 395 million increase working capital requirement discussed fully “working capital” offset 209 million movement tax creditor due cash receipt uk tax authorities related tax reclaim first quarter 2006 increased tax charge 2006 39 million net movement plant closure provisions primarily represents 70 million severance payments made largely beginning 2006 30 million movement pension prepayment relates cash contributions made year uk contributory defined benefit pension plan generated 96 million disposal property plant equipment primarily following disposal surplus real estate uk 76 million reinvested capital expenditures support fuel specialties performance chemicals growth businesses corporate structure disposal 20 stake deurex micro technologies gmbh resulted inflow 26 million company drew additional 180 million revolving credit facility repaid 100 million instalment term loan april 1 october 1 company paid semiannual dividend 8 cents per share aggregating 16 cents year 19 million total addition repurchased 156 million common stock raised 30 million issue treasury stock holders options chose exercise stock options 2005 large tax payments relating tax charges prior periods low 2005 tax charge resulted significant 225 million reduction accrual income taxes liabilities 100 million reduction pension prepayment mainly due curtailment charge 125 million relating higher pension liabilities arising restructuring concurrently cash funded uk contributory defined benefit pension plan 223 million business combinations outflow mainly represented 212 million acquisition finetex net cash january 510 million former revolving credit facility drawn finance 300 million scheduled loan repayment former term loan acquisition finetex resulting net 210 million increase borrowings december company agreed new financing facility drew new term loan 1000 million 400 million new revolving credit facility repaying 1400 million owed old financing facility april 1 september 30 company paid semiannual dividend 7 cents per share aggregating 14 cents year 17 million total issue treasury stock holders options chose exercise stock options raised 14 million 25 million spent repurchase 146862 shares average price 1699 2004 business combinations accounted 802 million outflow 438 million related cash outlay acquire 50 share octel starreon llc previously held starreon corporation llc 308 million related acquisition aroma fine chemicals limited “afc” 52 million expended acquire control leuna polymer gmbh 26 million spent acquire 20 shareholding deurex micro technologies gmbh 18 million used sundry investments associates outflows offset 42 million received sale 49 interest joss holdings bv majority 52 million proceeds disposal property plant equipment related 47 million sale octane additives paris office 48 million increase restricted cash related £25 million placed escrow secure match loan notes issued company vendors part consideration afc january 975 million previous borrowing facility repaid 1000 million new borrowing facility drawn april 1 october 1 company paid semiannual dividend 6 cents per share aggregating 12 cents year 15 million total liquidity financial condition working capital 2006 working capital requirement increased 395 million 111 million increase accounts receivable prepaid expenses spread across three business units result increased trading fuel specialties performance chemicals growth businesses impact timing octane additives shipments compared corresponding period last year inventories increased 210 million also three business units though focused fuel specialties octane additives latter due octane additives manufacturing strategy implemented ellesmere port 74 million increase accounts payable accrued liabilities limited moderate increase within performance chemicals due increased trading levels somewhat larger increase within octane additives reflecting noncash release first quarter 45 million retrospective pricing provision corresponding reduction accrued liabilities cash december 31 2006 2005 cash equivalents 1019 million 689 million respectively addition december 31 2005 43 million restricted cash restricted cash related £25 million placed escrow secure match loan notes issued company vendors part consideration afc one tranche £125 million paid january 2006 remaining tranche £125 million paid october 2006 debt loss venezuela major octane additives customer second quarter 2005 required company review current projected operational flexibility liquidity company therefore initiated discussions senior lenders third quarter 2005 result discussions company agreed terms new three one half year financing facility appropriate company’s needs facility contains terms breached would result loan becoming repayable demand requires among matters compliance two financial covenant ratios 1 ratio net debt ebitda 2 ratio net interest ebita ebitda ebita non us gaap measures liquidity defined finance facility event ratio net debt ebitda exceeds 20 addition covenants facility also requires “look forward” test additional financial covenant ratio form net operating cash flow finance costs scheduled debt amortization interest costs “look forward” test applicable company 2006 due ratio exceeded december 31 2006 company 148 million debt outstanding new senior credit facility agreement compliance financial covenants therein debt profile december 31 2006 including principal facility group debt set january 2007 company repaid 730 million principal facility consisting scheduled 150 million term loan repayment 580 million revolving credit facility revolving credit facility drawn upon financing facility expires june 12 2009 later facility extended pension plans postemployment benefits effective fiscal year 2006 company adopted provisions fas 158 employers’ accounting defined benefit pension postretirement plans fas 158 requires funded status definedbenefit postretirement plans recognized company’s consolidated balance sheets changes funded status reflected comprehensive income fas 158 also requires measurement date plan’s funded status company’s fiscal yearend although measurement date provision required adopted fiscal year 2008 company earlyadopted provision fiscal year 2006 effect applying fas 158 record total reduction equity recognition accumulated comprehensive loss 970 million aftertax basis contractual commitments following represents contractual commitments december 31 2006 effect obligations future cash flows december 31 2006 longterm debt comprised 900 million term loan 580 million drawn revolving credit facility date longterm debt obligations represent scheduled term loan repayments amounts drawn revolving credit facility repaid financing facility expires june 12 2009 unless extended january 2007 company repaid 730 million principal facility consisting scheduled 150 million term loan repayment 580 million revolving credit facility remediation payments represent cash flows company currently obligated pay respect current former facilities include discretionary remediation costs company may choose incur unconditional purchase obligations relate certain raw material take pay contracts entered company capital commitments relate certain capital projects company committed undertake operating lease commitments relate primarily office space motor vehicles items office equipment expected renewed replaced normal course business company subject interest variable rates certain elements longterm debt estimated payments included table assume constant us base interest rate 58 65 main credit facility estimated commitment fees also included interest income excluded impact company repaying 580 million revolving credit facility january 2007 included amounts related pension plan refer likely levels company funding uk contributory defined benefit pension plan certain pension commitments senior employees meaningful predict amount five years since numerous uncertainties including future return assets pay escalation pension increases inflation employment levels environmental matters plant closures company subject environmental laws countries operates certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us therefore liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws full provision made committed costs 237 million expenditure provisions 13 million 22 million 20 million years 2006 2005 2004 respectively also incurred personnel severance costs relation management decline octane additives market restructuring fuel specialties business total severance expenditure 70 million 97 million 60 million years 2006 2005 2004 respectively provision made severance costs conditions fas 146 fas 112 provision december 31 2003 38 million inflation significant factor company last several years management believes inflation continue moderate next several years future outlook undertook detailed strategic review 2005 concluded octane additives market gradually disappearing needed get position company solidly profitable even without profit contribution octane additives business unit measure progress towards achieving surpassing objective concept ongoing operating profitability ongoing operating profitability 2005 combined operating income growth businesses fuel specialties performance chemicals cover corporate costs fas 87 pension charge however significant improvement operating incomes business substantial reduction corporate cost base ongoing operating profitability nearly 300 million 2006 believe strong financial position today overall objective remains unchanged continue leverage organically grow fuel specialties performance chemicals businesses many internal opportunities growth near term geographical product line extensions acquisitions businesses also primary focus us believe industries businesses operate provide greatest opportunities good return investments including associated synergies minimizing risk investing markets operating knowledge experience expect ongoing operating profitability improve 2007 however many variables determine ultimate profitability company impact raw material prices specifically continued volatility remain difficult predict addition newly approved reach legislation europe impact cost base efforts 2007 fuel specialties 2006 outstanding year fuel specialties business net sales increasing 542 million 21 3113 million operating income increasing 195 million 74 457 million sales growth comes top 23 organic growth already experienced 2005 gross margins increased 341 325 2005 fuel specialties largest business unit accounting well half revenues widely recognized increasingly difficult sustain levels growth therefore expect sales growth 2007 approximate 8 12 per annum gross margin 32 36 region organic growth pursued company’s three key regions europe middle east africa “emea” americas asiapacific performance chemicals first year recent times allowed likeforlike comparisons previous year following acquisitions 2004 early 2005 business segment reorganized business second quarter 2006 benefits started flow improved sales profitability demonstrated last two quarters year 2006 net sales increased 110 million 10 1204 million operating income increased 48 million 480 58 million gross margins increased 28 percentage points 161 2005 189 2006 believe performance chemicals business unit experience acceleration growth organic sales growth 10 14 pursued across various operations comprise business unit improved operating efficiencies pricing gross margins range 18 22 octane additives last three years octane additives sales declined 58 2394 million 1004 million represent 19 company’s total sales compared 48 2004 however continued cost control flexible management manufacturing capacity delivered benefits accordingly reduction gross profit equivalent three year period limited 57 octane additives market decline since 1970s trend expected continue moreover following exit market 2006 2005 significant customers south africa venezuela respectively world market decline 2007 likely limited 15 25 range continue manage costs within business unit price product reflect economic value customers expect octane additives business continue cash generative gross margins range 39 45 following adoption fas 142 2002 annual amortization charge goodwill replaced impairment review process continued decline octane additives market inevitably result impairment charges future years latest review revealed need recognize impairment charges octane additives business goodwill impairment period octane additives business cash flows exhausted annual impairment review goodwill relating fuel specialties performance chemicals business segments indicates requirement recognize impairment charge respect goodwill critical accounting estimates objective clearly present financial information manner enhances understanding sources earnings cash flows together financial position aim achieve disclosing information required sec together information provides insight businesses management’s discussion analysis financial condition results operations discusses innospec’s consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments management bases estimates judgments historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation financial statements consolidated financial statements supplementary data disclose accounting principles methods estimates used preparation consolidated financial statements believe statements disclosures represent fairly operating results financial position company purpose portion report emphasize critical areas significant change facts circumstances operating financial environment could cause change results operations financial position policies estimates company considers critical terms subjectivity judgment assessment provided environmental liabilities remediation provisions december 31 2006 amounted 237 million relate principally uk site company records environmental liabilities probable costs estimated reasonably company anticipate program work required associated future costs comply environmental legislation relevant countries company views costs vacating main uk site contingent liability present intention exit site company determined due uncertain product life octane additives particularly market aviation gas exists uncertainty timing cash flows possible estimate flows sufficiently reliably recognize provision goodwill company adopted fas 142 goodwill intangible assets effective january 1 2002 requires goodwill deemed indefinite life longer amortized subject annual impairment review years events occur circumstances change suggest impairment may occurred company elected perform annual tests respect fuel specialties performance chemicals goodwill december 31 year reviewing impairment charge fair value reporting units underlying segments estimated using tax cash flow methodology based management’s best estimates time 2002 2003 goodwill impairment test octane additives business performed annually december 31 reviews showed fair value reporting unit based tax cash flows company’s weighted average cost capital exceeded carrying value octane additives assets accordingly indicator impairment existed step 2 fas 142 impairment test performed light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash flows derived octane additives business reduced accordingly fair value octane additives reporting unit reduced based company’s detailed forecast model assumptions december 31 2003 indicated reduction forecast future cash flows 2004 would reduce fair value reporting unit carrying value octane additives assets accordingly likely significant goodwill impairment charge year ended december 31 2004 result company determined quarterly impairment reviews performed january 1 2004 impairment charge arising recognized relevant quarter value remaining cash flows octane additives business calculated review date reference best available estimates future revenues gross margins selling administrative costs well fixed working capital requirements business resulting cash flows discounted total discounted cash flows octane additives business allocated fair value octane additives business unit date company uses information derive implied goodwill value compared carrying value determine impairment needed using methodology assumptions underlying detailed forecast model company believes possible predict pattern likely future impairment charges octane additives business goodwill method reflects relatively unique nature octane additives business result reviews performed 2006 2005 2004 respectively impairment charges 367 million 1344 million 407 million respectively recognized company expects recognize charges subsequent years octane additives market continues decline 248 million goodwill remaining relates octane additives business december 31 2006 1390 million goodwill relating fuel specialties performance chemicals businesses date performed annual impairment reviews concluded impairment goodwill respect reporting segments intangible assets net amortization december 31 2006 302 million intangibles discussed note 10 notes consolidated financial statements intangible assets relate businesses amortized straightline periods 13 years continually assess markets products related intangibles well specific carrying values concluded carrying values amortization periods remain appropriate also evaluate intangibles potential impairment events occur circumstances change suggest impairment may occurred events occur circumstances change may possibly cause reduction periods intangibles amortized result noncash writeoff portion intangibles’ carrying value reduction amortization periods would effect cash flows pensions company’s principal pension arrangement contributory defined benefit pension plan uk though also much smaller pension arrangements uk overseas company accounts pension plan accordance fas 87 employers’ accounting pensions fas 88 employers’ accounting settlements curtailments defined benefit pension plans fas 158 employers’ accounting defined benefit pension postretirement plans december 31 2006 underlying plan asset value projected benefit obligation 8754 million 8979 million respectively resulting deficit 225 million deficit net tax recognized adoption fas 158 december 31 2006 prepaid pension cost net tax transferred accumulated comprehensive loss disclosure provided note 6 notes consolidated financial statements movements underlying plan asset value projected benefit obligation dependent actual return investments pay awards well assumptions respect discount rate annual member mortality rates future return assets future pay escalation future pension increases future inflation develop assumptions considering advice major global actuarial consulting firm change one assumptions could impact plan asset value projected benefit obligation pension cost recognized income statement changes could impact operating results financial position full actuarial valuation pension plan carried december 31 2005 results valuation reflected consolidated financial statements sales marketing agreements company entered number sales marketing agreements ethyl corporation “ethyl” market sell tel areas world except north america period december 31 2009 subject renewal thereafter marketing sales effort made arrangement made name innospec continues produce tel marketed agreements also provide marketing services ethyl continues provide marketing services net proceeds agreements paid innospec ethyl compensation services based agreedupon formula innospec receiving 68 total compensation services provided separate legal entity joint venture established consequence agreements sales expenses incurred agreements included within innospec’s income statement comprise revenues costs incurred directly innospec together costs recharged ethyl marketing services provided terms agreements ethyl’s share net proceeds services charged within cost goods sold majority net proceeds calculated settled monthly basis element receivable company ethyl computed annually arrears prior years amounts involved significant due increases value retrospective element decided effective january 1 2002 appropriate recognize appropriate accrual year based best current estimates expected outcome cautionary statement safe harbor purposes certain written oral statements made company subsidiaries approval authorized executive officer company including statements made management’s discussion analysis financial condition results operations elsewhere report filings securities exchange commission may constitute “forwardlooking statements” defined private securities litigation reform act 1995 forwardlooking statements include statements address operating performance events developments expect anticipate occur future although statements believed management reasonable made caution exercised place undue reliance forwardlooking statements subject certain risks uncertainties assumptions risks uncertainties ever materialize assumptions prove incorrect actual results may differ materially expressed implied forwardlooking statements assumptions risks assumptions uncertainties include without limitation outcome company’s disputes ethyl impact company’s tetra ethyl lead business related thereto changes terms trading significant customers gain loss thereof effects changing government regulations economic market conditions competition changes demand business legal risks inherent nonus activities including political economic uncertainty import export limitations market risks related changes interest rates foreign exchange rates government investigations material fines penalties resulting company’s voluntary disclosure office foreign assets control us department treasury risks uncertainties assumptions identified company’s annual report form 10k year ended december 31 2006 identified company’s reports filed securities exchange commission company undertakes obligation publicly update revise forwardlooking statements whether result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto general spun almost ten years ago parent company chemtura corporation previously known great lakes chemical corporation primary business manufacture sale petroleum fuel additives particular lead octane additive gasoline tetra ethyl lead “tel” worldwide use tel declined dramatically resulting general rate decline volume terms last years 10 25 year result shifted business focus octane additives development manufacture marketing fuel specialties active chemicals divide business three distinct segments management reporting purposes fuel specialties active chemicals previously performance chemicals explained octane additives fuel specialties active chemicals businesses operate markets actively seek growth opportunities octane additives business although still profitable characterized substantial declining demand october 1 2007 company announced streamlining fastgrowing performance chemicals division unified salesled global business focused rapidly meeting customers’ needs anywhere three geographical regions five core industry sectors led segment rebranded banner “active chemicals” five core industry sectors personal care household industrial institutional fragrance ingredients plastics polymers pulp paper markets year ended december 31 2007 combined operating income fuel specialties active chemicals segments business rose 35 compared year ended december 31 2006 comparison year ended december 31 2007 operating income octane additives segment 199 million represents decline 42 compared year ended december 31 2006 octane additives segment business continue decline last remaining countries continue allow tel use automotive gasoline shift unleaded expect cease sales tel use automotive gasoline time next several years continue impair octane additives business goodwill prior point however succeeded implementing strategic plan creating sufficient growth fuel specialties active chemicals segments business offset decline octane additives business fuel specialties business develops manufactures blends markets range specialty chemical products used additives wide range fuels business grew initially program acquisitions recently organically development new products increases sales profitability active chemicals business provides effective technologybased solutions customers’ processes products focused personal care household industrial institutional fragrance ingredients plastics polymers pulp paper markets business also grown acquisitions intend continue future also seek develop new products continue organic growth octane additives business world’s producer tel use automotive gasoline continuing manage decrease sales tel use automotive gasoline maximize cash flow decline continuous cost improvement measures continue taken respond declining market demand use variety raw materials chemicals manufacturing blending processes believe sources adequate current operations raw materials account substantial portion variable manufacturing costs materials exception ethylene germany readily available one source use longterm contracts generally fixed prices escalation terms help ensure availability continuity supply manage risk price increases raw materials commodity swaps nevertheless raw materials subject price fluctuations may exposed risk prices raw materials increase result factors within control subject extensive regulation local state federal foreign governmental authorities respect methods manufacture market products conduct business regard exposed risks may incur liabilities costs order conform required regulations event fail comply laws regulations currently subject two investigations us government authorities relating certain aspects international operations february 7 2006 sec notified us commenced investigation determine whether violations law occurred connection transactions united nations oil food program june 1 1999 december 31 2003 2005 made voluntary disclosure possible violations cuban assets control regulations us office foreign assets control regarding transactions activities engaged cuba certain nonus subsidiaries management believes time still able predict certainty us government calculate number possible violations laws regulations may occurred nature amount penalties could subject critical accounting estimates objective clearly present financial information manner enhances understanding sources earnings cash flows together financial position aim achieve disclosing information required sec together information provides insight businesses management’s discussion analysis financial condition results operations discusses innospec’s consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments management bases estimates judgments historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation financial statements consolidated financial statements supplementary data disclose accounting principles methods estimates used preparation consolidated financial statements believe statements disclosures represent fairly operating results financial position company purpose portion report emphasize critical areas significant change facts circumstances operating financial environment could cause change results operations financial position policies estimates company considers critical terms subjectivity judgment assessment provided environmental liabilities remediation provisions december 31 2007 amounted 238 million relate principally united kingdom site company records environmental liabilities probable costs estimated reasonably company anticipate program work required associated future costs comply environmental legislation relevant countries company views costs vacating main united kingdom site contingent liability present intention exit site company determined due uncertain product life tel particularly market aviation gas exists uncertainty timing cash flows possible estimate flows sufficiently reliably recognize provision goodwill company adopted fas 142 goodwill intangible assets effective january 1 2002 requires goodwill deemed indefinite life longer amortized subject annual impairment review years events occur circumstances change suggest impairment may occurred company elected perform annual tests respect fuel specialties active chemicals goodwill december 31 year reviewing impairment charge fair value reporting units underlying segments estimated using tax cash flow methodology based management’s best estimates time 2002 2003 goodwill impairment test octane additives business performed annually december 31 reviews showed fair value reporting unit based tax cash flows company’s weighted average cost capital exceeded carrying value octane additives assets accordingly indicator impairment existed step 2 fas 142 impairment test performed light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash flows derived octane additives business reduced accordingly fair value octane additives reporting unit reduced based company’s detailed forecast model assumptions december 31 2003 indicated reduction forecast future cash flows 2004 would reduce fair value reporting unit carrying value octane additives assets accordingly likely significant goodwill impairment charge year ended december 31 2004 result company determined quarterly impairment reviews performed january 1 2004 impairment charge arising recognized relevant quarter value remaining cash flows octane additives business calculated review date reference best available estimates future revenues gross margins selling administrative costs well fixed working capital requirements business resulting cash flows discounted total discounted cash flows octane additives business allocated fair value octane additives business unit date company uses information derive implied goodwill value compared carrying value determine impairment needed using methodology assumptions underlying detailed forecast model company believes possible predict pattern likely future impairment charges octane additives business goodwill method reflects relatively unique nature octane additives business result octane additives impairment reviews performed 2007 2006 2005 impairment charges 121 million 367 million 1344 million respectively recognized charges noncash nature impact taxation 127 million goodwill remaining relates octane additives business given quantum predictability remaining future cash flows octane additives business company expects goodwill impairment charges recognized income statement approximate straightline basis three years ending december 31 2010 december 31 2007 1391 million goodwill relating fuel specialties active chemicals businesses date performed annual impairment reviews concluded impairment goodwill respect reporting segments intangible assets net amortization december 31 2007 419 million intangibles discussed note 10 notes consolidated financial statements intangible assets relate business segments amortized straightline periods 13 years continually assess markets products related intangibles well specific carrying values concluded carrying values amortization periods remain appropriate also evaluate intangibles potential impairment events occur circumstances change suggest impairment may occurred events occur circumstances change may possibly cause reduction periods intangibles amortized result noncash impairment portion intangibles’ carrying value reduction amortization periods would effect cash flows pensions company’s principal pension arrangement contributory defined benefit pension plan “plan” united kingdom though also much smaller pension arrangements united kingdom overseas company accounts plan accordance fas 87 employers’ accounting pensions fas 88 employers’ accounting settlements curtailments defined benefit pension plans fas 158 employers’ accounting defined benefit pension postretirement plans december 31 2007 underlying plan asset value projected benefit obligation 8891 million 8543 million respectively resulting surplus 348 million disclosure provided note 6 notes consolidated financial statements movements underlying plan asset value projected benefit obligation dependent actual return investments pay awards well assumptions respect discount rate annual member mortality rates future return assets future pay escalation future pension increases future inflation develop assumptions considering advice major global actuarial consulting firm change one assumptions could impact plan asset value projected benefit obligation pension cost recognized income statement changes could impact operating results financial position 025 change either discount rate assumption level price inflation assumption would change projected benefit obligation approximately 30 million net pension charge 2008 approximately 02 million full actuarial valuation plan performed december 31 2005 update performed december 31 2007 2006 results reflected consolidated financial statements company contributing amounts plan cover service costs date employee employer contributions january 1 2007 7 29 respectively pensionable pay addition since march 2007 company contributing 3 million per calendar year accordance 10 year deficit recovery plan estimated level company contributions plan 2008 89 million deferred tax asset valuation allowance uncertain income tax positions december 31 2007 valuation allowance aggregating 88 million foreign tax credit carry forwards certain foreign deferred tax assets valuation allowance calculated accordance provisions fas 109 accounting income taxes requires assessment negative positive evidence measuring need valuation allowance accordance fas 109 evidence operating results recent periods given weight expectations future profitability inherently uncertain expectation unlikely use foreign tax credits uncertainty profitability certain foreign locations future periods represented sufficient negative evidence require valuation allowance fas 109 intend maintain valuation allowance sufficient positive evidence exists support realization assets calculation tax liabilities involves evaluating uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained challenged taxing authorities accordance recognition criteria fasb interpretation 48 accounting uncertainty income taxes “fin 48” extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavorable tax settlement may require cash payments result increase effective tax rate year resolution favorable tax settlement may recognized reduction effective tax rate year resolution report interest penalties related uncertain income tax positions income taxes additional information regarding uncertain income tax positions see note 7 notes consolidated financial statements results operations results operations fiscal 2007 compared fiscal 2006 following table providing operating income reporting business also provides comparative results operations 2006 2005 fuel specialties net sales year increase 20 spread across markets operate follows americas 25 emea 12 aspac 19 avtel 44 growth due volume 14 percentage points favorable impact exchange rates 6 percentage points • americas benefited strong sales lubricity products cetane number improvers corrosion inhibitors growth focused volume 15 percentage points price product mix 10 percentage points • europe middle east africa “emea” benefited strong sales performance refinery products growth focused volume 6 percentage points favorable impact exchange rates 13 percentage points offset price product mix 7 percentage points net sales increased 21 excluding impact oneoff contract 2006 recur 2007 • asia pacific “aspac” benefited strong sales marine products growth focused volume 36 percentage points favorable impact exchange rates 1 percentage point offset price product mix 18 percentage points • tel use aviation gasoline “avtel” business growth due volume 21 percentage points price 23 percentage points results positively impacted favorable pricing allowed volumes sold ethyl settlement gross margin year decline 08 percentage points reflects lower proportion higher margin avtel sales together adverse impact lower tel production volumes fixed cost base manufacturing site ellesmere port united kingdom gross margins remainder markets remained largely constant successfully passed raw material price increases onto customers operating expenses excluding impact 71 million onetime professional fees customer claim incurred 2006 year increase operating expenses 68 million 13 underlying 13 increase less 20 sales growth continued leverage infrastructure business active chemicals net sales year increase 11 spread across markets operate follows americas 12 emea 12 aspac 4 growth due volume 4 percentage points favorable impact exchange rates 6 percentage points price product mix 1 percentage points • americas benefited strong sales personal care fragrance products accounting 24 million 37 million growth respectively offset 10 million reduction custom manufacturing revenues primarily due slow us construction industry • emea primarily benefited strong polymer sales increased 73 million year also stronger sales respect fragrances business • aspac business currently represents less 10 overall active chemicals business reflecting embryonic stage development notwithstanding sales driven higher strong performance polymer fragrance products consistent geographical regions gross margin year decline 05 percentage points reflects strategy latter half 2007 reduce inventories release cash lowering production volumes short term impact adversely impacting unit manufacturing costs margins operating expenses year increase 10 due adverse impact exchange rates 6 percentage points inflation 4 percentage points 10 increase less 11 sales growth continued leverage infrastructure business octane additives net sales 2006 benefited release retrospective pricing provision contributed 66 million net sales 45 million operating income excluding impact release net sales constant despite volumes declining 5 reflected richer sales mix moderate price increases 2007 2006 sales focused middle east africa gross margin year decline 64 percentage points excluding impact release retrospective pricing provision 2006 year decline 56 percentage points following settlement regarding tmas effective april 1 2007 profit share ethyl business charged within cost goods sold ceased cessation tmas together richer sales mix moderate price increases achieved 2007 favorably impacted gross margin limited adverse impact lower tel production volumes fixed cost base manufacturing site ellesmere port united kingdom operating expenses excluding impact 46 million legal expenses accruals related sec’s investigation united nations oil food program incurred 2007 incurred 2008 year decrease operating expenses 30 million 23 majority savings made respect wind french south african sales offices headcount reduction within sales income statement captions fas 15887 pension charge required recognize noncash charge 46 million 2007 primarily respect amortization net actuarial losses similar charge required recognized 2006 corporate costs year corporate costs declined 01 million despite adverse impact relative weakness us dollar predominantly british pound sterling cost base due savings generated 2007 savings resulted lower professional fees since 2006 included costs incurred following company’s switch nasdaq stock market march 21 2006 name change january 30 2006 restructuring charge restructuring costs comprised following amortization intangible assets increased amortization expense 42 million 2007 relates intangible asset recognized respect payment ethyl represented ethyl foregoing entitlement share future income stream tmas effective april 1 2007 amount attributed octane additives business segment amortized straightline december 31 2010 amount attributed fuel specialties business segment amortized straightline december 31 2017 impairment octane additives business goodwill 2006 charge higher recognized 2007 primarily due higher operating income associated cash flows 2006 since end 2006 updated estimates used detailed forecast model calculate impairment charges include effective april 1 2007 fact longer sharing ethyl profits sale tel outside north america interest expense net interest charge increased moderately 02 million 2007 70 million primarily due 2006 including receipt 06 million interest previously charged tax balance offset fact average net debt fell approximately 10 million corresponding periods 77 million 67 million net incomeexpense 2007 net income comprised 75 million respect foreign exchange gains offset 06 million sundry expenses 2006 net income comprised 76 million respect foreign exchange gains offset 08 million sundry expenses income taxes tax relief available charge impairment octane additives business goodwill accordingly believe change effective rate tax 382 2007 642 2006 best explained adjusting nondeductible charge adjusted effective tax rate increased 06 percentage points corresponding periods primarily due origin profits continued increased profitability us based fuel specialties business incurs standard federal tax rate 35 together state taxes offset favorable conclusion historic tax matters results operations fiscal 2006 compared fiscal 2005 fuel specialties net sales year increase 21 spread across markets operate follows americas 21 emea 17 aspac 60 avtel 6 • americas sales driven strong marketleading position diesel fuel additives us government’s adoption early 2006 new ultra low sulfur diesel regulations • approximately half emea sales growth due oneoff contract single customer • aspac growth due benefit generated customer contracts entered early 2006 gross margin year increase 16 percentage points focused americas offset lower margins seen emea aspac americas gross margin benefited sales prices increases implemented early 2006 tight control material costs throughout year emea gross margin diluted impact oneoff contract single customer aspac gross margin impacted product mix operating expenses 2006 included impact 71 million onetime professional fees customer claim incurred 2005 included impact 59 million ofac related costs excluding items underlying 4 increase operating expenses significantly less 21 sales growth leveraged infrastructure business active chemicals net sales growth 2006 spread across individual operations comprise business absolute dollar terms however growth focused aroma fragrances business surfactants emollients business aroma fragrances business benefited price increases throughout 2006 greater production capacity came stream latter stages year 2006 surfactants emollients business leveraged customer base increase sales prices volumes across almost product range gross margin business delivered 29 increase gross profit significantly excess 10 sales growth increase generated 28 percentage points improvement gross margins spread across individual operations comprise business segment operating expenses year increase limited 2 despite sales growth 10 sales growth tight cost control achieved leveraging infrastructure business octane additives net sales decline limited 49 dollar terms despite volumes decreasing 63 primarily due richer sales mix 2006 compared 2005 moderate price increases achieved 2006 sales volumes adversely impacted south africa leaving market tel use automotive gasoline start year absence 2006 significant shipments south east asia however sales middle east 2006 remained resilient gross margin 77 percentage points improvement gross margin reflected richer sales mix moderate price increases achieved 2006 operating expenses 33 reduction operating expenses compares 49 sales decline experienced business majority savings generated reduced commission charges caused absence sales south east asia income statement captions fas 15887 pension charge required recognize noncash charge 17 million 2005 primarily respect amortization prior service cost similar charge required recognized 2006 corporate costs year corporate costs declined 46 million due restructuring corporate functions reduced costs relation sarbanes oxley compliance achieved despite fact 2006 included costs incurred following company’s switch nasdaq stock market march 21 2006 name change january 30 2006 also significant costs recognized 2005 special investigation transfer funds south africa former ceo restructuring charge restructuring costs comprised following amortization intangible assets amortization charge 127 million 2006 2005 reflecting fact intangible assets amortized income statement using straightline method estimated useful lives significant intangible asset additions disposals 2006 2005 would impact amortization charge impairment octane additives business goodwill 2005 charge significantly higher recognized 2006 due loss anticipated sales associated cash flows venezuela major customer second quarter 2005 2006 significant changes estimates used detailed forecast model calculate impairment charges profit disposal net company recognized 96 million profit following disposal surplus real estate united kingdom partially offset prepaid disposal costs 04 million interest expense net interest expense declined 08 million 2006 68 million primarily due 2006 including receipt 06 million interest previously charged tax balance fact average net debt fell approximately 30 million corresponding periods 107 million 77 million moreover reduced net interest expense achieved despite fact us base interest rate rose corresponding periods net incomeexpense 2006 net income comprised 76 million respect foreign exchange gains offset 08 million sundry expenses 2005 net expense comprised 55 million charge writeoff company’s investment stylacats third quarter charge 12 million fully provide two investments 37 million charge exchange losses forward foreign exchange contracts 22 million sundry expenses income taxes tax relief available charge impairment octane additives business goodwill accordingly believe change effective rate tax 642 2006 35 2005 best explained adjusting nondeductible charge adjusted effective tax rate increased 40 percentage points corresponding periods primarily due origin profits exhaustion us net operating losses increased profitability us based fuel specialties business incurs standard federal tax rate 35 together state taxes liquidity financial condition working capital december 31 2007 working capital 1152 million defined company accounts receivable inventories prepaid expenses accounts payable accrued liabilities rather total current assets less total current liabilities 2007 working capital increased 173 million 158 million increase accounts receivable prepaid expenses spread across three business units result increased trading fuel specialties active chemicals growth businesses impact timing octane additives shipments compared corresponding period last year inventories increased 126 million also three business units though focused fuel specialties octane additives latter due unwind approximately 120 million ethyl inventory working capital arrangements following settlement regarding tmas 111 million increase accounts payable accrued liabilities limited moderate increase within active chemicals due increased trading levels somewhat larger increases within fuel specialties octane additives reflecting significantly increased trading levels recognition 37 million legal accrual respectively cash december 31 2007 2006 cash equivalents 243 million 1019 million respectively debt december 31 2007 credit facility provides borrowings us 1750 million including term loan 750 million revolving credit facility 1000 million revolving credit facility drawn upon financing facility expires june 12 2009 facility also contains terms breached would result loan becoming repayable demand requires among matters compliance two financial covenant ratios 1 ratio net debt ebitda 2 ratio net interest ebita ebitda ebita non us gaap measures liquidity defined finance facility event ratio net debt ebitda exceeds 20 addition covenants facility also requires “look forward” test additional financial covenant ratio form net operating cash flow finance costs scheduled debt amortization interest costs “look forward” test applicable company 2007 due ratio exceeded december 31 2007 company 810 million debt outstanding senior credit facility agreement compliance financial covenants therein debt profile december 31 2007 including principal facility set january 31 2008 company repaid scheduled 200 million term loan facility drew 200 million revolving credit facility pension plans postemployment benefits effective fiscal year 2006 company adopted provisions fas 158 employers’ accounting defined benefit pension postretirement plans fas 158 requires funded status definedbenefit postretirement plans recognized company’s consolidated balance sheets changes funded status reflected comprehensive income fas 158 also requires measurement date plan’s funded status company’s fiscal yearend although measurement date provision required adopted fiscal year 2008 company earlyadopted provision fiscal year 2006 effect applying fas 158 record total reduction equity recognition comprehensive loss 970 million aftertax basis contractual commitments following represents contractual commitments december 31 2007 effect obligations future cash flows december 31 2007 longterm debt comprised 750 million term loan 60 million drawn revolving credit facility date longterm debt obligations represent scheduled term loan repayments amounts drawn revolving credit facility repaid financing facility expires june 12 2009 january 31 2008 company repaid scheduled 200 million term loan facility drew 200 million revolving credit facility remediation payments represent cash flows company currently obligated pay respect current former facilities include discretionary remediation costs company may choose incur severance payments represent cash flows company currently obligated pay respect severance costs recognized conditions fas 146 accounting costs associated exit disposal activities fas 112 employers’ accounting postemployment benefits raw material purchase obligations relate certain longterm raw material contracts entered company stipulate fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude agreements cancellable without penalty capital commitments relate certain capital projects company committed undertake operating lease commitments relate primarily office space motor vehicles items office equipment expected renewed replaced normal course business company subject interest variable rates certain elements longterm debt estimated payments included table assume constant us base interest rate 35 main credit facility estimated commitment fees also included interest income excluded amounts related pension plan refer likely levels company funding united kingdom contributory defined benefit pension plan certain pension commitments senior employees meaningful predict amount five years since numerous uncertainties including future return assets pay escalation pension increases inflation employment levels environmental matters plant closures company subject environmental laws countries operates certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us therefore liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws full provision made committed costs 238 million expenditure provisions 17 million 13 million 22 million years 2007 2006 2005 respectively also incurred personnel severance costs relation management decline octane additives market restructuring fuel specialties active chemicals businesses total severance expenditure 20 million 70 million 97 million years 2007 2006 2005 respectively provision made severance costs conditions fas 146 fas 112 contingencies oil food february 7 2006 securities exchange commission “sec” notified company commenced investigation determine whether violations law occurred connection transactions conducted company including wholly owned indirect subsidiary alcor chemie vertriebs gmbh “alcor” swiss company united nations oil food program “offp” june 1 1999 december 31 2003 part investigation sec issued subpoena requiring production certain documents including documents relating transactions company alcor upon receipt sec’s notification initial subpoena company undertook review participation offp october 10 2007 november 1 2007 sec served two additional subpoenas company additional subpoenas required production documents relating notably offp also relating transactions conducted company subsidiaries state owned controlled entities june 1 1999 date subpoenas relating use foreign agents possibility extracontractual payments made secure business foreign governmental entities coordinated investigation company also contacted us department justice “doj” regarding possibility violations relevant laws areas contained sec subpoenas well additional preliminary inquiries regarding compliance antitrust laws relating us international tetra ethyl lead markets subjects sec doj inquired include areas involve certain former current executives company including current ceo company officers directors cooperating sec doj investigations february 19 2008 board directors company formed committee comprised chairmen board audit committee nominating governance committee respectively independent directors counsel company providing assistance committee behalf committee conducted continue conduct investigation circumstances giving rise sec doj investigations counsel report directly committee assist connection interactions sec doj outcome investigations uncertain number companies involved offp investigations required disgorge profits pay civil fines penalties 30 million result information discovered course investigation expect required disgorge profits pay fines penalties could similar magnitude settlement sec doj inquiries relating matters beyond offp could require company make significant additional disgorgements penalty fine payments however time management able predict certainty level fines penalties uncertainties associated ultimate outcome investigations costs company responding participating ongoing investigations assurance given ultimate costs sanctions may imposed upon us material adverse effect results operations financial position cash flows operating activities december 31 2007 accrued 37 million respect probable future legal expenses respect matter provided additional accruals matter inflation significant factor company last several years management believes inflation continue moderate next several years cautionary statement safe harbor purposes certain written oral statements made company subsidiaries approval authorized executive officer company including statements made management’s discussion analysis financial condition results operations elsewhere report filings securities exchange commission may constitute “forwardlooking statements” defined private securities litigation reform act 1995 forwardlooking statements include statements address operating performance events developments expect anticipate occur future including without limitation company’s guidance revenues gross margins net income measures financial performance although statements believed management reasonable made caution exercised place undue reliance forwardlooking statements subject certain risks uncertainties assumptions risks uncertainties ever materialize assumptions prove incorrect actual results may differ materially expressed implied forwardlooking statements assumptions risks assumptions uncertainties include without limitation changes terms trading significant customers gain loss thereof ability continue achieve organic growth fuel specialties active chemicals businesses ability successfully integrate acquisitions business segments effects changing government regulations economic market conditions competition changes demand business legal risks inherent nonus activities including political economic uncertainty import export limitations market risks related changes interest rates foreign exchange rates government investigations material fines penalties resulting company’s voluntary disclosure office foreign assets control us department treasury investigation securities exchange commission us department justice company’s participation united nations oil food program regulatory actions risks uncertainties assumptions identified company’s annual report form 10k year ended december 31 2007 identified company’s reports filed securities exchange commission company undertakes obligation publicly update revise forwardlooking statements whether result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto general divide business three distinct segments management reporting purposes fuel specialties active chemicals octane additives fuel specialties active chemicals businesses operate markets actively seek growth opportunities octane additives business although still profitable characterized substantial declining demand fuel specialties business develops manufactures blends markets range specialty chemical products used additives wide range fuels business grew initially program acquisitions recently organically development new products increases sales profitability active chemicals business provides effective technologybased solutions customers’ processes products focused personal care household industrial institutional fragrance ingredients markets business also grown acquisitions seeking develop new products continue organic growth octane additives business world’s producer tel use automotive gasoline continuing manage decrease sales tel use automotive gasoline maximize cash flow decline continuous cost improvement measures continue taken respond declining market demand june 23 2008 company announced streamlining business unified salesled global business focused rapidly meeting customers’ needs anywhere world company moving integrated regional model running growth businesses one streamlined business operating across three geographical regions americas emea ie europe middle east africa aspac ie asiapacific year ended december 31 2008 combined operating income fuel specialties active chemicals segments business rose 46 compared year ended december 31 2006 represent 98 operating income generated businesses comparison operating income octane additives segment declined 97 345 million 12 million period although 142 million decline attributed legal professional expenses incurred relating oil food program related investigations octane additives segment business continue decline last remaining countries continue allow tel use automotive gasoline move away leaded gasoline expect cease sales tel use automotive gasoline 2012 continue impair octane additives business goodwill prior point however succeeded implementing strategic plan creating sufficient growth fuel specialties active chemicals segments business offset decline octane additives business use variety raw materials chemicals manufacturing blending processes believe sources adequate current operations raw materials account substantial portion variable manufacturing costs materials exception ethylene germany readily available one source use longterm contracts generally fixed prices escalation terms help ensure availability continuity supply manage risk price increases raw materials commodity swaps nevertheless raw materials subject price fluctuations may exposed risk prices raw materials increase result factors within control subject extensive regulation local state federal foreign governmental authorities respect methods manufacture market products conduct business regard exposed risks may incur liabilities costs order conform required regulations event fail comply laws regulations currently subject investigations us uk government authorities relating certain aspects international operations critical accounting estimates objective clearly present financial information manner enhances understanding sources earnings cash flows together financial position aim achieve disclosing information required sec together information provides insight businesses management’s discussion analysis financial condition results operations discusses innospec’s consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments management bases estimates judgments historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation financial statements consolidated financial statements supplementary data disclose accounting principles methods estimates used preparation consolidated financial statements believe statements disclosures represent fairly operating results financial position company purpose portion report emphasize critical areas significant change facts circumstances operating financial environment could cause change results operations financial position policies estimates company considers critical terms subjectivity judgment assessment provided contingencies subject legal regulatory proceedings claims company discloses information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability estimability losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss company recognize liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized company recognizes legal related professional expenses within selling general administrative expenses associated course action committed reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible us gaap recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement discussed note 18 notes consolidated financial statements company subject securities exchange commission “sec” us department justice united kingdom serious fraud office investigations involvement united nations oil food program “offp” matters beyond offp including foreign corrupt practices act addition 2005 made voluntary disclosure possible violations cuban assets control regulations us office foreign assets control regarding transactions activities engaged cuba certain nonus subsidiaries management believes time still able predict certainty us uk governments calculate number possible violations laws regulations may occurred nature amount penalties could subject uncertainties associated ultimate outcome investigations costs company responding participating assurance given ultimate costs sanctions may imposed upon us material adverse effect results operations financial position cash flows operating activities environmental liabilities remediation provisions december 31 2008 amounted 228 million relate principally united kingdom site company records environmental liabilities probable costs estimated reasonably company anticipate program work required associated future costs comply environmental legislation relevant countries company views costs vacating main united kingdom site contingent liability present intention exit site company determined due uncertain product life tel particularly market aviation gasoline exists uncertainty timing cash flows possible estimate flows sufficiently reliably recognize provision goodwill company adopted fas 142 goodwill intangible assets effective january 1 2002 requires goodwill deemed indefinite life longer amortized subject annual impairment review years events occur circumstances change suggest impairment may occurred company elected perform annual tests respect fuel specialties active chemicals goodwill december 31 year reviewing impairment charge fair value reporting units underlying segments estimated using tax cash flow methodology based management’s best available estimates time key assumptions underpinning calculations include future revenue growth gross margins company’s weighted average cost capital december 31 2008 1392 million goodwill relating fuel specialties active chemicals businesses date performed annual impairment reviews concluded impairment goodwill respect reporting segments light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash flows derived octane additives business reduced accordingly fair value octane additives reporting unit reduced result company determined quarterly impairment reviews performed january 1 2004 impairment charge arising recognized relevant quarter result octane additives impairment reviews performed 2008 2007 2006 impairment charges 37 million 121 million 367 million respectively recognized charges noncash nature impact taxation 90 million goodwill remaining december 31 2008 relates octane additives business given quantum predictability remaining future cash flows octane additives business company expects goodwill impairment charges recognized income statement approximate straightline basis december 31 2012 effective october 1 2008 company extended estimate future life octane additives business december 31 2010 december 31 2012 believe assumptions used annual quarterly impairment reviews reasonable judgmental variations assumptions may result materially different calculations impairment charges december 31 2008 sum fair values reporting units excess company’s market capitalization based upon stock price date due primarily estimated control premium control premium reflects fact management access information future projections power make investment financing resource allocation decisions management believe goodwill impairment charges required recognized addition already recognized respect octane additives reporting unit intangible assets net amortization december 31 2008 283 million intangibles discussed note 9 notes consolidated financial statements intangible assets relate business segments amortized straightline periods 13 years continually assess markets products related intangibles well specific carrying values concluded carrying values amortization periods remain appropriate also evaluate intangibles potential impairment events occur circumstances change suggest impairment may occurred events occur circumstances change may possibly cause reduction periods intangibles amortized result noncash impairment portion intangibles’ carrying value reduction amortization periods would effect cash flows pensions company’s principal pension arrangement contributory defined benefit pension plan “the plan” covering number current former employees united kingdom though also much smaller pension arrangements united kingdom overseas company contributing amounts plan cover service costs date employee employer contributions january 1 2004 january 1 2007 5 226 respectively pensionable pay january 1 2007 employee employer contributions 7 29 respectively addition since march 2007 company contributing £15 million per calendar year accordance 10 year deficit recovery plan january 1 2008 employee employer contributions remained 7 29 though employee contributions paid employer salary sacrifice arrangement estimated level company contributions plan 2009 58 million full triannual actuarial valuation plan performed december 31 2005 update performed december 31 2008 2007 2006 results reflected consolidated financial statements december 31 2008 underlying plan asset value pbo 5574 million 5712 million respectively resulting deficit 138 million full triannual actuarial valuation plan december 31 2008 performed 2009 results valuation reflected consolidated financial statements december 31 2009 movements underlying plan asset value pbo dependent actual return investments pay awards well assumptions respect discount rate annual member mortality rates future return assets future pay escalation future pension increases future inflation develop assumptions considering advice major global actuarial consulting firm change one assumptions could impact plan asset value pbo pension cost recognized income statement changes could impact operating results financial position 025 change either discount rate assumption level price inflation assumption would change pbo approximately 19 million net pension charge 2008 approximately 14 million company accounts plan accordance fas 87 employers’ accounting pensions fas 88 employers’ accounting settlements curtailments defined benefit pension plans fas 158 employers’ accounting defined benefit pension postretirement plans disclosure provided note 6 notes consolidated financial statements deferred tax asset valuation allowance uncertain income tax positions december 31 2008 valuation allowance aggregating 73 million foreign tax credit carry forwards certain foreign deferred tax assets valuation allowance calculated accordance provisions fas 109 accounting income taxes requires assessment negative positive evidence measuring need valuation allowance accordance fas 109 evidence operating results recent periods given weight expectations future profitability inherently uncertain expectation unlikely use foreign tax credits uncertainty profitability certain foreign locations future periods represented sufficient negative evidence require valuation allowance fas 109 intend maintain valuation allowance sufficient positive evidence exists support realization assets calculation tax liabilities involves evaluating uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained challenged taxing authorities accordance recognition criteria fasb interpretation 48 accounting uncertainty income taxes “fin 48” extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavorable tax settlement may require cash payments result increase effective tax rate year resolution favorable tax settlement may recognized reduction effective tax rate year resolution report interest penalties related uncertain income tax positions income taxes additional information regarding uncertain income tax positions see note 7 notes consolidated financial statements results operations results operations fiscal 2008 compared fiscal 2007 following table providing operating income reporting business also provides comparative results operations 2007 2006 fuel specialties net sales year increase 18 spread across markets operate follows americas 18 emea 18 aspac 23 avtel 9 growth due volume 10 percentage points price product mix 7 percentage points favorable impact exchange rates 1 percentage point • americas delivered strong sales static dissipaters lubricity improvers cetane number improvers growth focused volume 10 percentage points richer price product mix 8 percentage points • europe middle east africa “emea” net sales increased 18 driven strong sales performance refinery light heating oil additives growth focused volume 9 percentage points price product mix 6 percentage points favorable impact exchange rates 3 percentage points • asia pacific region “aspac” benefited strong sales refinery additives diesel detergents growth focused volume 22 percentage points price product mix 1 percentage point • tel use aviation gasoline “avtel” business growth primarily due richer sales mix 11 percentage points offset lower volume 2 percentage points results corresponding period last year positively impacted favorable pricing allowed volumes sold ethyl settlement gross margin year decline 03 percentage points reflects lower proportion higher margin avtel sales together adverse impact lower tel production volumes fixed cost base manufacturing site ellesmere port united kingdom gross margins remainder markets remained largely constant successfully passed raw material price increases onto customers operating expenses excluding impact 19 million onetime professional fees 2007 year increase operating expenses 62 million 11 underlying 11 increase less 18 sales growth continued leverage infrastructure business achieved despite adverse impact latter months 2008 relative weakness us dollar european union euro denominated cost base higher personnelrelated costs addition research development expenses driven higher support expanding business increasing 16 million 15 corresponding periods active chemicals net sales year increase 3 spread across markets operate follows americas 5 emea 1 aspac 28 growth due volume 2 percentage points favorable impact exchange rates 2 percentage points offset price product mix 1 percentage point • americas delivered strong sales fragrance personal care products growth focused volume 11 percentage points offset poorer price product mix 4 percentage points unfavorable impact exchange rates 2 percentage points • emea sales declined marginally despite favorable impact exchange rates 5 percentage points richer price product mix 2 percentage points offset lower volume 8 percentage points strong personal care polymer product sales offset lower household industrial institutional product sales • aspac business currently represents less 10 overall active chemicals business reflecting early stage development notwithstanding sales benefited higher volumes 25 percentage points fragrance personal care polymers products increase assisted favorable impact exchange rates 1 percentage point richer price product mix 2 percentage points gross margin year decline 94 percentage points reflects price product mix primarily respect greater proportion 2008 lower margin polymer sales significant increase raw material energy costs suffered across markets operate adverse impact lower utilization manufacturing efficiencies us united kingdom plants operating expenses year decrease operating expenses 10 million 6 decrease achieved despite 3 sales growth primarily due lower personnelrelated costs octane additives net sales net sales volumes declined 35 line historic decline business decline reflected marginally poorer sales mix despite moderate price increases 2008 2007 sales focused middle east africa gross margin year decrease gross margin 50 percentage points following settlement regarding tmas effective april 1 2007 profit share ethyl business charged within cost goods sold ceased cessation tmas moderate price increases achieved 2008 favorably impacted gross margin limited adverse impact marginally poorer sales mix lower tel production volumes fixed cost base manufacturing site ellesmere port united kingdom operating expenses excluding impact legal professional expenses 155 million 46 million 2008 2007 respectively relating oil food program related investigations year decrease operating expenses 23 million 23 primarily respect reduced selling costs income statement captions fas 15887 pension charge noncash charge reduced 23 million unlike 2007 amortization net actuarial losses required corporate costs year corporate costs increased 29 million due expensing 39 million advisory financing costs related two large potential acquisitions company pursuing offset extent latter months 2008 favorable impact relative strength us dollar predominantly british pound sterling cost base restructuring charge restructuring costs comprised following amortization intangible assets amortization charge declined net 95 million 169 million 74 million reduction 100 million due absence veritel intangible asset amortization charge 2008 since fully amortized december 31 2007 reduction offset 05 million increase amortization costs related ethyl intangible asset effective april 1 2007 impairment octane additives business goodwill 2008 charge lower recognized 2007 primarily due higher operating income associated cash flows 2007 effective october 1 2008 updated estimates used detailed forecast model calculate impairment charges reflect company’s extended estimate future life octane additives business december 31 2010 december 31 2012 profit disposal may 2008 company recognized 04 million profit following disposal surplus us real estate interest expense net interest charge decreased 16 million 2008 54 million despite fact average net debt increased approximately 4 million corresponding periods 67 million 71 million decrease primarily reflects fact us base interest rates declined corresponding periods 06 million reduction deferred finance costs amortization charge net expenseincome 2008 net expense 193 million related net foreign exchange losses 190 million net sundry expenses 03 million net foreign exchange losses related losses foreign currency forward exchange contracts losses translation net assets european business 127 million 63 million respectively 2007 net income comprised 75 million respect net foreign exchange gains offset 06 million sundry expenses net foreign exchange gains related losses foreign currency forward exchange contracts gains translation net assets european business 07 million 82 million respectively income taxes tax relief available charge impairment octane additives business goodwill accordingly believe change effective rate tax 335 2008 382 2007 best explained adjusting nondeductible charge adjusted effective tax rate decreased 24 percentage points corresponding periods primarily due positive impact taxable profits different geographical locations partially offset foreign income inclusions results operations fiscal 2007 compared fiscal 2006 fuel specialties net sales year increase 20 spread across markets operate follows americas 25 emea 12 aspac 19 avtel 44 growth due volume 14 percentage points favorable impact exchange rates 6 percentage points • americas benefited strong sales lubricity products cetane number improvers corrosion inhibitors growth focused volume 15 percentage points price product mix 10 percentage points • europe middle east africa “emea” benefited strong sales performance refinery products growth focused volume 6 percentage points favorable impact exchange rates 13 percentage points offset price product mix 7 percentage points net sales increased 21 excluding impact oneoff contract 2006 recur 2007 • asia pacific “aspac” benefited strong sales marine products growth focused volume 36 percentage points favorable impact exchange rates 1 percentage point offset price product mix 18 percentage points • tel use aviation gasoline “avtel” business growth due volume 21 percentage points price 23 percentage points results positively impacted favorable pricing allowed volumes sold ethyl settlement gross margin year decline 08 percentage points reflected lower proportion higher margin avtel sales together adverse impact lower tel production volumes fixed cost base manufacturing site ellesmere port united kingdom gross margins remainder markets remained largely constant successfully passed raw material price increases onto customers operating expenses excluding impact 71 million onetime professional fees customer claim incurred 2006 year increase operating expenses 68 million 13 underlying 13 increase less 20 sales growth continued leverage infrastructure business active chemicals net sales year increase 11 spread across markets operate follows americas 12 emea 12 aspac 4 growth due volume 4 percentage points favorable impact exchange rates 6 percentage points price product mix 1 percentage points • americas benefited strong sales personal care fragrance products accounting 24 million 37 million growth respectively offset 10 million reduction custom manufacturing revenues primarily due slow us construction industry • emea primarily benefited strong polymer sales increased 73 million year also stronger sales respect fragrances business • aspac business represented less 10 overall active chemicals business reflecting embryonic stage development notwithstanding sales driven higher strong performance polymer fragrance products consistent geographical regions gross margin year decline 05 percentage points reflected strategy latter half 2007 reduce inventories release cash lowering production volumes short term impact adversely impacting unit manufacturing costs margins operating expenses year increase 10 due adverse impact exchange rates 6 percentage points inflation 4 percentage points 10 increase less 11 sales growth continued leverage infrastructure business octane additives net sales 2006 benefited release retrospective pricing provision contributed 66 million net sales 45 million operating income excluding impact release net sales constant despite volumes declining 5 reflected richer sales mix moderate price increases 2007 2006 sales focused middle east africa gross margin year decline 64 percentage points excluding impact release retrospective pricing provision 2006 year decline 56 percentage points following settlement regarding tmas effective april 1 2007 profit share ethyl business charged within cost goods sold ceased cessation tmas together richer sales mix moderate price increases achieved 2007 favorably impacted gross margin limited adverse impact lower tel production volumes fixed cost base manufacturing site ellesmere port united kingdom operating expenses excluding impact 46 million legal expenses accruals related sec’s investigation united nations oil food program incurred 2007 incurred 2008 year decrease operating expenses 30 million 23 majority savings made respect wind french south african sales offices headcount reduction within sales income statement captions fas 15887 pension charge required recognize noncash charge 46 million 2007 primarily respect amortization net actuarial losses similar charge required recognized 2006 corporate costs year corporate costs declined 01 million despite adverse impact relative weakness us dollar predominantly british pound sterling cost base due savings generated 2007 savings resulted lower professional fees since 2006 included costs incurred following company’s switch nasdaq stock market march 21 2006 name change january 30 2006 restructuring charge restructuring costs comprised following amortization intangible assets increased amortization expense 42 million 2007 related intangible asset recognized respect payment ethyl represented ethyl foregoing entitlement share future income stream tmas effective april 1 2007 amount attributed octane additives business segment amortized straightline december 31 2010 amount attributed fuel specialties business segment amortized straightline december 31 2017 impairment octane additives business goodwill 2006 charge higher recognized 2007 primarily due higher operating income associated cash flows 2006 since end 2006 updated estimates used detailed forecast model calculate impairment charges include effective april 1 2007 fact would longer sharing ethyl profits sale tel outside north america interest expense net interest charge increased moderately 02 million 2007 70 million primarily due 2006 including receipt 06 million interest previously charged tax balance offset fact average net debt fell approximately 10 million corresponding periods 77 million 67 million net expenseincome 2007 net income comprised 75 million respect net foreign exchange gains offset 06 million sundry expenses 2006 net income comprised 76 million respect net foreign exchange gains offset 08 million sundry expenses income taxes tax relief available charge impairment octane additives business goodwill accordingly believed change effective rate tax 382 2007 642 2006 best explained adjusting nondeductible charge adjusted effective tax rate increased 06 percentage points corresponding periods primarily due origin profits continued increased profitability us based fuel specialties business incurred standard federal tax rate 35 together state taxes offset favorable conclusion historic tax matters liquidity financial condition working capital december 31 2008 adjusted working capital 1309 million defined company accounts receivable inventories prepaid expenses accounts payable accrued liabilities rather total current assets less total current liabilities 2008 adjusted working capital increased 157 million 49 million decrease accounts receivable prepaid expenses focused within active chemicals business mainly reflecting sales decline polymers business towards end fourth quarter 2008 57 million increase inventories focused growth fuel specialties business following decision build certain product inventories strategic importance 149 million decrease accounts payable accrued liabilities reflects release 63 million contract related provisions longer deemed necessary offset related intangible asset lower personnelrelated accruals cash december 31 2008 2007 cash equivalents 139 million 243 million respectively debt december 31 2008 finance facility provided borrowings us 155 million including term loan 55 million revolving credit facility 100 million december 31 2008 company 730 million debt outstanding finance facility compliance financial covenants therein debt maturity profile december 31 2008 including principal facility set february 6 2009 entered new threeyear finance facility provides borrowings us 150 million including term loan 50 million revolving credit facility 100 million revolving credit facility drawn finance facility expires february 6 2012 term loan repayable follows 10 million due february 5 2010 15 million february 7 2011 25 million february 6 2012 new finance facility replaced previous finance facility place december 31 2008 company’s new finance facility contains restrictive clauses may constrain activities limit operational financial flexibility new facility obliges lenders comply request utilization finance unless event default outstanding events default defined finance facility include material adverse change business properties assets financial condition results operations new facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition new facility also contains terms breached would result loan becoming repayable demand requires among matters compliance two financial covenant ratios 1 ratio net debt ebitda 2 ratio net interest ebitda non us gaap measure liquidity defined finance facility pension plans postemployment benefits effective fiscal year 2006 company adopted provisions fas 158 employers’ accounting defined benefit pension postretirement plans fas 158 requires funded status definedbenefit postretirement plans recognized company’s consolidated balance sheets changes funded status reflected comprehensive income fas 158 also requires measurement date plan’s funded status company’s fiscal yearend although measurement date provision required adopted fiscal year 2008 company earlyadopted provision fiscal year 2006 effect applying fas 158 record total reduction equity recognition comprehensive loss 970 million aftertax basis contractual commitments following represents contractual commitments december 31 2008 effect obligations future cash flows december 31 2008 longterm debt comprised 55 million term loan 18 million drawn revolving credit facility date longterm debt obligations represented scheduled term loan repayments amounts drawn revolving credit facility repaid previous financing facility due expire june 12 2009 company subject interest variable rates certain elements longterm debt estimated payments included table assume constant us base interest rate 05 main finance facility estimated commitment fees also included interest income excluded february 6 2009 entered new threeyear finance facility provides borrowings us 150 million including term loan 50 million revolving credit facility 100 million revolving credit facility drawn finance facility expires february 6 2012 term loan repayable follows 10 million due february 5 2010 15 million february 7 2011 25 million february 6 2012 new finance facility replaced previous finance facility place december 31 2008 amounts related pension plan refer likely levels company funding united kingdom contributory defined benefit pension plan certain pension commitments senior employees meaningful predict amount five years since numerous uncertainties including future return assets pay escalation pension increases inflation employment levels remediation payments represent cash flows company currently obligated pay respect current former facilities include discretionary remediation costs company may choose incur severance payments represent cash flows company currently obligated pay respect severance costs recognized conditions fas 146 accounting costs associated exit disposal activities fas 112 employers’ accounting post employment benefits raw material purchase obligations relate certain longterm raw material contracts entered company stipulate fixed minimum quantities purchased fixed minimum variable price provisions approximate timing transaction purchase obligations exclude agreements cancellable without penalty operating lease commitments relate primarily office space motor vehicles items office equipment expected renewed replaced normal course business capital commitments relate certain capital projects company committed undertake due uncertainty regarding completion tax audits possible outcomes estimate obligations related unrecognized tax benefits cannot made disclosure provided note 6 notes consolidated financial statements environmental matters plant closures company subject environmental laws countries operates certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us therefore liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws full provision made committed costs 251 million december 31 2008 expenditure provisions 16 million 17 million 13 million years 2008 2007 2006 respectively also incurred personnel severance costs relation management decline octane additives market restructuring fuel specialties active chemicals businesses total severance expenditure 16 million 20 million 70 million years 2008 2007 2006 respectively provision made severance costs conditions fas 146 fas 112 item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto general divide business three distinct segments management reporting purposes fuel specialties active chemicals octane additives fuel specialties active chemicals businesses operate markets actively seek growth opportunities octane additives business characterized substantial declining demand fuel specialties business develops manufactures blends markets range specialty chemical products used additives wide range fuels business grew initially program acquisitions recently organically development new products increases sales profitability active chemicals business provides effective technologybased solutions customers’ processes products focused personal care household industrial institutional fragrance ingredients markets business also grown acquisitions seeking develop new products continue organic growth octane additives business world’s producer tetra ethyl lead “tel” use automotive gasoline continuing manage decrease sales tel use automotive gasoline maximize cash flow decline continuous cost improvement measures continue taken respond declining market demand year ended december 31 2009 combined operating income fuel specialties active chemicals segments business grown average 35 per annum compared year ended december 31 2005 drives operating income generated businesses comparison operating income octane additives segment declined 345 million operating loss 448 million period although 531 million decline attributed anticipated settlement accrual together legal professional expenses incurred relating united nations oil food program “offp” us foreign corrupt practices act “fcpa” investigations octane additives segment business continue decline last remaining countries continue allow tel use automotive gasoline move away leaded gasoline expect cease sales tel use automotive gasoline 2012 continue impair octane additives business goodwill prior point however succeeded implementing strategic plan creating sufficient growth fuel specialties active chemicals segments business offset decline octane additives business use variety raw materials chemicals manufacturing blending processes believe sources adequate current operations raw materials account substantial portion variable manufacturing costs materials exception ethylene germany readily available one source use longterm contracts generally fixed costs escalation terms help ensure availability continuity supply manage risk cost increases raw materials commodity swaps nevertheless raw materials subject cost fluctuations may exposed risk costs raw materials increase result factors within control subject extensive regulation local state federal foreign governmental authorities respect methods manufacture market products conduct business regard exposed risks may incur liabilities costs order conform required regulations event fail comply laws regulations currently subject investigations us united kingdom government authorities relating certain aspects international operations critical accounting estimates objective clearly present financial information manner enhances understanding sources earnings cash flows together financial position aim achieve disclosing information required sec together information provides insight businesses management’s discussion analysis financial condition results operations discusses innospec’s consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period management evaluates ongoing basis estimates judgments management bases estimates judgments historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation financial statements consolidated financial statements supplementary data disclose accounting principles methods estimates used preparation consolidated financial statements believe statements disclosures represent fairly operating results financial position company purpose portion report emphasize critical areas significant change facts circumstances operating financial environment could cause change results operations financial position policies estimates company considers critical terms subjectivity judgment assessment provided contingencies subject legal regulatory proceedings claims company discloses information concerning contingent liabilities respect claims proceedings unfavorable outcome remote recognize liabilities claims proceedings appropriate based upon probability estimability losses fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss company recognize within selling general administrative expenses liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized company recognizes legal related professional expenses within selling general administrative expenses associated course action committed reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement discussed note 18 notes consolidated financial statements company subject us securities exchange commission “sec” us department justice united kingdom serious fraud office investigations respect offp fcpa addition 2005 made voluntary disclosure possible violations cuban assets control regulations us office foreign assets control regarding transactions activities engaged cuba certain nonus subsidiaries management believes time still able predict certainty us united kingdom governments calculate number possible violations laws regulations may occurred nature amount penalties could subject uncertainties associated ultimate outcome investigations costs company responding participating assurance given ultimate costs sanctions may imposed upon us material adverse impact results operations financial position cash flows environmental liabilities remediation provisions december 31 2009 amounted 261 million relate principally united kingdom site company records environmental liabilities probable costs estimated reasonably company anticipate program work required associated future costs comply environmental legislation relevant countries company views costs vacating main united kingdom site contingent liability present intention exit site company determined due uncertain product life tel particularly market aviation gasoline exists uncertainty timing cash flows possible estimate flows sufficiently reliably recognize provision goodwill company reviews goodwill annually impairment years events occur circumstances change suggest impairment may occurred company elected perform annual tests respect fuel specialties active chemicals goodwill december 31 year reviewing impairment charge fair value reporting units underlying segments estimated using tax cash flow methodology based management’s best available estimates time key assumptions underpinning calculations include future revenue growth gross margins company’s weighted average cost capital december 31 2009 1392 million goodwill relating fuel specialties active chemicals businesses date performed annual impairment reviews concluded impairment goodwill respect reporting segments light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash flows derived octane additives business reduced accordingly fair value octane additives reporting unit reduced result company determined quarterly impairment reviews performed january 1 2004 impairment charge arising recognized relevant quarter result octane additives impairment reviews performed 2009 2008 2007 impairment charges 22 million 37 million 121 million respectively recognized charges noncash nature impact taxation 68 million goodwill remaining december 31 2009 relates octane additives business given quantum predictability remaining future cash flows octane additives business company expects goodwill impairment charges recognized income statement approximate straightline basis december 31 2012 effective october 1 2008 company extended estimate future life octane additives business december 31 2010 december 31 2012 believe assumptions used annual quarterly impairment reviews reasonable judgmental variations assumptions may result materially different calculations impairment charges intangible assets net amortization december 31 2009 237 million intangibles discussed note 9 notes consolidated financial statements intangible assets relate business segments amortized straightline periods 13 years continually assess markets products related intangibles well specific carrying values concluded carrying values amortization periods remain appropriate also evaluate intangibles potential impairment events occur circumstances change suggest impairment may occurred events occur circumstances change may possibly cause reduction periods intangibles amortized result noncash impairment portion intangibles’ carrying value reduction amortization periods would effect cash flows pensions company’s principal pension arrangement contributory defined benefit pension plan “plan” covering number current former employees united kingdom though also much smaller pension arrangements us overseas plan closed new entrants without trustee discretion large number deferred current pensioners december 31 2009 underlying plan asset value projected benefit obligation “pbo” 6718 million 7960 million respectively resulting deficit 1242 million movements underlying plan asset value pbo dependent actual return investments pay awards well assumptions respect discount rate annual member mortality rates future return assets future pay escalation future pension increases future inflation change one assumptions could impact plan asset value pbo pension cost recognized income statement changes could adversely impact results operations financial position 025 change either discount rate assumption level price inflation assumption would change pbo approximately 26 million net pension charge 2010 approximately 18 million disclosure provided note 6 notes consolidated financial statements deferred tax asset valuation allowance uncertain income tax positions december 31 2009 valuation allowance aggregating 44 million foreign tax credit carry forwards deferred tax asset valuation allowance requires assessment negative positive evidence measuring need valuation allowance objective evidence operating results recent periods given weight expectations future profitability inherently uncertain view uncertainties around whether foreign tax credits carry forwards utilized future periods represents sufficient negative evidence require valuation allowance intend maintain valuation allowance sufficient positive evidence exists support realization asset calculation tax liabilities involves evaluating uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavorable tax settlement may require cash payments result increase effective tax rate year resolution favorable tax settlement may recognized reduction effective tax rate year resolution report interest penalties related uncertain income tax positions income taxes additional information regarding uncertain income tax positions see note 7 notes consolidated financial statements results operations results operations fiscal 2009 compared fiscal 2008 following table providing operating income reporting business also provides comparative results operations 2008 2007 fuel specialties net sales year decrease 4 spread across markets operate follows americas 1 emea 3 aspac 3 avtel 26 reduction revenue due lower selling prices product mix 2 percentage points unfavorable impact exchange rates 1 percentage point together reduced volumes focused noncore avtel business 1 percentage point • americas benefited higher volumes 1 percentage point offset poorer price product mix 2 percentage points revenue decrease result passing raw material cost decreases customers • europe middle east africa “emea” net sales unfavorably impacted weaker price product mix 4 percentage points due passing raw material cost reductions unfavorable impact exchange rates 2 percentage points offset increased volumes 3 percentage points • asiapacific region “aspac” revenues fell due poorer price product mix 3 percentage points • tel use aviation gasoline “avtel” saw unit volumes decline 31 percentage points primarily due timing shipments offset richer price product mix 5 percentage points gross margin year increase 18 percentage points primarily reflects continued declines raw material costs ability hold prices relatively firm offset lower proportion higher margin avtel sales operating expenses operating expenses held firm favorable impact exchange rates european cost base denominated european union euro british pound sterling offset increased research development expenses personnelrelated costs active chemicals net sales year decline 6 spread across markets operate follows americas 8 emea 9 aspac 23 decline revenues due unfavorable impact exchange rates 8 percentage points lower volumes 3 percentage points offset improved pricing product mix 5 percentage points • americas experienced fall due volumes 16 percentage points unfavorable impact exchange rates 5 percentage points partially offset improvement pricing product mix 13 percentage points volume reduction caused lower sales custom manufacturing exited low volume low margin business market • emea experienced fall due unfavorable impact exchange rates 10 percentage points weaker pricing product mix 1 percentage point offset higher volumes 2 percentage points impact exchange rates due large proportion sales european union euro british pound sterling denominated • aspac business growth year driven volumes 23 percentage points richer price product mix 9 percentage points offset unfavorable impact exchange rates 9 percentage points gross margin year increase 116 percentage points reflects impact improved pricing shift away lowermargin sales favorable impact raw material cost reductions better utilization manufacturing efficiencies plants operating expenses year increase 3 due costs incurred complying reach european union octane additives net sales net sales declined 26 due lower volumes 23 percentage points together slightly weaker sales mix 3 percentage points 2009 2008 sales focused middle east africa gross margin year decrease gross margin 126 percentage points primarily reflects lower tel production volumes fixed cost base ellesmere port united kingdom manufacturing site operating expenses increased 356 million 234 million 590 million excluding impact 402 million accrual anticipated settlement offp fcpa investigations impact legal professional expenses 129 million 155 million 2009 2008 respectively relating investigations year decrease operating expenses 20 million 25 primarily respect reduced selling costs income statement captions pension charge noncash pension charge increased 41 million 64 million despite decrease underlying current service cost increased charge primarily reflects lower expected future return plan assets corporate costs corporate costs fell 116 million due 24 million gain stock options forfeited upon resignation company’s former ceo 25 million prior years’ united kingdom sales tax settlement 2009 39 million advisory financing costs expensed 2008 relation two large potential acquisitions company decided pursue remaining reductions relate favorable impact exchange rates predominantly british pound sterling cost base tandem tight cost controls restructuring charge restructuring costs comprised following amortization intangible assets amortization charge declined 27 million 74 million 47 million due reduction amortization charge related agreements ethyl corporation reduction result extension estimated future life octane additives business 63 million reduction intangible assets recognized 2008 contract related provisions longer deemed necessary impairment octane additives business goodwill 2009 charge lower recognized 2008 primarily due higher operating income associated cash flows 2008 effective october 1 2008 updated estimates used detailed forecast model calculate impairment charges reflect company’s extended estimate future life octane additives business december 31 2010 december 31 2012 profit disposal may 2008 company recognized 04 million profit following disposal surplus us real estate interest expense net interest expense increased 06 million 60 million 2009 reflecting accelerated writeoff 02 million unamortized deferred finance costs previous finance facility increase deferred finance costs amortization charge following february 2009 refinancing lower returns company’s cash balances weaker investment market offset lower interest expense finance facility interest expense finance facility benefited us base interest rates gross debt declining comparative periods net incomeexpense net income 36 million 2009 related 35m net foreign exchange gains 01m net sundry income 2008 net expense 193 million related net foreign exchange losses 190 million net sundry expenses 03 million income taxes tax relief available charge impairment octane additives business goodwill may available anticipated settlement respect offp fcpa investigations year’s income tax also impacted adjustment income tax provisions result settlement certain united kingdom tax positions accordingly believe change effective rate tax 650 2009 333 2008 best explained adjusting charges adjusted effective tax rate decreased 45 percentage points comparative periods primarily due positive impact taxable profits different geographical locations details given note 7 notes consolidated financial statements results operations fiscal 2008 compared fiscal 2007 fuel specialties net sales year increase 18 spread across markets operate follows americas 18 emea 18 aspac 23 avtel 9 growth due volume 10 percentage points price product mix 7 percentage points favorable impact exchange rates 1 percentage point • americas delivered strong sales static dissipaters lubricity improvers cetane number improvers growth focused volume 10 percentage points richer price product mix 8 percentage points • emea net sales increased 18 driven strong sales performance refinery light heating oil additives growth focused volume 9 percentage points price product mix 6 percentage points favorable impact exchange rates 3 percentage points • aspac benefited strong sales refinery additives diesel detergents growth focused volume 22 percentage points price product mix 1 percentage point • avtel business growth primarily due richer sales mix 11 percentage points offset lower volume 2 percentage points results corresponding period 2007 positively impacted favorable pricing allowed volumes sold ethyl settlement gross margin year decline 03 percentage points reflects lower proportion higher margin avtel sales together adverse impact lower tel production volumes fixed cost base manufacturing site ellesmere port united kingdom gross margins remainder markets remained largely constant successfully passed raw material cost increases onto customers operating expenses increased 43 million 590 million 633 million excluding impact 19 million onetime professional fees 2007 year increase operating expenses 62 million 11 underlying 11 increase less 18 sales growth continued leverage infrastructure business achieved despite adverse impact latter months 2008 relative weakness us dollar european union euro denominated cost base higher personnelrelated costs addition research development expenses driven higher support expanding business increasing 16 million 15 corresponding periods active chemicals net sales year increase 3 spread across markets operate follows americas 5 emea 1 aspac 28 growth due volume 2 percentage points favorable impact exchange rates 2 percentage points offset price product mix 1 percentage point • americas delivered strong sales fragrance ingredients personal care products growth focused volume 11 percentage points offset poorer price product mix 4 percentage points unfavorable impact exchange rates 2 percentage points • emea sales declined marginally despite favorable impact exchange rates 5 percentage points richer price product mix 2 percentage points offset lower volume 8 percentage points strong personal care polymer product sales offset lower household industrial institutional product sales • aspac business represented less 10 overall active chemicals business reflecting early stage development notwithstanding sales benefited higher volumes 25 percentage points fragrance ingredients personal care polymers products increase assisted favorable impact exchange rates 1 percentage point richer price product mix 2 percentage points gross margin year decline 94 percentage points reflected price product mix primarily respect greater proportion 2008 lower margin polymer sales significant increase raw material energy costs suffered across markets operate adverse impact lower utilization manufacturing efficiencies us united kingdom plants operating expenses year decrease operating expenses 10 million 6 decrease achieved despite 3 sales growth primarily due lower personnelrelated costs octane additives net sales net sales volumes declined 35 line historic decline business decline reflected marginally poorer sales mix despite moderate price increases 2008 2007 sales focused middle east africa gross margin year decrease gross margin 50 percentage points following settlement regarding sales marketing agreements “tmas” sell tel effective april 1 2007 profit share ethyl business charged within cost goods sold ceased cessation tmas moderate price increases achieved 2008 favorably impacted gross margin limited adverse impact marginally poorer sales mix lower tel production volumes fixed cost base manufacturing site ellesmere port united kingdom operating expenses increased 86 million 148 million 234 million excluding impact legal professional expenses 155 million 46 million 2008 2007 respectively relating offp fcpa investigations year decrease operating expenses 23 million 23 primarily respect reduced selling costs income statement captions pension charge noncash charge reduced 23 million unlike 2007 amortization net actuarial losses required corporate costs year corporate costs increased 29 million due expensing 39 million advisory financing costs related two large potential acquisitions company pursue offset extent latter months 2008 favorable impact relative strength us dollar predominantly british pound sterling cost base restructuring charge restructuring costs comprised following amortization intangible assets amortization charge declined net 95 million 169 million 74 million reduction 100 million due absence veritel intangible asset amortization charge 2008 since fully amortized december 31 2007 reduction offset 05 million increase amortization costs related ethyl intangible asset effective april 1 2007 impairment octane additives business goodwill 2008 charge lower recognized 2007 primarily due higher operating income associated cash flows 2007 effective october 1 2008 updated estimates used detailed forecast model calculate impairment charges reflect company’s extended estimate future life octane additives business december 31 2010 december 31 2012 profit disposal may 2008 company recognized 04 million profit following disposal surplus us real estate interest expense net interest charge decreased 16 million 2008 54 million despite fact average net debt increased approximately 4 million corresponding periods 67 million 71 million decrease primarily reflected fact us base interest rates declined corresponding periods 06 million reduction deferred finance costs amortization charge net incomeexpense 2008 net expense 193 million related net foreign exchange losses 190 million net sundry expenses 03 million net foreign exchange losses related losses foreign currency forward exchange contracts losses translation net assets european business 127 million 63 million respectively 2007 net income comprised 75 million respect net foreign exchange gains offset 06 million sundry expenses net foreign exchange gains related losses foreign currency forward exchange contracts gains translation net assets european business 07 million 82 million respectively income taxes tax relief available charge impairment octane additives business goodwill accordingly believed change effective rate tax 333 2008 382 2007 best explained adjusting nondeductible charge adjusted effective tax rate decreased 25 percentage points corresponding periods primarily due positive impact taxable profits different geographical locations partially offset foreign income inclusions liquidity financial condition working capital 2009 adjusted working capital decreased 712 million defined company accounts receivable inventories prepaid expenses accounts payable accrued liabilities rather total current assets less total current liabilities 529 million increase accounts payable accrued liabilities primarily due 402 million accrual anticipated settlement offp fcpa investigations 06 million decrease accounts receivable prepaid expenses due timing shipments octane additives offset substantially increased fourth quarter trading active chemicals business 177 million decrease inventories focused octane additives fuel specialties businesses managed production levels meet fluctuations demand cash december 31 2009 2008 cash equivalents 686 million 139 million respectively debt february 6 2009 entered new threeyear finance facility provides borrowings us 150 million including term loan 50 million revolving credit facility 100 million revolving credit facility drawn finance facility expires february 6 2012 new finance facility replaced previous finance facility place december 31 2008 company’s finance facility contains restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined finance facility include material adverse change business properties assets financial condition results operations facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition facility also contains terms breached would result loan becoming repayable demand requires among matters compliance two financial covenant ratios requirements 1 ratio net debt ebitda shall greater 251 2 ratio ebitda net interest shall less 401 ebitda non us gaap measure liquidity defined finance facility management believes company breached covenants throughout period december 31 2009 expects breach covenants next 12 months finance facility secured number fixed floating charges certain assets company subsidiaries december 31 2009 company 510 million debt outstanding finance facility compliance financial covenants therein debt maturity profile december 31 2009 including finance facility set outlook december 31 2009 company cash equivalents 686 million debt 510 million resulting net cash 176 million continue expect position reverse net debt increase significantly future quarters based need build working capital recent low levels accelerate spending research development increase capital expenditures pension contributions fund recent united kingdom tax settlement begin making cash payments reach final settlement offp fcpa investigations accordingly focus continues generating preserving cash company expects fund operations least next 12 months combination operating cash flows existing finance facility finance facility ability draw 100 million revolving credit facility 1 million drawn december 31 2009 long compliance financial covenants therein pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend contractual commitments following represents contractual commitments december 31 2009 effect obligations future cash flows operating activities amounts related pension plan refer likely levels company funding united kingdom contributory defined benefit pension plan “plan” certain pension commitments senior employees meaningful predict amount five years since numerous uncertainties including future return assets pay escalation pension increases inflation employment levels company announced closure plan future service accrual effect march 31 2010 accordingly anticipate curtailment charge approximately 10 million recognized 2010 company negotiations trustees fund plan deficit number years currently expects annual cash contribution 2010 increase approximately 20 million remediation payments represent cash flows company currently obligated pay respect current former facilities include discretionary remediation costs company may choose incur severance payments represent cash flows company currently obligated pay respect severance costs associated exit disposal activities post employment benefits operating lease commitments relate primarily office space motor vehicles items office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts entered company stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty company uses interest rate swaps hedge risk variable interest rates certain elements longterm debt estimated payments included table reflect payments variable element facility mark market valuations interest rate swaps estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 7 notes consolidated financial statements financing activities february 6 2009 entered new threeyear finance facility provides borrowings us 150 million including term loan 50 million revolving credit facility 100 million revolving credit facility drawn finance facility expires february 6 2012 term loan repayable follows 10 million due february 5 2010 15 million february 7 2011 25 million february 6 2012 december 31 2009 longterm debt comprised 50 million term loan 1 million drawn revolving credit facility company historically paid semiannual dividend dividends subject approval board directors accordingly amounts included preceding table authorization occurred investing activities capital commitments relate certain capital projects company committed undertake environmental matters plant closures company subject environmental laws countries operates certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us therefore liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws full provision made committed costs 261 million december 31 2009 expenditure provisions 15 million 16 million 17 million years 2009 2008 2007 respectively also incurred personnel severance costs relation management decline octane additives market restructuring fuel specialties active chemicals businesses total severance expenditure 21 million 16 million 20 million years 2009 2008 2007 respectively item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto general divide business three distinct segments management reporting purposes fuel specialties active chemicals octane additives fuel specialties active chemicals businesses operate markets actively seek growth opportunities octane additives business characterized declining demand fuel specialties business develops manufactures blends markets range specialty chemical products used additives wide range fuels business grew initially program acquisitions recently organically development new products increases sales profitability active chemicals business provides effective technologybased solutions customers’ processes products focused personal care household industrial institutional fragrance ingredients markets business also grown acquisitions recently development marketing innovative products personal care fragrance industries octane additives business world’s producer tetra ethyl lead “tel” use automotive gasoline trading respect environmental remediation business continuing manage decrease sales tel use automotive gasoline maximize cash flow decline continuous cost improvement measures continue taken respond declining market demand year ended december 31 2010 combined operating income fuel specialties active chemicals segments business grown average 28 per annum compared year ended december 31 2005 drives operating income generated businesses comparison operating income octane additives segment declined 692 million 258 million period octane additives segment business continue decline last remaining countries continue allow tel use automotive gasoline move away leaded gasoline expect cease sales tel use automotive gasoline 2012 continue impair octane additives business goodwill prior point however succeeded implementing strategic plan creating sufficient growth fuel specialties active chemicals segments business offset decline octane additives business use variety raw materials chemicals manufacturing blending processes believe sources adequate current operations raw materials account substantial portion variable manufacturing costs materials exception ethylene germany readily available one source use longterm contracts generally fixed costs formula based costs help ensure availability continuity supply manage risk cost increases raw materials risk cost increases managed commodity swaps nevertheless raw materials subject cost fluctuations may exposed risk costs raw materials increase result factors within control subject extensive regulation local state federal foreign government authorities respect methods manufacture market products conduct business regard exposed risks may incur liabilities costs order conform required regulations event fail comply laws regulations critical accounting estimates objective clearly present financial information manner enhances understanding sources earnings cash flows together financial position aim achieve disclosing information required sec together information provides insight businesses management’s discussion analysis financial condition results operations discusses innospec’s consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation consolidated financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period management evaluates ongoing basis estimates judgments management bases estimates judgments historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation consolidated financial statements consolidated financial statements supplementary data disclose accounting principles methods estimates used preparation consolidated financial statements believe statements disclosures represent fairly results operations financial position cash flows company purpose portion report emphasize critical areas significant change facts circumstances operating financial environment could cause change results operations financial position policies estimates company considers critical terms subjectivity judgment assessment provided contingencies subject legal regulatory proceedings claims company discloses information concerning contingent liabilities respect claims proceedings unfavorable outcome remote potential loss could materially impact results operations financial position cash flows recognize liabilities claims proceedings probable company incurred loss amount loss reasonably estimated fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss company recognize within selling general administrative expenses liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized company recognizes legal related professional expenses within selling general administrative expenses associated course action committed reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement environmental liabilities remediation provisions december 31 2010 amounted 259 million relate principally ellesmere port site company records environmental liabilities probable costs estimated reasonably company anticipate program work required associated future expected costs comply environmental legislation relevant countries company views costs vacating ellesmere port site contingent liability present intention exit site company determined due uncertain product life tel particularly market aviation gasoline exists uncertainty timing cash flows possible estimate sufficiently reliably recognize provision goodwill company tests goodwill annually impairment years events occur circumstances change suggest impairment may occurred company elected perform annual tests respect fuel specialties active chemicals goodwill december 31 year reviewing impairment charge fair value reporting units underlying segments estimated using tax cash flow methodology based management’s best available estimates time key assumptions underpinning calculations include future revenue growth gross margins company’s weighted average cost capital december 31 2010 1089 million 301 million goodwill relating fuel specialties active chemicals businesses respectively date performed annual impairment tests concluded impairment goodwill respect reporting segments light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash flows derived octane additives business reduced accordingly fair value octane additives reporting unit reduced result company determined quarterly impairment tests performed january 1 2004 impairment charge arising recognized relevant quarter result octane additives impairment tests performed 2010 2009 2008 impairment charges 22 million 22 million 37 million respectively recognized charges noncash nature impact taxation 46 million goodwill remaining december 31 2010 relates octane additives business given quantum predictability remaining future cash flows octane additives business company expects goodwill impairment charges recognized income statement approximate straightline basis december 31 2012 believe assumptions used annual quarterly impairment tests reasonable judgmental variations assumptions may result materially different calculations impairment charges intangible assets net amortization december 31 2010 190 million intangibles discussed note 9 notes consolidated financial statements intangible assets relate business segments amortized straightline periods 13 years continually assess markets products related intangibles well specific carrying values concluded carrying values amortization periods remain appropriate also evaluate intangibles potential impairment events occur circumstances change suggest impairment may occurred events occur circumstances change may possibly cause reduction periods intangibles amortized result noncash impairment portion intangibles’ carrying value reduction amortization periods would effect cash flows pensions company maintains contributory defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners full triennial actuarial valuation plan performed december 31 2008 update performed december 31 2010 results reflected consolidated financial statements december 31 2010 underlying plan asset value projected benefit obligation “pbo” 6723 million 6840 million respectively resulting deficit 117 million movements underlying plan asset value pbo dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future pension increases future inflation change one assumptions could impact plan asset value pbo pension cost recognized income statement changes could adversely impact results operations financial position 025 change either discount rate assumption level price inflation assumption would change pbo approximately 25 million net pension charge 2011 approximately 11 million disclosure provided note 6 notes consolidated financial statements deferred tax asset valuation allowance uncertain income tax positions december 31 2010 valuation allowance aggregating 108 million part foreign tax credit carry forwards within deferred tax valuation allowance requires assessment negative positive evidence measuring need valuation allowance objective evidence operating results recent periods given weight expectations future profitability inherently uncertain view uncertainties around whether foreign tax credits carry forwards utilized future periods represents sufficient negative evidence require partial valuation allowance calculation tax liabilities involves evaluating uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavorable tax settlement may require cash payments result increase effective tax rate year resolution favorable tax settlement may recognized reduction effective tax rate year resolution report interest penalties related uncertain income tax positions income taxes additional information regarding uncertain income tax positions see note 7 notes consolidated financial statements results operations results operations fiscal 2010 compared fiscal 2009 following table provides operating income reporting business also comparative results operations 2009 2008 fuel specialties net sales table details components comprise year change net sales spread across markets operate gross margin year decrease 27 percentage points primarily reflects competitive pressure margins raw material costs increased 2010 partially offset impact higher margins within avtel business increased tel production volumes fixed cost base tel manufacturing site operating expenses year increase 6 less 8 growth sales continued leverage infrastructure business addition 3 higher research development expenses support developing business increased legal professional expenses active chemicals net sales table details components comprise year change net sales spread across markets operate gross margin year increase 17 percentage points reflects improved performance personal care polymers businesses suffered poor demand 2009 despite competitive pressures margins raw material costs increased 2010 operating expenses year reduction 4 06 million achieved despite 17 sales growth 28 increase research development expenses support developing business primarily due favorable impact exchange rates european cost base tight cost control octane additives net sales increased 59 due increased volumes 45 percentage points result timing shipments major customers improved sales mix 14 percentage points 2010 2009 sales focused middle east northern africa gross margin year increase 161 percentage points primarily reflects increased tel production volumes fixed cost base tel manufacturing site operating expenses excluding impact 129 million offp fcpa legal professional expenses 402 million accrual offp fcpa settlement 2009 30 million adjustment related settlement accrual 2010 year increase operating expenses 62 million due increased selling costs higher legal professional expenses income statement captions pension charge noncash charge increased 44 million 108 million primarily reflecting requirement 2010 amortize actuarial net losses offset near elimination service cost since company closed pension plan future service accrual effect march 31 2010 corporate costs increased 130 million due 39 million charge first quarter 2010 probable future independent corporate compliance monitor expenses next three years 2009 corporate costs included 24 million gain stock options forfeited upon resignation company’s former ceo 25 million benefit prior years’ united kingdom sales tax settlement excluding items corporate costs 224 million compared 182 million year ago reflecting higher personnelrelated costs including retention bonuses increased cost alternative pension arrangements following closure pension plan future service accrual effect march 31 2010 restructuring charge restructuring costs comprised following company closed defined benefit pension plan future service accrual effect march 31 2010 accordingly recorded noncash curtailment loss 82 million first quarter amortization intangible assets 47 million 2010 2009 impairment octane additives business goodwill 22 million 2010 2009 profit disposal net 2010 company recognized 01 million profit following disposal surplus real estate interest expense net decreased 60 million 46 million due lower level debt 2010 accelerated writeoff 02 million unamortized deferred finance costs 2009 net income 31 million 2010 related net foreign exchange gains 2009 net income 36 million related 35 million net foreign exchange gains 01 million sundry income taxes effective tax rate adjusted offp fcpa settlement accrual adjustment income tax provisions 136 compared 243 2009 decrease 107 percentage points primarily due positive impact taxable profits different geographical locations addition revised assumption 2010 element offp fcpa settlement accruals tax deductible well 11 million net deferred tax credit third quarter 2010 primarily respect pension plan unrecognized actuarial net losses following united kingdom’s 1 reduction corporation tax rate 28 27 april 2011 enacted july 2010 details given note 7 notes consolidated financial statements results operations fiscal 2009 compared fiscal 2008 fuel specialties net sales table details components comprise year change net sales spread across markets operate gross margin year increase 18 percentage points primarily reflects continued declines raw material costs ability hold prices relatively firm offset lower proportion higher margin avtel sales operating expenses operating expenses held firm favorable impact exchange rates european cost base denominated european union euro british pound sterling offset increased research development expenses personnelrelated costs active chemicals net sales table details components comprise year change net sales spread across markets operate gross margin year increase 116 percentage points reflects impact improved pricing shift away lowermargin sales favorable impact raw material cost reductions better utilization manufacturing efficiencies plants operating expenses year increase 3 due costs incurred complying reach european union octane additives net sales declined 26 due lower volumes 23 percentage points together slightly weaker sales mix 3 percentage points 2009 2008 sales focused middle east northern africa gross margin year decrease gross margin 126 percentage points primarily reflects lower tel production volumes fixed cost base ellesmere port manufacturing site operating expenses increased 356 million 234 million 590 million excluding impact 402 million accrual settlement offp fcpa investigations impact legal professional expenses 129 million 155 million 2009 2008 respectively relating investigations year decrease operating expenses 20 million 25 primarily respect reduced selling costs income statement captions pension charge noncash charge increased 41 million 64 million despite decrease underlying current service cost increased charge primarily reflects lower expected future return plan assets corporate costs fell 116 million due 24 million gain stock options forfeited upon resignation company’s former ceo 25 million prior years’ united kingdom sales tax settlement 2009 39 million advisory financing costs expensed 2008 relation two large potential acquisitions company decided pursue remaining reductions relate favorable impact exchange rates predominantly british pound sterling cost base tandem tight cost controls restructuring charge restructuring costs comprised following amortization intangible assets declined 27 million 74 million 47 million due reduction amortization charge related agreements ethyl corporation reduction result extension estimated future life octane additives business 63 million reduction intangible assets recognized 2008 contract related provisions longer deemed necessary impairment octane additives business goodwill 2009 charge lower recognized 2008 primarily due higher operating income associated cash flows 2008 effective october 1 2008 updated estimates used detailed forecast model calculate impairment charges reflect company’s extended estimate future life octane additives business december 31 2010 december 31 2012 profit disposal may 2008 company recognized 04 million profit following disposal surplus us real estate interest expense net increased 06 million 60 million 2009 reflecting accelerated writeoff 02 million unamortized deferred finance costs previous finance facility increase deferred finance costs amortization charge following february 2009 refinancing lower returns company’s cash balances weaker investment market offset lower interest expense finance facility interest expense finance facility benefited us base interest rates gross debt declining comparative periods net incomeexpense net income 36 million 2009 related 35m net foreign currency exchange gains 01m net sundry income 2008 net expense 193 million related net foreign currency exchange losses 190 million net sundry expenses 03 million income taxes 2009 assumed none offp fcpa settlement accrual would tax deductible addition income taxes also impacted adjustment income tax provisions result settlement certain united kingdom tax positions accordingly believe change effective rate tax 650 2009 333 2008 best explained adjusting adjusted effective tax rate decreased 90 percentage points comparative periods primarily due positive impact taxable profits different geographical locations liquidity financial condition working capital 2010 adjusted working capital increased 193 million defined company accounts receivable inventories prepaid expenses accounts payable accrued liabilities rather total current assets less total current liabilities 230 million decrease accounts payable accrued liabilities primarily reflects 136 million reclassification longterm accrued liabilities following settlement offp fcpa investigations payments made government authorities 2010 aggregating 192 million 54 million decrease accounts receivable prepaid expenses due timing shipments octane additives business offset increased fourth quarter trading fuel specialties active chemicals businesses 17 million increase inventories focused active chemicals fuel specialties businesses balanced production levels octane additives meet fluctuations demand cash december 31 2010 2009 cash equivalents 1071 million 686 million respectively shortterm investments december 31 2010 2009 shortterm investments 42 million nil respectively debt february 6 2009 entered threeyear finance facility provides borrowings us 150 million including term loan 50 million revolving credit facility 100 million revolving credit facility drawn finance facility expires february 6 2012 company’s finance facility contains restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined finance facility include material adverse change business properties assets financial condition results operations facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition facility also contains terms breached would result loan becoming repayable demand requires among matters compliance two financial covenant ratios measured quarterly basis requirements 1 ratio net debt ebitda shall greater 251 2 ratio ebitda net interest shall less 401 ebitda nongaap measure liquidity defined finance facility management believes company breached covenants throughout period december 31 2010 expects breach covenants next 12 months finance facility secured number fixed floating charges certain assets company subsidiaries december 31 2010 company 470 million debt outstanding finance facility compliance financial covenants therein debt maturity profile december 31 2010 including finance facility set outlook december 31 2010 company cash equivalents shortterm investments 1113 million debt 470 million resulting net cash 643 million expect net cash remain stable future quarters despite need build working capital recent low levels accelerate spending research development increase capital expenditures continue making cash payments following settlement offp fcpa investigations accordingly focus continues generating preserving cash company expects fund operations least next 12 months combination operating cash flows existing finance facility finance facility ability draw 100 million revolving credit facility 70 million drawn december 31 2010 long compliance financial covenants therein pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend contractual commitments following represents contractual commitments december 31 2010 effect obligations future cash flows operating activities amounts related pension plan refer likely levels company funding united kingdom contributory defined benefit pension plan “plan” plan closed future service accrual large number deferred current pensioners company expects annual cash contribution 91 million 201112 108 million 201315 meaningful predict amount five years since numerous uncertainties including future return assets pension increases inflation employment levels remediation payments represent cash flows company currently obligated pay respect current former facilities include discretionary remediation costs company may choose incur severance payments represent cash flows company currently obligated pay respect severance costs associated exit disposal activities post employment benefits operating lease commitments relate primarily office space motor vehicles various items computer office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts entered company stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty company uses interest rate swaps hedge risk variable interest rates certain elements longterm debt estimated payments included table reflect variable interest charge longterm debt obligations effect interest rate swaps estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 7 notes consolidated financial statements financing activities february 6 2009 entered threeyear finance facility provides borrowings us 150 million including term loan 50 million revolving credit facility 100 million revolving credit facility drawn finance facility expires february 6 2012 term loan repayments follows 10 million paid february 5 2010 15 million paid february 7 2011 25 million due february 6 2012 december 31 2010 longterm debt comprised 40 million term loan 7 million drawn revolving credit facility investing activities capital commitments relate certain capital projects company committed undertake environmental matters plant closures company subject environmental laws countries operates certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us therefore liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws full provision made committed costs 259 million december 31 2010 expenditure provisions 27 million 15 million 16 million years 2010 2009 2008 respectively also incurred personnel severance costs relation management decline octane additives market restructuring fuel specialties active chemicals businesses total severance expenditure 04 million 21 million 16 million years 2010 2009 2008 respectively item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto critical accounting estimates note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation consolidated financial statements contingencies subject legal regulatory proceedings claims company discloses information concerning contingent liabilities respect claims proceedings unfavorable outcome remote potential loss could materially impact results operations financial position cash flows recognize liabilities claims proceedings probable company incurred loss amount loss reasonably estimated fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss company recognize within selling general administrative expenses liability related claims proceedings time unfavorable outcome becomes probable amount reasonably estimated reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized company recognizes legal related professional expenses within selling general administrative expenses associated course action committed reevaluate assessments quarter new significant information becomes available determine whether liability recognized existing liability adjusted actual cost ultimately resolving claim proceeding may substantially different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement environmental liabilities remediation provisions december 31 2011 amounted 271 million relate principally ellesmere port site united kingdom recognize fair value environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation relevant countries operates operated company views costs vacating ellesmere port site contingent liability present intention exit site company determined due uncertain product life tel particularly market aviation gasoline exists uncertainty probability timing cash flows possible estimate sufficiently reliably recognize provision pensions company maintains defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners full triennial actuarial valuation plan performed december 31 2008 update performed december 31 2011 results reflected consolidated financial statements movements underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future pension increases future inflation change one assumptions could impact plan asset value pbo pension charge recognized income statement changes could adversely impact results operations financial position 025 change discount rate assumption would change pbo approximately 20 million net pension charge 2012 approximately 05 million 025 change level price inflation assumption would change pbo approximately 16 million net pension charge 2012 approximately 19 million disclosure provided note 6 notes consolidated financial statements deferred tax uncertain income tax positions december 31 2011 valuation allowance aggregating 75 million part foreign tax credit carry forwards within deferred tax valuation allowance requires assessment negative positive evidence measuring need valuation allowance objective evidence operating results recent periods given weight expectations future profitability inherently uncertain management believes uncertainties around whether foreign tax credit carry forwards utilized future periods represents sufficient negative evidence require partial valuation allowance deferred taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered permanent duration calculation tax liabilities involves evaluating uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained based technical merits challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavorable tax settlement may require cash payments result increase effective tax rate year resolution favorable tax settlement may recognized reduction effective tax rate year resolution report interest penalties related uncertain income tax positions income taxes additional information regarding uncertain income tax positions see note 7 notes consolidated financial statements goodwill company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties active chemicals octane additives components segment including products markets competitors similar economic characteristics therefore segments reflect lowest level operations cash flows clearly distinguished operationally financial reporting purposes rest company tests goodwill annually impairment years events occur circumstances change suggest impairment may occurred company elected perform annual tests respect fuel specialties active chemicals goodwill december 31 year reviewing impairment charge fair value reporting segments estimated using tax cash flow methodology based management’s best available estimates time key assumptions underpinning calculations include future revenue growth gross margins company’s weighted average cost capital december 31 2011 1088 million 301 million goodwill relating fuel specialties active chemicals segments respectively date performed annual impairment tests concluded impairment estimated fair values reporting segments substantially exceeded carrying values light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash flows derived octane additives segment reduced accordingly fair value octane additives segment reduced result company determined quarterly impairment tests performed january 1 2004 impairment charge arising recognized relevant quarter result octane additives impairment tests performed 2011 2010 2009 impairment charges 20 million 22 million 22 million respectively recognized charges noncash nature impact taxation 2011 assumptions estimates underpinning octane additives segment discounted cash flows revised part planning processes although methodology unchanged revisions material impact reporting goodwill significant revisions company’s weighted average cost capital changed reflect changing proportion debt equity funding company effective october 1 2011 company extended estimate future life octane additives segment december 31 2012 december 31 2013 26 million goodwill remaining december 31 2011 relates octane additives segment equates fair value goodwill date given quantum predictability remaining future cash flows octane additives segment company expects goodwill impairment charges recognized income statement approximate straightline basis december 31 2013 however since remaining sales octane additives segment concentrated relatively small number customers inherent risk could decline unpredictable volatility severity resulting accelerated impairment octane additives segment goodwill forecast discounted cash flows segment would reduced believe assumptions used annual quarterly impairment tests reasonable judgmental variations assumptions may result materially different calculations impairment charges intangible assets net amortization december 31 2011 177 million intangibles discussed note 9 notes consolidated financial statements intangible assets relate reporting segments amortized straightline periods 13 years continually assess markets products related intangibles well specific carrying values concluded carrying values amortization periods remain appropriate also evaluate intangibles potential impairment events occur circumstances change suggest impairment may occurred events occur circumstances change may cause reduction periods intangibles amortized result noncash impairment portion intangibles’ carrying value reduction amortization periods would effect cash flows results operations following table provides operating income reporting segment results operations fiscal 2011 compared fiscal 2010 fuel specialties net sales table details components comprise year change net sales spread across markets operate gross margin year decrease 32 percentage points primarily reflected higher proportion sales lower margin products competitive pressure margins resulting increased raw material costs operating expenses year decrease 1 07 million primarily due release accrual respect old customer claim first quarter 2011 release offsets increases operating expenses due higher licensing costs adverse impact foreign currency exchange rates european cost base denominated european union euro british pound sterling active chemicals net sales table details components comprise year change net sales spread across markets operate gross margin year increase 11 percentage points reflected continued improvement across markets especially polymers business despite competitive pressures margins resulting increased raw material costs operating expenses year increase 8 14 million less 16 growth sales continued leverage infrastructure segment octane additives net sales increased 5 increased volumes 4 percentage points improved sales mix 3 percentage points offset reduced revenue environmental remediation business 2 percentage points 2011 2010 sales focused middle east northern africa gross margin decreased marginally 03 percentage points 482 479 operating expenses excluding impacts 450 million newmarket corporation civil complaint settlement 2011 30 million adjustment settlement accrual related offp fcpa investigations 2010 year increase 18 million 15 primarily due higher legal professional expenses income statement captions pension charge noncash charge decreased 103 million 05 million reflecting reduction pension liability near elimination service cost since company closed united kingdom defined benefit pension plan future service accrual effect march 31 2010 corporate costs 292 million compared 263 million year ago excluding acquisitionrelated costs 30 million 2011 39 million charge probable cost company’s external compliance monitor 2010 year increase 38 million primarily reflected higher accruals share based compensation expense driven substantial year rise stock price restructuring charge comprised following company closed united kingdom defined benefit pension plan future service accrual effect march 31 2010 accordingly recorded noncash curtailment loss 82 million first quarter 2010 impairment octane additives segment goodwill 20 million 22 million 2011 2010 respectively effective october 1 2011 updated estimates used detailed forecast model calculate impairment charges reflect company’s extended estimate future life octane additives segment december 31 2012 december 31 2013 resulting lower charge profit disposal net 2010 company recognized 01 million profit following disposal surplus real estate net income 63 million comprised 65 million net foreign currency exchange gains translation net assets denominated nonfunctional currencies european businesses 02 million sundry expenses 2010 net income 31 million related net foreign currency exchange gains interest expense net interest expense including amortization deferred finance costs decreased 46 million 33 million due lower level debt 2011 deferred finance costs becoming fully amortized third quarter 2011 income taxes effective tax rate 70 42 2011 2010 respectively effective tax rate adjusted newmarket corporation civil complaint settlement adjustment income tax provisions offp fcpa settlement accrual 158 2011 compared 136 2010 addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2011 company’s income tax expense benefited greater proportion overall profits arising switzerland 2010 primarily reflecting increased sales octane additives segment due timing shipments major customers resulted 89 million benefit switzerland 2010 65 million addition 01 million benefit relation united kingdom 2010 32 million 09 million benefit relation germany 2010 00 million foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2011 amount subpart f income associated section 78 gross amounted 30 million 2010 21 million income earned certain overseas subsidiaries taxable us tax regime reduced 20 million 29 million 2010 addition dividend overseas subsidiary remitted us increased foreign income inclusions 55 million 2011 2010 00 million foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits 2011 additional 61 million foreign tax credit carry forwards generated primarily due overseas dividend remitted us year increase foreign tax credit carry forwards accompanying extension expiration period allowed recognition 94 million foreign tax credit carry forwards compared 27 million 2010 following united kingdom’s 2 reduction corporation tax rate 27 25 april 2012 enacted july 2011 company benefited net deferred tax credit 25 million third quarter 2011 primarily respect pension plan unrecognized actuarial net losses details given note 7 notes consolidated financial statements results operations fiscal 2010 compared fiscal 2009 fuel specialties net sales table details components comprise year change net sales spread across markets operate gross margin year decrease 27 percentage points primarily reflected competitive pressure margins raw material costs increased 2010 partially offset impact higher margins within avtel business increased tel manufacturing volumes fixed cost base tel manufacturing site operating expenses year increase 6 less 8 growth sales continued leverage infrastructure segment addition 3 higher research development expenses support developing segment increased legal professional expenses active chemicals net sales table details components comprise year change net sales spread across markets operate gross margin year increase 18 percentage points reflected improved performance personal care polymers businesses suffered poor demand 2009 despite competitive pressures margins raw material costs increased 2010 operating expenses year reduction 3 06 million achieved despite 17 sales growth 28 increase research development expenses support developing segment primarily due favorable impact exchange rates european cost base tight cost control octane additives net sales increased 59 due increased volumes 45 percentage points result timing shipments major customers improved sales mix 14 percentage points 2010 2009 sales focused middle east northern africa gross margin year increase 171 percentage points primarily reflected increased tel manufacturing volumes fixed cost base tel manufacturing site operating expenses excluding impact 129 million offp fcpa legal professional expenses 402 million accrual offp fcpa settlement 2009 30 million adjustment related settlement accrual 2010 year increase operating expenses 62 million due increased selling costs higher legal professional expenses income statement captions pension charge noncash charge increased 44 million 108 million primarily reflecting requirement 2010 amortize actuarial net losses offset near elimination service cost since company closed united kingdom defined benefit pension plan future service accrual effect march 31 2010 corporate costs increased 130 million due 39 million charge first quarter 2010 probable future independent corporate compliance monitor expenses next three years 2009 corporate costs included 24 million gain stock options forfeited upon resignation company’s former ceo 25 million benefit prior years’ united kingdom sales tax settlement excluding items corporate costs 224 million compared 182 million year ago reflecting higher personnelrelated costs including retention bonuses increased cost alternative pension arrangements following closure united kingdom defined benefit pension plan future service accrual effect march 31 2010 restructuring charge comprised following company closed united kingdom defined benefit pension plan future service accrual effect march 31 2010 accordingly recorded noncash curtailment loss 82 million first quarter 2010 impairment octane additives segment goodwill 22 million 2010 2009 profit disposal 2010 company recognized 01 million profit following disposal surplus real estate net income 31 million 2010 related net foreign currency exchange gains 2009 net income 36 million related 35 million net foreign currency exchange gains 01 million sundry income interest expense net decreased 60 million 46 million due lower level debt 2010 accelerated writeoff 02 million unamortized deferred finance costs 2009 income taxes effective tax rate 42 650 2010 2009 respectively effective tax rate adjusted offp fcpa settlement accrual adjustment income tax provisions 136 2010 compared 243 2009 addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2010 company’s income tax expense benefited greater proportion overall profits arising switzerland united kingdom 2009 primarily reflecting substantially increased sales octane additives segment due timing shipments major customers resulted 65 million benefit switzerland 2009 12 million 32 million benefit united kingdom 2009 21 million foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2010 amount subpart f income associated section 78 gross amounted 21 million 2009 25 million income 2009 included oneoff recapture subpart f income earlier years relating united kingdom 09 million income isle man 02 million treated subpart f income january 1 2010 onwards income earned certain overseas subsidiaries taxable us tax regime increased 29 million 17 million 2009 foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits principal reason increase foreign tax credits 2010 arises release 27 million valuation allowance surplus foreign tax credits carried forward 2009 earlier years 2010 company benefited revised assumption element offp fcpa settlement accrual tax deductible following united kingdom’s 1 reduction corporation tax rate 28 27 april 2011 enacted july 2010 company benefited net deferred tax credit third quarter 2010 primarily respect pension plan unrecognized actuarial net losses details given note 7 notes consolidated financial statements liquidity financial condition working capital company believes adjusted working capital nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally allocate resources evaluate performance company’s operations 2011 adjusted working capital increased 300 million defined company trade accounts receivable inventories prepaid expenses accounts payable current portion accrued liabilities rather total current assets less total current liabilities 152 million increase trade accounts receivable primarily due increased trading 136 million increase inventories focused fuel specialties active chemicals segments following decision build certain product inventories strategic importance offset reductions octane additives due timing shipments cash december 31 2011 2010 cash equivalents 762 million 1071 million respectively 741 million 1049 million respectively held nonus subsidiaries principally united kingdom company position control whether repatriate foreign earnings need expect make repatriation foreseeable future hence provided future income taxes cash held foreign subsidiaries although continue monitor position shortterm investments december 31 2011 2010 shortterm investments 48 million 42 million respectively debt december 14 2011 entered fiveyear revolving credit facility provides borrowings us 1000 million facility carries interest rate based us libor plus margin 150 225 dependant company’s ratio net debt ebitda nongaap measure liquidity defined finance facility drawn expires december 14 2016 may drawn full us repaid previous finance facility due expire february 6 2012 upon entering new facility company’s finance facility contains restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined finance facility include material adverse change assets operations financial condition facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition facility also contains terms breached would result becoming repayable demand requires among matters compliance two financial covenant ratios measured quarterly basis requirements 1 ratio net debt ebitda shall greater 251 2 ratio ebitda net interest shall less 401 management determined company breached covenants throughout period december 31 2011 expects breach covenants next 12 months finance facility secured number fixed floating charges certain assets include key operating sites company subsidiaries december 31 2011 company 200 million debt outstanding finance facility september 13 2011 company settled newmarket corporation civil complaint settlement agreement included company issuing 150 million promissory note newmarket corporation payable three equal annual installments carrying simple interest 1 per annum first installment due september 10 2012 debt maturity profile december 31 2011 set outlook december 31 2011 company cash equivalents shortterm investments 810 million debt 350 million resulting net cash 460 million company expects fund operations least next 12 months combination operating cash flows new revolving credit facility ability draw 1000 million 200 million drawn december 31 2011 long compliance financial covenants therein contractual commitments following represents contractual commitments december 31 2011 effect obligations future cash flows operating activities following resolution certain government investigations matters details given note 18 notes consolidated financial statements company committed paying fines penalties disgorgements period four years commencing 2010 probable future compliance monitor expenses 2013 amounts related pension plan refer likely levels company funding united kingdom defined benefit pension plan “plan” plan closed future service accrual large number deferred current pensioners company expects annual cash contribution 90 million 2012 107 million 201316 meaningful predict amount five years since numerous uncertainties including future return assets pension increases inflation remediation payments represent cash flows company currently obligated pay respect current former facilities include discretionary remediation costs company may choose incur severance payments represent cash flows company currently obligated pay respect severance costs associated exit disposal activities post employment benefits operating lease commitments relate primarily office space motor vehicles various items computer office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts entered company stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty company uses interest rate swaps hedge risk variable interest rates certain elements longterm debt estimated payments included table reflect variable interest charge longterm debt obligations effect interest rate swaps estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 7 notes consolidated financial statements investing activities capital commitments relate certain capital projects company committed undertake financing activities december 14 2011 entered fiveyear revolving credit facility provides borrowings us 1000 million facility drawn expires december 14 2016 december 31 2011 200 million drawn revolving credit facility september 13 2011 company settled newmarket corporation civil complaint settlement agreement included company issuing 150 million promissory note newmarket corporation payable three equal annual installments carrying simple interest 1 per annum first installment due september 10 2012 environmental matters plant closures company subject environmental laws countries operates certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us therefore liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws full provision made committed costs 271 million december 31 2011 expenditure provisions 31 million 27 million 15 million years 2011 2010 2009 respectively total severance expenditure 07 million 04 million 21 million years 2011 2010 2009 respectively item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto executive overview business performance 2012 background continued weakness european demand due ongoing economic difficulties especially southern european countries demand developed markets continued show slow growth enhanced demand fuel personal care products emerging markets boosted prospects south america asiapacific although global fuel demand relatively weak major weakness gasoline demand developed markets europe north america driven mainly significant improvement vehicle fuel economy diesel demand however stronger supported global commercial fleet demand passenger car demand europe limited new legislation developed markets slow roll sulfur biofuel legislation markets strong demand oil gas sector notably north america provided positive environment nascent oilfield specialties business consumer demand contaminantfree naturalrenewable cosmetic ingredients provides driver new technology personal care economic difficulties european markets driven softer demand polymers business managed investments capital equipment working capital recruitment additional skilled personnel line market factors capital program expenses 2012 included investment new information system platform expect add value business 2014 2012 completed acquisition strata control services inc “strata” help buildout presence oilfield specialties continue seek opportunities area 2013 also made nonbinding offer tpc group later withdrew offer felt could derive sufficient shareholder value deal aborted transaction resulted 21 million charge acquisitionrelated costs fourth quarter also instituted onetime special dividend 200 per share paid december 21 2012 shareholders record december 14 2012 critical accounting estimates note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation consolidated financial statements contingencies subject legal regulatory proceedings claims company discloses information concerning contingent liabilities respect claims proceedings unfavorable outcome remote potential loss could materially impact results operations financial position cash flows recognize within selling general administrative expenses liabilities claims proceedings probable company incurred loss based unfavorable outcome amount loss reasonably estimated endeavor fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available actual cost ultimately resolving claim proceeding may significantly different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement environmental liabilities remediation provisions december 31 2012 amounted 293 million relate principally ellesmere port site united kingdom recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention company determined due uncertain product life tel particularly market aviation gasoline products manufactured site uncertainties probability timing expected costs uncertainties considered estimating provision pensions company maintains defined benefit pension plan covering number current former employees united kingdom company also much smaller pension arrangements us overseas obligations plans material united kingdom plan closed future service accrual large number deferred current pensioners movements underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future inflation change one assumptions could impact plan asset value pbo pension charge recognized income statement changes could adversely impact results operations financial position example 025 change discount rate assumption would change pbo approximately 26 million net pension charge 2013 approximately 08 million 025 change level price inflation assumption would change pbo approximately 23 million net pension charge 2013 approximately 21 million information provided note 9 notes consolidated financial statements deferred tax uncertain income tax positions december 31 2012 valuation allowance required foreign tax credit carry forwards within deferred tax management believes foreign tax credit carry forwards utilized future periods prior expiration deferred taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered permanent duration current intention repatriate past future earnings overseas subsidiaries consider earnings reinvested overseas circumstances change would cause earnings repatriated additional us tax liability could incurred continue monitor position calculation tax liabilities involves evaluating uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained based technical merits challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavorable tax settlement may require cash payments result increase effective tax rate year resolution favorable tax settlement may recognized reduction effective tax rate year resolution report interest penalties related uncertain income tax positions income taxes additional information regarding uncertain income tax positions see note 10 notes consolidated financial statements goodwill company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties performance chemicals octane additives components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows sufficiently distinguished operationally financial reporting purposes rest company tests goodwill annually impairment years events occur circumstances change suggest impairment may occurred company performs annual goodwill tests respect fuel specialties performance chemicals december 31 year reviewing impairment charge fair values reporting segments estimated using aftertax cash flow methodology based management’s best available estimates time key assumptions underpinning calculations include future revenue growth gross margins company’s weighted average cost capital december 31 2012 1176 million 301 million goodwill relating fuel specialties performance chemicals segments respectively annual impairment tests date indicated impairment estimated fair values reporting segments substantially exceeded carrying values light continuing decline octane additives market globally company makes sales octane additives quarter future remaining sales corresponding cash flows derived octane additives segment reduced accordingly fair value octane additives segment also reduced result company determined quarterly impairment tests performed january 1 2004 impairment charge arising recognized relevant quarter result octane additives impairment tests performed 2012 2011 2010 impairment charges 12 million 20 million 22 million respectively recognized charges noncash nature impact taxation 2012 assumptions estimates relating octane additives segment discounted cash flows revised part planning processes although overall methodology unchanged revisions material impact reporting goodwill 13 million goodwill remaining december 31 2012 relates octane additives segment equates fair value goodwill date given amount predictability remaining future cash flows octane additives segment company expects goodwill impairment charges recognized income statement approximate straightline basis december 31 2013 however since remaining sales octane additives segment concentrated around relatively small number customers risk could dramatically decline resulting accelerated impairment octane additives segment goodwill forecast discounted cash flows segment would reduced believe assumptions impairment tests reasonable subjective judgments possible variations assumptions may result materially different calculations impairment charges intangible assets net amortization property plant equipment december 31 2012 686 million intangible assets net amortization 498 million property plant equipment discussed notes 7 5 notes consolidated financial statements respectively longlived assets relate reporting segments amortized depreciated straightline periods 13 years respect intangible assets 25 years respect property plant equipment continually assess markets products related longlived assets well specific carrying values concluded carrying values amortization depreciation periods remain appropriate also test longlived assets potential impairment events occur circumstances change suggest impairment may occurred types events changes circumstances could include limited • introduction new products enhanced features competitors • loss material reduction purchases nonrenewal contract significant customer • prolonged decline business consumer spending • sharp unexpected rise raw material chemical energy costs • new laws regulations inhibiting development manufacture distribution sale products order facilitate testing company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value assets cash flows lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital events occur circumstances change may cause reduction periods longlived assets amortized depreciated result noncash impairment portion carrying value reduction amortization depreciation periods would effect cash flows continuing implementation new companywide information system platform provider well established market implementation phased riskmanaged site deployment follow multistage user acceptance program existing platform providing fallback position internally developed software costs capitalized december 31 2012 101 million 2011 31 million amortization recognized 2012 2011 00 million results operations following table provides operating income reporting segment results operations fiscal 2012 compared fiscal 2011 fuel specialties net sales table details components comprise year change net sales spread across markets operate sales volumes americas aspac declined second year running primarily due lower sales high volume low margin products offset higher sales added value products resulting improved price product mix markets sales volumes price product mix emea continued benefit 2012 new contracts contract amendments entered 2011 partially offset weakening european union euro british pound sterling us dollar avtel volumes declined 24 2012 compared 13 increase 2011 due timing shipments customers opposed change longterm outlook market avtel sales volume decline partially offset improved customer mix gross margin year increase 15 percentage points primarily reflected lower proportion sales lower margin products specifically americas aspac markets continued benefit 2012 new contracts contract amendments entered 2011 many raw materials use derived petrochemicalbased feedstocks costs less volatile due stable crude oil prices experienced 2012 operating expenses year increase 5 35 million primarily due release 37 million accrual respect old customer claim first quarter 2011 recur 2012 increase partially offset 05 million favorable impact foreign currency exchange rates european cost base denominated european union euro british pound sterling performance chemicals net sales table details components comprise year change net sales spread across markets operate overall sales volumes increased segment despite competitive pressures faced markets serve improved sales volumes within personal care market focused americas global fragrance ingredients market partially offset lower volumes due weaker demand polymers market focused emea price product mix substantially unchanged larger americas emea markets benefitted aspac due higher proportion added value products sold 2012 sales markets notably emea suffered weakening european union euro british pound sterling us dollar gross margin year increase 15 percentage points reflected continued improvement demand across markets despite competitive pressures margins exception polymers market weaker demand polymers market resulted lower sales volumes sales prices consequential adverse impact gross margin many raw materials use derived petrochemicalbased feedstocks benefitted fact costs less volatile due stable crude oil prices experienced 2012 operating expenses year increase 8 15 million primarily respect 12 million higher personnelrelated compensation costs partially offset 05 million favorable impact foreign currency exchange rates european cost base denominated european union euro british pound sterling octane additives net sales decreased 9 entirely respect lower volumes since sales mix revenue environmental remediation business unchanged 2012 2011 sales focused middle east northern africa gross margin increased marginally 08 percentage points 479 487 operating expenses decreased 510 million primarily due fact impact 450 million newmarket corporation civil complaint settlement associated 55 million legal professional expenses 2011 recur 2012 income statement captions pension creditcharge noncash 03 million credit 05 million charge 2012 2011 respectively corporate costs year increase 32 93 million primarily reflected 47 million higher accruals share based compensation expense driven year rise stock price including 39 million higher charge respect longterm incentive plan remainder increase due 27 million higher legal professional expenses 21 million higher information technology service platform costs acquisitionrelated costs 28 million 30 million 2012 2011 respectively restructuring charge comprised following impairment octane additives segment goodwill 12 million 20 million 2012 2011 respectively effective october 1 2011 updated estimates used detailed forecast model calculate impairment charges reflect company’s extended estimate future life octane additives segment december 31 2012 december 31 2013 resulting lower charge expect impairment octane additives segment goodwill charge year ending december 31 2013 approximately 13 million profit disposal net 2012 company recognized 01 million profit following disposal surplus real estate net incomeexpense net expense 20 million primarily related losses translation net assets denominated nonfunctional currencies european businesses offset net foreign exchange gains foreign currency forward exchange contracts 2011 net income 63 million comprised 65 million net foreign currency exchange gains translation net assets denominated nonfunctional currencies european businesses 02 million sundry expenses interest expense net decreased 33 million 12 million due lower average level debt 2012 losses interest rate swaps 2011 income taxes effective tax rate 283 70 2012 2011 respectively effective tax rate adjusted newmarket corporation civil complaint settlement adjustment income tax provisions tax impact acquisitionrelated funding 203 2012 compared 158 2011 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2012 company’s income tax expense benefited greater proportion overall profits arising switzerland 2011 resulted 120 million benefit switzerland 2011 89 million addition 33 million benefit relation united kingdom 2011 01 million 07 million benefit relation germany 2011 09 million foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2012 amount subpart f income associated section 78 gross amounted 43 million 2011 30 million income earned certain overseas subsidiaries taxable us tax regime increased 25 million 20 million 2011 addition dividend overseas subsidiary remitted us increased foreign income inclusions 390 million 2012 2011 55 million foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits 2012 overseas dividend remitted us provide funding company’s acquisition program total 428 million foreign tax credits utilized 2012 partially offset incremental us taxes arising foreign income inclusions year balance 142 million foreign tax credit carry forwards earlier years utilized resulted decrease recognition foreign tax credit carry forwards 66 million year 2011 94 million increase total tax cost funding company’s acquisition program 74 million following united kingdom’s 2 reduction corporation tax rate 25 23 april 2013 enacted july 2012 company benefitted net deferred tax credit 05 million 2011 25 million third quarter 2012 primarily relation deferred tax position united kingdom defined benefit pension plan details given note 10 notes consolidated financial statements results operations fiscal 2011 compared fiscal 2010 fuel specialties net sales table details components comprise year change net sales spread across markets operate sales volumes americas aspac declined primarily due lower sales high volume low margin products offset higher sales added value products resulting improved price product mix markets sales volumes price product mix emea benefitted new contracts contract amendments entered 2011 strengthening european union euro british pound sterling us dollar avtel volumes improved due timing shipments customers opposed change longterm outlook market gross margin year decrease 32 percentage points primarily reflected higher proportion sales lower margin products specifically emea market competitive pressure margins resulting increased raw material costs despite benefit new contracts contract amendments many raw materials use derived petrochemicalbased feedstocks increases cost driven general increase crude oil prices experienced 2011 periods raw material costs rising generally time lag position contractually otherwise raise prices customers consequential adverse impact margins lag operating expenses year decrease 1 07 million primarily due release 37 million accrual respect old customer claim first quarter 2011 release offsets increases operating expenses due 08 million higher licensing costs 18 million adverse impact foreign currency exchange rates european cost base denominated european union euro british pound sterling performance chemicals net sales table details components comprise year change net sales spread across markets operate overall sales volumes declined segment reflecting competitive pressures faced markets serve especially within fragrance ingredients market offset improved sales volumes within personal care market price product mix substantially improved primarily respect polymers business benefited high demand sales markets notably emea benefitted strengthening european union euro british pound sterling us dollar gross margin year increase 11 percentage points reflected continued improvement demand across markets especially polymers business despite competitive pressures margins resulting increased raw material costs many raw materials use derived petrochemicalbased feedstocks increases cost driven general increase crude oil prices experienced 2011 periods raw material costs rising generally time lag position contractually otherwise raise prices customers consequential adverse impact margins lag operating expenses year increase 8 14 million less 16 growth sales continued leverage infrastructure segment increase operating expenses primarily related 07 million higher personnelrelated compensation costs 05 million adverse impact foreign currency exchange rates european cost base denominated european union euro british pound sterling 02 million higher reach costs octane additives net sales increased 5 increased volumes 4 percentage points improved sales mix 3 percentage points offset reduced revenue environmental remediation business 2 percentage points 2011 2010 sales focused middle east northern africa gross margin decreased marginally 03 percentage points 482 479 operating expenses increased 498 million due 450 million newmarket corporation civil complaint settlement 13 million higher associated legal professional expenses 2011 30 million adjustment settlement accrual related offp fcpa investigations resulting release income statement 2010 income statement captions pension creditcharge noncash charge decreased 103 million 05 million reflecting reduction pension liability near elimination service cost since company closed united kingdom defined benefit pension plan future service accrual effect march 31 2010 corporate costs 292 million compared 263 million year ago year increase 29 million primarily reflected 28 million higher accruals share based compensation expense driven substantial year rise stock price including 08 million higher charge respect longterm incentive plan acquisitionrelated costs 30 million 39 million charge probable cost company’s external compliance monitor recognized 2010 restructuring charge comprised following company closed united kingdom defined benefit pension plan future service accrual effect march 31 2010 accordingly recorded noncash curtailment loss 82 million first quarter 2010 impairment octane additives segment goodwill 20 million 22 million 2011 2010 respectively effective october 1 2011 updated estimates used detailed forecast model calculate impairment charges reflect company’s extended estimate future life octane additives segment december 31 2012 december 31 2013 resulting lower charge profit disposal net 2010 company recognized 01 million profit following disposal surplus real estate net incomeexpense 63 million comprised 65 million net foreign currency exchange gains translation net assets denominated nonfunctional currencies european businesses 02 million sundry expenses 2010 net income 31 million related net foreign currency exchange gains interest expense net interest expense including amortization deferred finance costs decreased 46 million 33 million due lower level debt 2011 deferred finance costs becoming fully amortized third quarter 2011 income taxes effective tax rate 70 42 2011 2010 respectively effective tax rate adjusted nonrecurring items relating newmarket corporation civil complaint settlement adjustment income tax provisions offp fcpa settlement accrual 158 2011 compared 136 2010 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2011 company’s income tax expense benefited greater proportion overall profits arising switzerland 2010 primarily reflecting increased sales octane additives segment due timing shipments major customers resulted 89 million benefit switzerland 2010 65 million addition 01 million benefit relation united kingdom 2010 32 million 09 million benefit relation germany 2010 00 million foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2011 amount subpart f income associated section 78 gross amounted 30 million 2010 21 million income earned certain overseas subsidiaries taxable us tax regime reduced 20 million 29 million 2010 addition dividend overseas subsidiary remitted us increased foreign income inclusions 55 million 2011 2010 00 million foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits 2011 additional 61 million foreign tax credit carry forwards generated primarily due overseas dividend remitted us year increase foreign tax credit carry forwards accompanying extension expiration period allowed recognition 94 million foreign tax credit carry forwards compared 27 million 2010 following united kingdom’s 2 reduction corporation tax rate 27 25 april 2012 enacted july 2011 company benefited net deferred tax credit 25 million third quarter 2011 primarily respect pension plan unrecognized actuarial net losses details given note 10 notes consolidated financial statements liquidity financial condition working capital company believes adjusted working capital nongaap financial measure provides useful information investors evaluating company’s underlying performance identifying operating trends management uses nongaap financial measure internally allocate resources evaluate performance company’s operations items excluded adjusted working capital calculation listed table represent factors fluctuate line day working capital needs business 2012 adjusted working capital defined company trade accounts receivable inventories prepaid expenses accounts payable current portion accrued liabilities rather total current assets less total current liabilities increased 197 million 22 million related working capital strata purchased december 24 2012 included consolidated balance sheet december 31 2012 163 million increase trade accounts receivable predominantly focused fuel specialties segment whose fourth quarter sales increased 7 103 million compared fourth quarter 2011 addition days’ sales outstanding fuel specialties segment worsened 40 days december 31 2011 44 days december 31 2012 though partially offset corresponding improvement performance chemicals segment period 45 days 43 days trade receivables octane additives segment primarily driven timing shipments major customers associated sales terms shipments significant shipment december 2012 2011 accordingly trade accounts receivable segment largely unchanged 24 million increase inventories focused performance chemicals segment following decision build certain product inventories strategic importance facilitate 9 sales growth achieved fourth quarter anticipated sales growth 2013 days’ sales inventory fuel specialties segment declined 72 days december 31 2011 69 days december 31 2012 however days’ sales inventory performance chemicals segment increased substantially period 91 days 101 days built inventories prepaid expenses increased marginally 40 million 41 million moderate 09 million decrease accounts payable current portion accrued liabilities primarily due payments made 2012 government authorities outside payments accounts payable current portion accrued liabilities reporting segments december 31 2012 2011 largely unchanged except performance chemicals creditor days increased 22 days 41 days absolute level accounts payable current portion accrued liabilities increased line production inventories operating cash flows generated cash operating activities 613 million 347 million 582 million 2012 2011 2010 respectively increase cash provided operating activities 2011 2012 266 million primarily due increased profitability rather trading levels net income increased 194 million 489 million 683 million addition 2012 benefited stable working capital levels compared 2011 working capital requirements increased 433 million order support substantially increased trading levels net sales increased 133 912 million 6832 million 7744 million 2012 net sales increased 03 20 million 7744 million 7764 million decrease cash provided operating activities 2010 2011 235 million primarily due 250 million paid cash september 2011 settlement newmarket corporation civil complaint cash december 31 2012 2011 cash equivalents 224 million 762 million respectively 175 million 741 million respectively held nonus subsidiaries principally united kingdom company position control whether repatriate foreign earnings intends reinvest earnings fund overseas subsidiaries currently expect make repatriation foreseeable future hence provided future income taxes cash held overseas subsidiaries circumstances change would cause earnings repatriated additional us tax liability could incurred continue monitor position shortterm investments december 31 2012 2011 shortterm investments 51 million 48 million respectively debt december 14 2011 entered fiveyear revolving credit facility provides borrowings us 1000 million credit facility carries interest rate based us libor plus margin 150 225 dependent company’s ratio net debt ebitda nongaap measure liquidity defined credit facility credit facility drawn expires december 14 2016 may drawn full us current credit facility contains restrictions may limit activities operational financial flexibility may able borrow event default outstanding includes material adverse change assets operations financial condition credit facility contains number restrictions limit ability among things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments effect merger consolidation dispose assets materially change line business addition credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda must greater 251 2 ratio ebitda net interest must less 401 management determined company breached covenants throughout period december 31 2012 expects breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries december 31 2012 200 million debt outstanding revolving credit facility terms september 13 2011 settlement newmarket corporation issued 150 million promissory note newmarket corporation payable three equal annual installments carrying simple interest 1 per annum first installment paid september 7 2012 debt maturity profile december 31 2012 set outlook december 31 2012 company cash equivalents shortterm investments 275 million debt 300 million resulting net debt 25 million company expects fund operations least next 12 months combination operating cash flows revolving credit facility credit facility ability draw 1000 million 200 million drawn december 31 2012 long compliance financial covenants therein contractual commitments following represents contractual commitments december 31 2012 effect obligations future cash flows operating activities following previouslydisclosed resolution certain government investigations matters details given note 17 notes consolidated financial statements company committed paying associated fines penalties disgorgements period four years commencing 2010 future compliance monitor expenses december 31 2013 amounts related pension obligations refer likely levels funding united kingdom defined benefit pension plan “plan” plan closed future service accrual large number deferred current pensioners company expects annual cash contribution 112 million 201315 72 million 201617 53 million 201819 considered meaningful predict amounts beyond 2019 since many uncertainties including future returns assets pension increases inflation remediation payments represent cash flows company currently obligated pay respect environmental remediation current former facilities include discretionary remediation costs company may choose incur severance payments represent cash flows company currently obligated pay respect severance costs associated exit disposal activities postemployment benefits operating lease commitments relate primarily office space motor vehicles various items computer office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty estimated payments included table reflect variable interest charge longterm debt obligations estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 10 notes consolidated financial statements investing activities capital commitments relate certain capital projects company committed undertake financing activities december 14 2011 entered fiveyear revolving credit facility provides borrowings 1000 million credit facility drawn expires december 14 2016 december 31 2012 200 million drawn revolving credit facility september 13 2011 company settled newmarket corporation civil complaint settlement agreement included company issuing 150 million promissory note newmarket corporation payable three equal annual installments carrying simple interest 1 per annum first installment paid september 7 2012 december 24 2012 company acquired 100 voting equity interests strata control services inc “strata” private company based crowley louisiana consideration approximately 600 million consideration 50 million payable cash 2015 contingent upon achievement certain predetermined financial targets currently expect achieved accounting purposes required gaap accordance accounting policy discount acquisitionrelated contingent consideration fair value 43 million environmental matters plant closures certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us expect liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws full provision made committed costs 293 million december 31 2012 expenditure provisions 21 million 31 million 27 million years 2012 2011 2010 respectively total severance expenditure 06 million 07 million 04 million years 2012 2011 2010 respectively item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto executive overview business performance 2013 close expectations demonstrating commitment strategy sales growth businesses reflected strong technological position markets decline octane additives line transition unleaded gasoline managed investments capital equipment working capital recruitment additional skilled personnel line market factors capital program expenses 2013 included investment new information system platform expect add value business 2014 2013 completed acquisition bachman buildout presence oilfield specialties 2013 also acquired chemsil chemtec order add technology products personal care business within performance chemicals segment well providing enhanced sales infrastructure serve west coast us market critical accounting estimates note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation consolidated financial statements revision prior period financial statements fourth quarter 2013 company identified error calculating market related value assets “mrva” innospec limited’s united kingdom pension plan overstated year since 2003 mrva either fair value plan assets employer defer gains losses plan assets calculated value recognizes changes fair value systematic rational manner five years expected longterm rate return used determine net periodic postretirement benefit cost overstated mrva used determine size “the corridor” gaap resulted understatement amortization actuarial net losses within pension expense year since 2004 company revised prior period financial statements correct immaterial noncash errors years ended december 31 2012 2011 see note 2 accounting policies revision prior years details discussion analysis included herein based financial results year ended december 31 2013 revised financial statements years ended december 31 2012 2011 corrected reflect immaterial noncash errors contingencies subject legal regulatory proceedings claims company discloses information concerning contingent liabilities respect claims proceedings unfavorable outcome remote potential loss could materially impact results operations financial position cash flows recognize within selling general administrative expenses liabilities claims proceedings probable company incurred loss based unfavorable outcome amount loss reasonably estimated endeavor fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available actual cost ultimately resolving claim proceeding may significantly different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement environmental liabilities remediation provisions december 31 2013 amounted 314 million relate principally ellesmere port site united kingdom recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention company determined due uncertain product life tel particularly market aviation gasoline products manufactured site uncertainties probability timing expected costs uncertainties considered estimating provision pensions company maintains defined benefit pension plan covering number current former employees united kingdom company also much smaller pension arrangements us overseas obligations plans material united kingdom plan closed future service accrual large number deferred current pensioners movements underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future inflation change one assumptions could impact plan asset value pbo pension charge recognized income statement changes could adversely impact results operations financial position example 025 change discount rate assumption would change pbo approximately 28 million net pension charge 2013 approximately 05 million 025 change level price inflation assumption would change pbo approximately 22 million net pension charge 2013 approximately 17 million information provided note 9 notes consolidated financial statements deferred tax uncertain income tax positions december 31 2013 valuation allowance required foreign tax credit carry forwards within deferred tax management believes foreign tax credit carry forwards utilized future periods prior expiration deferred taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered permanent duration current intention repatriate past future earnings overseas subsidiaries consider earnings reinvested overseas circumstances change would cause earnings repatriated additional us tax liability could incurred continue monitor position calculation tax liabilities involves evaluating uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained based technical merits challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavorable tax settlement may require cash payments result increase effective tax rate year resolution favorable tax settlement may recognized reduction effective tax rate year resolution report interest penalties related uncertain income tax positions income taxes additional information regarding uncertain income tax positions see note 10 notes consolidated financial statements business combinations acquisition method accounting requires recognize assets acquired liabilities assumed acquisition date fair values goodwill measured excess consideration transferred acquisition date net fair values assets acquired liabilities assumed measurement fair values assets acquired liabilities assumed requires considerable judgment although independent appraisals may used assist determination fair values certain assets liabilities determinations usually based significant estimates provided management forecasted revenue profit determining fair value intangible assets income approach generally used may incorporate use discounted cash flow method applying discounted cash flow method estimated future cash flows residual values intangible asset discounted present value using discount rate appropriate business acquired cash flow projections based management’s estimates economic market conditions including revenue growth rates operating margins capital expenditures working capital requirements use best estimates assumptions part process value assets acquired liabilities assumed acquisition date estimates inherently uncertain subject refinement measurement period occurs finalization purchase price allocation changes assumptions estimates result adjustments fair values assets acquired liabilities assumed corresponding offset goodwill subsequent adjustments impact consolidated statements income goodwill company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties performance chemicals octane additives components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows sufficiently distinguished operationally financial reporting purposes rest company tests goodwill annually impairment years events occur circumstances change suggest impairment may occurred company performs annual goodwill tests respect fuel specialties performance chemicals december 31 year reviewing impairment charge fair values reporting segments estimated using aftertax cash flow methodology based management’s best available estimates time key assumptions underpinning calculations include future revenue growth gross margins company’s weighted average cost capital december 31 2013 1411 million 468 million goodwill relating fuel specialties performance chemicals segments respectively annual impairment tests date indicated impairment estimated fair values reporting segments substantially exceeded carrying values result octane additives impairment tests performed 2013 2012 2011 impairment charges 13 million 12 million 20 million respectively recognized charges noncash nature impact taxation 2012 assumptions estimates relating octane additives segment discounted cash flows revised part planning processes although overall methodology unchanged revisions material impact reporting goodwill december 31 2013 goodwill remaining octane additives segment remaining sales concentrated around relatively small number customers risk future demand could dramatically decline believe assumptions impairment tests reasonable subjective judgments possible variations assumptions may result materially different calculations impairment charges intangible assets net amortization property plant equipment december 31 2013 1268 million intangible assets net amortization 604 million property plant equipment discussed notes 7 5 notes consolidated financial statements respectively longlived assets relate reporting segments amortized depreciated straightline periods 16 years respect intangible assets 25 years respect property plant equipment continually assess markets products related longlived assets well specific carrying values concluded carrying values amortization depreciation periods remain appropriate also test longlived assets potential impairment events occur circumstances change suggest impairment may occurred types events changes circumstances could include limited • introduction new products enhanced features competitors • loss material reduction purchases nonrenewal contract significant customer • prolonged decline business consumer spending • sharp unexpected rise raw material chemical energy costs • new laws regulations inhibiting development manufacture distribution sale products order facilitate testing company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value assets cash flows lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital events occur circumstances change may cause reduction periods longlived assets amortized depreciated result noncash impairment portion carrying value reduction amortization depreciation periods would effect cash flows continuing implementation new companywide information system platform provider well established market implementation phased riskmanaged site deployment follows multistage user acceptance program existing platform providing fallback position implemented new platform majority us sites third quarter 2013 internally developed software costs capitalized december 31 2013 195 million 2012 101 million amortization expense 10 million recognized 2013 2012 00 million selling general administrative expenses results operations following table provides operating income reporting segment results operations fiscal 2013 compared fiscal 2012 fuel specialties net sales table details components comprise year change net sales spread across markets operate americas saw increase volumes 2013 result higher demand offset adverse price product mix result lower sales high margin products acquisitions americas relating strata bachman generated additional sales compared 2012 emea volumes remained par prior year benefiting improved price product mix emea benefited favorable exchange rates driven primarily strengthening european union euro us dollar volumes higher aspac adverse price product mix result lower sales higher margin products avtel volumes increased due timing shipments customers opposed change longterm outlook market price product mix benefiting favorable customer mix gross margin year increase 18 percentage points reflected richer price product mix emea continued benefit higher margin sales strata business favorable customer mix higher margin avtel business offset adverse price product mix americas aspac operating expenses year increase 24 173 million due 67 million additional costs strata business 34 million additional costs bachman businesses 24 million increased personnelrelated compensation costs partly due higher accruals share based compensation expense driven rise stock price compared period prior year 29 million additional research development new product testing costs 14 million additional commissions 05 million increase expenses performance chemicals net sales table details components comprise year change net sales spread across markets operate americas volumes lower fragrance ingredients partly offset improved price product mix resulting retrospective price adjustment customer acquisitions americas relating chemsil chemtec generated additional sales compared 2012 volumes emea par prior year combined marginally weaker price product mix fragrance ingredients partially offset improved sales mix personal care aspac volumes moved higher impacted higher sales lower margin products gross margin year decrease 03 percentage points reflected competitive pricing pressures fragrance ingredients partly offset richer price product mix personal care market together retrospective price adjustment customer americas emea higher margins chemsil business operating expenses year increase 16 32 million reflected 31 million additional costs recently acquired chemsil chemtec businesses 03 million higher personnelrelated compensation costs driven rise stock price compared period prior year 02 million decrease expenses octane additives net sales decreased 15 decreased volumes 18 percentage points due timing shipments declining demand major customers improved customer mix 4 percentage points together reduced revenue environmental remediation business 1 percentage points 2013 2012 sales focused middle east northern africa gross margin decreased 16 percentage points 487 471 due lower manufacturing volumes partly offset favorable customer mix nonrecurring freight storage costs prior year operating expenses decreased 16 million 79 million 63 million due efficient management cost base income statement captions pension creditcharge noncash charge increased 23 million net charge 2013 compared 16 million net charge 2012 revising amortization actuarial losses 2012 see note 2 financial statements increase net charge 2013 primarily relates increased actuarial net losses amortized income statement corporate costs year increase 13 49 million reflected 82 million higher legal compliance professional expenses including acquisitionrelated costs 18 million 2013 compared 28 million 2012 18 million higher personnelrelated compensation costs primarily due higher accruals share based compensation expense driven rise stock price compared period prior year 07 million higher information technology service platform costs offset 58 million reduction charge longterm incentive plan completed end 2012 restructuring charge 02 million 2013 2012 impairment octane additives segment goodwill 13 million 2013 12 million 2012 net incomeexpense net income 41 million primarily related gains 58 million translation net assets denominated nonfunctional currencies european businesses partly offset net foreign exchange losses foreign currency forward exchange contracts 16 million 2012 net expense 20 million primarily related losses translation net assets denominated nonfunctional currencies european businesses offset net foreign exchange gains foreign currency forward exchange contracts interest expense net increased 19 million 2013 12 million 2012 due higher level borrowing 2013 used primarily fund acquisition activity income taxes effective tax rate 162 283 2013 2012 respectively effective tax rate adjusted income tax provisions tax impact acquisitionrelated funding 159 2013 compared 202 2012 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2013 company’s income tax expense benefited lesser degree proportion overall profits arising switzerland 2012 resulted 93 million benefit switzerland 2012 120 million addition 39 million benefit relation united kingdom 2012 33 million 03 million benefit relation germany 2012 07 million foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2013 amount subpart f income associated section 78 gross amounted 43 million 2012 43 million income earned certain overseas subsidiaries taxable us tax regime decreased 12 million 25 million 2012 dividend overseas subsidiary remitted us increased foreign income inclusions 390 million 2012 2013 dividends remitted us foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits total 42 million foreign tax credits utilized 2013 partially offset incremental us taxes arising foreign income inclusions year 2012 overseas dividend remitted us provide funding company’s acquisition program 428 million foreign tax credits utilized 2012 balance 24 million foreign tax credit carry forwards earlier years utilized 2012 142 million resulted decrease recognition foreign tax credit carry forwards 24 million year 2012 66 million decrease united kingdom’s 3 reduction corporation tax rate 23 20 april 2015 enacted july 2013 resulted net deferred tax charge 09 million 2012 net deferred tax credit 05 million third quarter 2013 primarily relation deferred tax position united kingdom defined benefit pension plan details given note 10 notes consolidated financial statements results operations fiscal 2012 compared fiscal 2011 fuel specialties net sales table details components comprise year change net sales spread across markets operate sales volumes americas aspac declined second year running primarily due lower sales high volume low margin products offset higher sales added value products resulting improved price product mix markets sales volumes price product mix emea continued benefit 2012 new contracts contract amendments entered 2011 partially offset weakening european union euro british pound sterling us dollar avtel volumes declined 24 2012 compared 13 increase 2011 due timing shipments customers opposed change longterm outlook market avtel sales volume decline partially offset improved customer mix gross margin year increase 15 percentage points primarily reflected lower proportion sales lower margin products specifically americas aspac markets continued benefit 2012 new contracts contract amendments entered 2011 many raw materials use derived petrochemicalbased feedstocks costs less volatile due stable crude oil prices experienced 2012 operating expenses year increase 5 35 million primarily due release 37 million accrual respect old customer claim first quarter 2011 recur 2012 increase partially offset 05 million favorable impact foreign currency exchange rates european cost base denominated european union euro british pound sterling performance chemicals net sales table details components comprise year change net sales spread across markets operate overall sales volumes increased segment despite competitive pressures faced markets serve improved sales volumes within personal care market focused americas global fragrance ingredients market partially offset lower volumes due weaker demand polymers market focused emea price product mix substantially unchanged larger americas emea markets benefitted aspac due higher proportion added value products sold 2012 sales markets notably emea suffered weakening european union euro british pound sterling us dollar gross margin year increase 15 percentage points reflected continued improvement demand across markets despite competitive pressures margins exception polymers market weaker demand polymers market resulted lower sales volumes sales prices consequential adverse impact gross margin many raw materials use derived petrochemicalbased feedstocks benefitted fact costs less volatile due stable crude oil prices experienced 2012 operating expenses year increase 8 15 million primarily respect 12 million higher personnelrelated compensation costs partially offset 05 million favorable impact foreign currency exchange rates european cost base denominated european union euro british pound sterling octane additives net sales decreased 9 entirely respect lower volumes since sales mix revenue environmental remediation business unchanged 2012 2011 sales focused middle east northern africa gross margin increased marginally 08 percentage points 479 487 operating expenses decreased 510 million primarily due fact impact 450 million newmarket corporation civil complaint settlement associated 55 million legal professional expenses 2011 recur 2012 income statement captions pension creditcharge noncash charge decreased 16 million net charge 2012 compared 29 million net charge 2011 primarily result lower interest costs partly offset lower expected return assets 2012 2011 charges revising amortization actuarial losses see note 2 financial statements corporate costs year increase 32 93 million primarily reflected 47 million higher accruals share based compensation expense driven year rise stock price including 39 million higher charge respect longterm incentive plan remainder increase due 27 million higher legal professional expenses 21 million higher information technology service platform costs acquisitionrelated costs 28 million 30 million 2012 2011 respectively restructuring charge comprised following impairment octane additives segment goodwill 12 million 20 million 2012 2011 respectively effective october 1 2011 updated estimates used detailed forecast model calculate impairment charges reflect company’s extended estimate future life octane additives segment december 31 2012 december 31 2013 resulting lower charge octane additives segment goodwill charge year ending december 31 2013 13 million profit disposal net 2012 company recognized 01 million profit following disposal surplus real estate net incomeexpense net expense 20 million primarily related losses translation net assets denominated nonfunctional currencies european businesses offset net foreign exchange gains foreign currency forward exchange contracts 2011 net income 63 million comprised 65 million net foreign currency exchange gains translation net assets denominated nonfunctional currencies european businesses 02 million sundry expenses interest expense net decreased 33 million 12 million due lower average level debt 2012 losses interest rate swaps 2011 income taxes effective tax rate 283 62 2012 2011 respectively effective tax rate adjusted newmarket corporation civil complaint settlement adjustment income tax provisions tax impact acquisitionrelated funding 202 2012 compared 155 2011 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2012 company’s income tax expense benefited greater proportion overall profits arising switzerland 2011 resulted 120 million benefit switzerland 2011 89 million addition 33 million benefit relation united kingdom 2011 01 million 07 million benefit relation germany 2011 09 million foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2012 amount subpart f income associated section 78 gross amounted 43 million 2011 30 million income earned certain overseas subsidiaries taxable us tax regime increased 25 million 20 million 2011 addition dividend overseas subsidiary remitted us increased foreign income inclusions 390 million 2012 2011 55 million foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits 2012 overseas dividend remitted us provide funding company’s acquisition program total 428 million foreign tax credits utilized 2012 partially offset incremental us taxes arising foreign income inclusions year balance 142 million foreign tax credit carry forwards earlier years utilized resulted decrease recognition foreign tax credit carry forwards 66 million year 2011 94 million increase total tax cost funding company’s acquisition program 74 million following united kingdom’s 2 reduction corporation tax rate 25 23 april 2013 enacted july 2012 company benefitted net deferred tax credit 05 million 2011 25 million third quarter 2012 primarily relation deferred tax position united kingdom defined benefit pension plan details given note 10 notes consolidated financial statements liquidity financial condition working capital company believes adjusted working capital nongaap financial measure provides useful information investors evaluating company’s underlying performance identifying operating trends management uses nongaap financial measure internally allocate resources evaluate performance company’s operations items excluded adjusted working capital calculation listed table represent factors fluctuate line day working capital needs business 2013 adjusted working capital defined company trade accounts receivable inventories prepaid expenses accounts payable accrued liabilities rather total current assets less total current liabilities increased 350 million total acquisitions chemsil chemtec bachman accounted 153 million increase december 31 2013 201 million increase trade accounts receivable reflects increases fuel specialties performance chemicals segments fourth quarter sales 88 million 108 million higher respectively fourth quarter 2012 acquisitions chemsil chemtec bachman accounted 130 million increase days’ sales outstanding increased 44 days 49 days fuel specialties segment whilst increased 43 days 51 days performance chemicals segment octane additives trade accounts receivable line 2012 due timing shipments major customers associated sales terms shipments 206 million increase inventories focused fuel specialties performance chemicals segments following decisions build certain product inventories strategic importance anticipation future sales growth together 107 million increase due acquisitions chemsil chemtec bachman days’ sales inventory increased 69 days 79 days fuel specialties segment whilst declining performance chemicals segment period 101 days 96 days relatively normalized year end level inventory octane additives segment decreased 25 million due timing significant shipments prior year end prepaid expenses increased 17 million 41 million 58 million primarily due timing insurance invoices additional prepayments acquired businesses 10 million 74 million increase accounts payable accrued liabilities primarily due increases fuel specialties performance chemicals segments result acquisitions chemsil chemtec bachman reflecting 94 million increase year creditor days fuel specialties segment increased 29 days 32 days performance chemicals segment increased 41 days 42 days operating cash flows generated cash operating activities 613 million 2013 2012 year cash operating activities impacted higher net income lower cash outflows working capital requirements significant movements taxes 2013 working capital requirements increased 164 million compared 205 million increase 2012 cash december 31 2013 2012 cash equivalents 802 million 224 million respectively 733 million 175 million respectively held nonus subsidiaries principally united kingdom company position control whether repatriate foreign earnings intends reinvest earnings fund overseas subsidiaries currently expect make repatriation foreseeable future hence provided future income taxes cash held overseas subsidiaries circumstances change would cause earnings repatriated additional us tax liability could incurred continue monitor position shortterm investments december 31 2013 2012 shortterm investments 66 million 51 million respectively debt august 28 2013 amended fiveyear revolving credit facility “the facility” amendment provides increase facility available company certain subsidiaries company 100 million 150 million retains term facility december 2016 addition amendment allowed company request additional amount 50 million committed lenders 30 million committed fourth quarter 2013 current credit facility contains restrictions may limit activities operational financial flexibility may able borrow event default outstanding includes material adverse change assets operations financial condition credit facility contains number restrictions limit ability among things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments effect merger consolidation dispose assets materially change line business addition credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda must greater 251 2 ratio ebitda net interest must less 401 management determined company breached covenants throughout period december 31 2013 expects breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries december 31 2013 1420 million debt outstanding revolving credit facility 10 million debt financing within acquired bachman businesses terms september 13 2011 settlement newmarket corporation issued 150 million promissory note newmarket corporation payable three equal annual installments carrying simple interest 1 per annum first installment paid september 7 2012 second installment paid september 9 2013 debt maturity profile december 31 2013 set outlook december 31 2013 company cash equivalents shortterm investments 868 million debt 1480 million resulting net debt 612 million company expects fund operations least next 12 months combination operating cash flows revolving credit facility credit facility ability draw 180 million 20 million committed lenders december 31 2013 1420 million drawn contractual commitments following represents contractual commitments december 31 2013 effect obligations future cash flows operating activities following previouslydisclosed resolution certain government investigations matters details given note 17 notes consolidated financial statements company committed paying associated future compliance monitor expenses september 13 2011 company settled newmarket corporation civil complaint settlement agreement included company issuing 150 million promissory note newmarket corporation payable three equal annual installments carrying simple interest 1 per annum last installment scheduled paid september 2014 amounts related pension obligations refer likely levels funding united kingdom defined benefit pension plan “plan” plan closed future service accrual large number deferred current pensioners company expects annual cash contribution 114 million 201415 81 million 201617 58 million 201819 considered meaningful predict amounts beyond 2020 since many uncertainties including future returns assets pension increases inflation evaluated plan undertakes actuarial valuation every three years remediation payments represent cash flows company currently obligated pay respect environmental remediation current former facilities include discretionary remediation costs company may choose incur severance payments represent cash flows company currently obligated pay respect severance costs associated exit disposal activities postemployment benefits operating lease commitments relate primarily office space motor vehicles various items computer office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty estimated payments included table reflect variable interest charge longterm debt obligations estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 10 notes consolidated financial statements investing activities capital commitments relate certain capital projects company committed undertake financing activities december 14 2011 entered fiveyear revolving credit facility “the facility” provides borrowings 1000 million credit facility drawn expires december 14 2016 august 28 2013 amended facility increase amount available company certain subsidiaries company 100 million 150 million retaining term conditions facility december 2016 addition amendment allowed company request additional amount 50 million committed lenders 30 million committed fourth quarter 2013 december 24 2012 company acquired 100 voting equity interests strata control services inc consideration approximately 60 million consideration 50 million payable cash 2015 contingent upon achievement certain predetermined financial targets currently expect achieved accounting purposes required gaap accordance accounting policy discount acquisitionrelated contingent consideration fair value 46 million environmental matters plant closures certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us expect liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws amounting 314 million december 31 2013 remediation expenditure utilizing provisions 19 million 21 million 31 million years 2013 2012 2011 respectively total severance expenditure 01 million 06 million 07 million years 2013 2012 2011 respectively item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto executive overview business performance 2015 grew line expectations delivered strategy maintain oilfield services business current challenging market conditions sales growth businesses fuel specialties personal care reflected strength product portfolio research development pipeline markets fuel specialties segment also includes avtel product line comprises sales tel use piston engine aviation market innospec made commitment manufacture supply avtel aviation industry suitable unleaded additive fuel found anticipate product line decline unleaded substitute identified octane additives segment performance line final stages transition unleaded gasoline automotive market managed investments capital equipment working capital recruitment additional skilled personnel line market factors capital program expenses 2015 included continued investment new information system platform expect add value business future years 2015 completed integration independence oilfield chemicals llc business “independence” build presence market critical accounting estimates note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation consolidated financial statements business combinations acquisition method accounting requires recognize assets acquired liabilities assumed acquisition date fair values goodwill measured excess consideration transferred acquisition date net fair values assets acquired liabilities assumed measurement fair values assets acquired liabilities assumed requires considerable judgment although independent appraisals may used assist determination fair values certain assets liabilities determinations usually based significant estimates provided management forecast revenue profit determining fair value intangible assets income approach generally used may incorporate use discounted cash flow method applying discounted cash flow method estimated future cash flows residual values intangible asset discounted present value using discount rate appropriate business acquired cash flow projections based management’s estimates economic market conditions including revenue growth rates operating margins capital expenditures working capital requirements use best estimates assumptions part process value assets acquired liabilities assumed acquisition date contingent consideration balance sheet reporting date estimates inherently uncertain subject refinement measurement period occurs finalization purchase price allocation changes assumptions estimates result adjustments fair values assets acquired liabilities assumed corresponding offset goodwill subsequent adjustments impact consolidated statements income contingencies subject legal regulatory proceedings claims company discloses information concerning contingent liabilities respect claims proceedings unfavorable outcome remote potential loss could materially impact results operations financial position cash flows recognize within selling general administrative expenses liabilities claims proceedings probable company incurred loss based unfavorable outcome amount loss reasonably estimated endeavor fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available actual cost ultimately resolving claim proceeding may significantly different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement environmental liabilities remediation provisions december 31 2015 amounted 377 million relate principally ellesmere port site united kingdom recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention pensions company maintains defined benefit pension plan covering number current former employees united kingdom company also much smaller pension arrangements us overseas obligations plans material united kingdom plan closed future service accrual large number deferred current pensioners movements underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future inflation change one assumptions could impact plan asset value pbo pension charge recognized income statement changes could adversely impact results operations financial position example 025 change discount rate assumption would change pbo approximately 24 million net pension credit 2016 would unchanged 025 change level price inflation assumption would change pbo approximately 17 million net pension credit 2016 would change approximately 01 million information provided note 9 notes consolidated financial statements deferred tax uncertain income tax positions december 31 2015 deferred taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered permanent duration current intention repatriate past future earnings overseas subsidiaries consider earnings reinvested overseas circumstances change would cause earnings repatriated additional us tax liability could incurred continue monitor position calculation tax liabilities involves evaluating uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained based technical merits challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavorable tax settlement may require cash payments result increase effective tax rate year resolution favorable tax settlement may recognized reduction effective tax rate year resolution report interest penalties related uncertain income tax positions income taxes additional information regarding uncertain income tax positions see note 10 notes consolidated financial statements goodwill company’s reporting units level goodwill assessed potential impairment consistent reportable segments components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows sufficiently distinguished operationally financial reporting purposes rest company initially company performs qualitative assessment determine whether likely fair value segment less carrying amount prior performing twostep goodwill impairment test twostep test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital december 31 2015 2283 million 391 million goodwill relating fuel specialties performance chemicals segments respectively impairment assessment concluded impairment goodwill respect reporting segments believe assumptions impairment assessments reasonable subjective judgments possible variations assumptions may result materially different calculations potential impairment charges property plant equipment intangible assets net amortization december 31 2015 760 million property plant equipment 1687 million intangible assets net amortization discussed notes 6 8 notes consolidated financial statements respectively longlived assets relate reporting segments amortized depreciated straightline periods 17 years respect intangible assets 25 years respect property plant equipment continually assess markets products related longlived assets well specific carrying values concluded carrying values amortization depreciation periods remain appropriate also test longlived assets potential impairment events occur circumstances change suggests impairment may occurred types events changes circumstances could include limited • introduction new products enhanced features competitors • loss material reduction purchases nonrenewal contract significant customer • prolonged decline business consumer spending • sharp unexpected rise raw material chemical energy costs • new laws regulations inhibiting development manufacture distribution sale products order facilitate testing company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value assets cash flows lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital events occur circumstances change may cause reduction periods longlived assets amortized depreciated result noncash impairment portion carrying value reduction amortization depreciation periods would effect cash flows 2015 continued process developing new companywide information system platform provider well established market implementation phased riskmanaged site deployment follows multistage user acceptance program existing platform providing fallback position fourth quarter 2015 implemented new platform majority reporting units outside us combined initial deployment 2013 means majority businesses operating new platform internally developed software costs capitalized december 31 2015 364 million 2014 278 million amortization expense 40 million recognized 2015 2014 38 million selling general administrative expenses results operations following table provides operating income reporting segment results operations fiscal 2015 compared fiscal 2014 fuel specialties net sales table details components comprise year change net sales spread across markets operate excluding oilfield services revenues americas 2 higher prior year result increased volumes oilfield services saw decline revenues year excluding acquisition independence generated additional sales compared prior year emea volumes increased prior year driven strong performance core markets volumes higher aspac driven higher demand first quarter adverse price product mix emea aspac negatively impacted revenues primarily due sales lower margin products compared prior year avtel volumes lower prior year due timing shipments customers opposed change longterm outlook market improved price product mix emea aspac adversely impacted exchange rate movements year driven primarily weakening european union euro british pound sterling us dollar gross margin year increase 29 percentage points primarily reflected higher margins achieved americas including oilfield services businesses together higher margin contribution avtel positive effect weaker exchange rates versus us dollar cost base operating expenses year increase 41 466 million due 394 million additional costs independence business partly offset 39 million decrease expenses within oilfield businesses together 134 million increase selling technical support expenses primarily related increased sales volumes americas excluding oilfield services 23 million decrease expenses primarily due favorable exchange rates emea aspac resulting weakening european union euro british pound sterling us dollar performance chemicals net sales table details components comprise year change net sales spread across markets operate volumes higher americas emea primarily due increased personal care volumes partly offset adverse pricing pressures affecting price product mix aspac saw lower volumes partly offset favorable price product mix weakening european union euro british pound sterling us dollar resulted adverse exchange variance emea aspac disposal aroma chemicals business excluded market analysis included one variance segment total gross margin year increase 26 percentage points primarily driven greater proportion sales higher margin personal care business partly resulting disposal aroma chemicals business start third quarter operating expenses year increase 01 million due 08 million higher research development costs 04 million additional headcount support personal care growth partly offset 11 million reduction due disposal aroma chemicals business octane additives net sales year increase 43 million primarily due timing demand one remaining refinery customer gross margin year decrease 39 percentage points primarily driven timing efficiency production one remaining refinery customer operating expenses year decrease 22 million due continuing efficient management cost base income statement captions pension creditcharge noncash 02 million net credit 2015 compared 33 million net charge 2014 primarily driven lower interest cost projected benefit obligation corporate costs year decrease 04 million related 11 million lower legal professional expenses 2015 18 million nonrecurring professional costs 2014 related acquisition independence business 14 million lower insurance claims due nonrecurring charges 2014 relating selfinsured incidents partly offset 31 million higher personnelrelated compensation including higher accruals sharebased compensation net 08 million release severance provision 2014 adjustment fair value contingent consideration credit 407 million relates adjustment carrying value liability contingent consideration related independence acquisition 514 million partly offset accretion charge 107 million carrying value contingent consideration based estimated ebitda free cash flow generated independence business period october 31 2016 contingent consideration payable based management’s latest forecasts business current trading performance results business particularly sensitive level exploration development production activity customers oil gas sector directly affected trends oil prices profit disposal subsidiary disposal aroma chemicals business generated profit disposal 16 million third quarter net incomeexpense net expense 00 million primarily related 14 million losses translation net assets denominated nonfunctional currencies european businesses offset gains 14 million foreign currency forward exchange contracts 2014 net income 18 million primarily related net gains 34 million foreign currency forward exchange contracts partly offset 16 million losses translation net assets denominated nonfunctional currencies european businesses interest expense net 40 million 2015 34 million 2014 primarily driven higher borrowing 2015 resulting funding required acquisition independence business fourth quarter 2014 income taxes effective tax rate 215 242 2015 2014 respectively effective tax rate adjusted changes fair value contingent consideration adjustments income tax positions tax impact discrete items 201 2015 compared 249 2014 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2015 company’s income tax expense benefited lesser degree proportion overall profits arising switzerland 2014 resulted 75 million benefit switzerland 2014 94 million addition 68 million benefit relation united kingdom 2014 79 million 03 million benefit relation germany 2014 04 million offset 01 million reduction jurisdictions foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2015 subpart f income associated section 78 gross resulted us taxation 47 million 2014 50 million certain overseas subsidiaries taxable us tax regime incurred losses 02 million 2014 21 million income foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits total 47 million foreign tax credits utilized 2015 offset incremental us taxes arising foreign income inclusions year 2014 48 million balance 24 million foreign tax credit carry forwards earlier years utilized 2014 36 million december 31 2015 company utilized foreign tax credit carry forwards earlier years united kingdom’s 1 reduction corporation tax rate 20 19 april 2017 subsequent reduction 19 18 april 2020 enacted november 2015 resulted deferred tax credit 11 million fourth quarter 2015 relation deferred tax position united kingdom defined benefit pension plan details given note 10 notes consolidated financial statements results operations fiscal 2014 compared fiscal 2013 fuel specialties net sales table details components comprise year change net sales spread across markets operate americas saw increase volumes result higher demand benefiting improved price product mix acquisitions americas relating bachman independence generated additional sales compared prior year emea volumes decreased prior year due weaker trading conditions impact government sanctions related russia partly offset improved price product mix volumes lower aspac due loss contract 2013 offset increased underlying volumes together adverse price product mix result lower sales higher margin products avtel volumes higher due timing shipments customers opposed change longterm outlook market price product mix negatively impacted adverse customer mix gross margin year increase 02 percentage points primarily reflected mix increased sales higher margin products higher margin contribution oilfield services acquisitions operating expenses year increase 30 262 million due 208 million additional costs bachman businesses 63 million additional costs independence business 14 million increase bad debt provisions excluding recent acquisitions partly offset 10 million decrease personnelrelated compensation costs primarily due lower accruals sharebased compensation expense 08 million decrease costs strata business 05 million decrease expenses performance chemicals net sales table details components comprise year change net sales spread across markets operate volumes americas lower primarily due lower volumes fragrance ingredients industrial product partly offset increased personal care volumes acquisitions americas relating chemsil chemtec generated additional sales compared prior year volumes emea higher prior year primarily due higher volumes personal care fragrance ingredients negatively impacted adverse price product mix higher volumes aspac driven increases personal care markets benefited favorable exchange rate movements year driven primarily strengthening european union euro british pound sterling us dollar gross margin year increase 02 percentage points primarily reflected richer sales mix driven greater proportion sales personal care market including chemsil business operating expenses year increase 27 61 million primarily respect 52 million additional costs chemsil chemtec businesses 09 million increase costs partly driven additional headcount several locations octane additives net sales year decrease 6 primarily due timing shipments declining demand one remaining customer gross margin year increase 47 percentage points primarily due favorable manufacturing variances operating expenses year decrease 03 million due efficient management cost base income statement captions pension creditcharge noncash 33 million net charge 2014 compared 23 million net charge 2013 primarily due higher interest cost projected benefit obligation corporate costs year decrease 11 49 million related 28 million higher costs amortization new information system platform 13 million higher insurance claims offset 10 million lower personnelrelated compensation costs primarily due lower accruals sharebased compensation expense together accruals new cashbased longterm incentive plan release 08 million restructuring provision longer required 72 million lower legal professional expenses impairment octane additives segment goodwill 00 million 2014 13 million 2013 following final impairment charge fourth quarter 2013 net incomeexpense net income 18 million primarily related net gains 34 million foreign currency forward exchange contracts partly offset 16 million losses translation net assets denominated nonfunctional currencies european businesses 2013 net income 41 million primarily related gains 58 million translation net assets denominated nonfunctional currencies european businesses partly offset net foreign exchange losses foreign currency forward exchange contracts 16 million interest expense net 34 million 2014 19 million 2013 due higher level borrowing 2014 used primarily fund acquisition activity second half 2013 income taxes effective tax rate 242 162 2014 2013 respectively effective tax rate adjusted income tax provisions tax impact discrete items 249 2014 compared 159 2013 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2014 company’s income tax expense benefited greater degree higher proportion overall profits arising switzerland 2013 resulted 94 million benefit switzerland 2013 93 million addition 79 million benefit relation united kingdom 2013 39 million 04 million benefit relation germany 2013 03 million foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2014 amount subpart f income associated section 78 gross amounted 50 million 2013 43 million income earned certain overseas subsidiaries taxable us tax regime increased 21 million 12 million 2013 foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits total 48 million foreign tax credits utilized 2014 partially offset incremental us taxes arising foreign income inclusions year 2013 42 million balance 36 million foreign tax credit carry forwards earlier years utilized 2013 24 million resulted decrease recognition foreign tax credit carry forwards 36 million year 2013 24 million decrease details given note 10 notes consolidated financial statements liquidity financial condition working capital company believes adjusted working capital nongaap financial measure provides useful information investors evaluating company’s underlying performance identifying operating trends management uses nongaap financial measure internally allocate resources evaluate performance company’s operations items excluded adjusted working capital calculation listed table represent factors fluctuate line day working capital needs business 2015 adjusted working capital decreased 256 million primarily result disposal aroma chemicals business third quarter 2015 together lower working capital requirements end 2015 across segments 269 million decrease trade accounts receivable 2015 primarily related collection receivables fuel specialties segment together disposal aroma chemicals business third quarter 2015 lower sales fourth quarter 2015 prior year days’ sales outstanding fuel specialties segment decreased 52 days 47 days decreased 48 days 43 days performance chemicals segment 250 million decrease inventories 2015 primarily related disposal aroma chemicals business third quarter lower sales fourth quarter 2015 prior year days’ sales inventory fuel specialties segment increased 76 days 96 days decreased performance chemicals segment 99 days 83 days prepaid expenses decreased 22 million 2015 83 million 61 million primarily related normal expensing prepaid costs 285 million decrease accounts payable accrued liabilities 2015 partly driven lower sales fourth quarter 2015 prior year together disposal aroma chemicals business third quarter 2015 creditor days fuel specialties segment decreased 40 days 26 days performance chemicals segment remained unchanged 31 days operating cash flows generated cash operating activities 1177 million 2015 compared 1063 million 2014 year cash operating activities benefited increased operating income lower working capital requirements across businesses driven collection receivables lower inventory levels partly offset reduction accounts payable cash december 31 2015 2014 cash equivalents 1369 million 416 million respectively 1188 million 301 million respectively held nonus subsidiaries principally united kingdom company position control whether repatriate foreign earnings currently expect make repatriation foreseeable future hence provided future income taxes cash held overseas subsidiaries amount unremitted earnings december 31 2015 approximately 775 million circumstances change would cause earnings repatriated additional us tax liability could incurred continue monitor position shortterm investments december 31 2015 2014 shortterm investments 48 million 47 million respectively debt november 6 2015 company agreed new revolving credit facility retains 2000 million facility available company certain subsidiaries company extends term facility november 2020 addition new credit agreement allows company request additional amount 500 million committed existing lenders credit agreement new lenders credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda must greater 301 2 ratio ebitda net interest must less 401 management determined company breached covenants throughout period december 31 2015 expect breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries current credit facility contains restrictions may limit activities operational financial flexibility may able borrow event default outstanding includes material adverse change assets operations financial condition credit facility contains number restrictions limit ability among things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments effect merger consolidation dispose assets materially change line business december 31 2015 1330 million debt outstanding revolving credit facility 31 million obligations finance leases relating certain fixed assets within oilfield businesses december 31 2015 maturity profile longterm debt finance leases set outlook pleased operational performance results 2015 results reinforce confidence strategy approach market core businesses acquisitions met expectations importantly provided strong cash inflows continue expectations fuel specialties performance chemicals business deliver good performances 2016 however significant movement crude oil prices opportunity challenge innospec expect benefit lower raw material prices fuel specialties performance chemicals anticipate pressure many customers notably oilfield services planned focus continue work customers bring best available technology costeffective manner support volatile period anticipate decline revenues octane additives segment agreed new contract sole remaining customer thus limited visibility 2016 beyond although received inquiry regarding additional supply tel early part 2016 december 31 2015 company cash equivalents shortterm investments 1417 million longterm debt 1330 million finance leases 31 million giving total debt 1361 million resulting net cash position 56 million 2015 company repurchased 309697 common stock cost 140 million completed authorized share repurchase program announced may 12 2014 november 3 2015 company announced board directors authorized new share repurchase program targets repurchase 90 million common stock next three years quarter ended december 31 2015 share repurchases made company expects fund operations share repurchase program least next 12 months combination operating cash flows revolving credit facility contractual commitments following represents contractual commitments december 31 2015 effect obligations future cash flows operating activities amounts related pension obligations refer likely levels funding united kingdom defined benefit pension plan “plan” plan closed future service accrual large number deferred current pensioners company expects annual cash contribution 11 million 2016 23 million 201718 23 million 201920 year commitment make cash contributions plan reduced due plan surplus position considered meaningful predict amounts beyond 2020 since many uncertainties including future returns assets pension increases inflation evaluated plan undertakes actuarial valuation every three years remediation payments represent cash flows company currently obligated pay respect environmental remediation current former facilities include discretionary remediation costs company may choose incur operating lease commitments relate primarily office space motor vehicles various items computer office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty estimated payments included table reflect variable interest charge longterm debt obligations estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 10 notes consolidated financial statements investing activities capital commitments relate certain capital projects company committed undertake financing activities november 6 2015 company agreed new revolving credit facility retains 2000 million previous facility available company certain subsidiaries company extends term facility november 2020 addition new credit agreement allows company request additional amount 500 million committed existing lenders credit agreement new lenders finance leases relate financing certain fixed assets oilfield businesses part acquisition independence innospec deferred consideration contingently payable two years post acquisition based multiple independence’s annualized earnings interest taxes depreciation amortization plus percentage free cash flow innospec paid 440 million part deferred consideration january 11 2016 line terms sale purchase agreement based current forecasts independence’s performance innospec make deferred consideration payment 106 million payable approximately two years closing portion deferred payments payable innospec’s election shares innospec’s common stock environmental matters plant closures certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us expect liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws amounting 377 million december 31 2015 remediation expenditure utilizing provisions 26 million 20 million 19 million years 2015 2014 2013 respectively item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto executive overview 2016 sales line expectations performance improved delivered strategy grow strategic business units sales fuel specialties personal care reflected strength product portfolio research development pipeline markets maintained oilfield services business current challenging market conditions octane additives segment performance line final stages transition unleaded gasoline automotive market avtel product line producing tel avgas 100ll piston engine aircraft included fuel specialties segment anticipate product line decline alternative avgas 100ll proven december 30 2016 completed acquisition european differentiated surfactants business huntsman investments netherlands bv build presence personal care home care agrochemcial mining markets critical accounting estimates note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation consolidated financial statements business combinations acquisition method accounting requires recognize assets acquired liabilities assumed acquisition date fair values goodwill measured excess consideration transferred acquisition date net fair values assets acquired liabilities assumed measurement fair values assets acquired liabilities assumed requires considerable judgment although independent appraisals may used assist determination fair values certain assets liabilities determinations usually based significant estimates provided management forecast revenue profit determining fair value intangible assets income approach generally used may incorporate use discounted cash flow method applying discounted cash flow method estimated future cash flows residual values intangible asset discounted present value using discount rate appropriate business acquired cash flow projections based management’s estimates economic market conditions including revenue growth rates operating margins capital expenditures working capital requirements use best estimates assumptions part process value assets acquired liabilities assumed acquisition date contingent consideration balance sheet reporting date estimates inherently uncertain subject refinement measurement period occurs finalization purchase price allocation changes assumptions estimates result adjustments fair values assets acquired liabilities assumed corresponding offset goodwill subsequent adjustments impact consolidated statements income environmental liabilities subject environmental laws countries conduct business principal site giving rise environmental remediation liabilities octane additives manufacturing site ellesmere port united kingdom also environmental remediation liabilities much smaller scale respect manufacturing sites us europe ellesmere port continuing asset retirement program related certain manufacturing units closed remediation provisions december 31 2016 amounted 395 million relate principally ellesmere port site united kingdom recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention pensions company maintains defined benefit pension plan covering number current former employees united kingdom company also much smaller pension arrangements us overseas obligations plans material united kingdom plan closed future service accrual large number deferred current pensioners movements underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future inflation change one assumptions could impact plan asset value pbo pension charge recognized income statement changes could adversely impact results operations financial position example 025 change discount rate assumption would change pbo approximately 26 million net pension credit 2017 would change approximately 02 million 025 change level price inflation assumption would change pbo approximately 19 million net pension credit 2017 would change approximately 02 million information provided note 9 notes consolidated financial statements deferred tax uncertain income tax positions december 31 2016 deferred taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered permanent duration current intention repatriate past future earnings overseas subsidiaries consider earnings reinvested overseas circumstances change would cause earnings repatriated additional us tax liability could incurred continue monitor position calculation tax liabilities involves evaluating uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained based technical merits challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavorable tax settlement may require cash payments result increase effective tax rate year resolution favorable tax settlement may recognized reduction effective tax rate year resolution report interest penalties related uncertain income tax positions income taxes additional information regarding uncertain income tax positions see note 10 notes consolidated financial statements goodwill company’s reporting units level goodwill assessed potential impairment consistent reportable segments components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows sufficiently distinguished operationally financial reporting purposes rest company initially company performs qualitative assessment determine whether likely fair value segment less carrying amount prior performing twostep goodwill impairment test twostep test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital december 31 2016 3748 million goodwill relating fuel specialties performance chemicals oilfield services segments impairment assessment concluded impairment goodwill respect reporting segments believe assumptions impairment assessments reasonable subjective judgments possible variations assumptions may result materially different calculations potential impairment charges property plant equipment intangible assets net depreciation amortization respectively december 31 2016 1574 million property plant equipment 1444 million intangible assets net depreciation amortization respectively discussed notes 6 8 notes consolidated financial statements respectively longlived assets relate reporting segments amortized depreciated straightline periods 17 years respect intangible assets 25 years respect property plant equipment continually assess markets products related longlived assets well specific carrying values concluded carrying values amortization depreciation periods remain appropriate also test longlived assets potential impairment events occur circumstances change suggests impairment may occurred types events changes circumstances could include limited • introduction new products enhanced features competitors • loss material reduction purchases nonrenewal contract significant customer • prolonged decline business consumer spending • sharp unexpected rise raw material chemical energy costs • new laws regulations inhibiting development manufacture distribution sale products order facilitate testing company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value assets cash flows lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital events occur circumstances change may cause reduction periods longlived assets amortized depreciated result noncash impairment portion carrying value reduction amortization depreciation periods would effect cash flows results operations following table provides operating income reporting segment second quarter 2016 finalized changes reporting segments reflect development management structure strategy result changes information company’s chief operating decision makers regularly review purposes allocating resources assessing financial performance changed therefore company reported financial performance based four reportable segments described • fuel specialties including polymers business previously reported performance chemicals excluding oilfield services business • performance chemicals excluding polymers business • oilfield services previously reported within fuel specialties • octane additives change recast certain prior period amounts conform way internally manage monitor segment performance fuel specialties performance chemicals oilfield services segments operate markets actively seek growth opportunities although ultimate customers different octane additives segment expected decline near future one remaining refinery customer transitions unleaded fuel results operations fiscal 2016 compared fiscal 2015 fuel specialties net sales table details components comprise year change net sales spread across markets operate volumes americas lower prior year due softer fuel demand warmer winter change refinery crude slates emea aspac volumes increased prior year driven increased demand high volume low margin products price product mix emea aspac adversely impacted increased sales lower margin products together pricing pressures avtel volumes higher prior year due new customer orders combined favorable price product mix richer customer mix emea adversely impacted exchange rate movements year driven weakening european union euro british pound sterling us dollar gross margin year increase 36 percentage points primarily achieved reduced sales lower margin products americas together positive effect weaker exchange rates versus us dollar cost base emea aspac higher margin contribution additional avtel volumes operating expenses year increase 19 million primarily driven increased sharebased compensation accruals due rise innospec share price year together increased provisions doubtful debts performance chemicals net sales table details components comprise year change net sales spread across markets operate volumes higher regions driven increased personal care volumes americas emea experienced pricing pressures personal care adversely affected price product mix aspac benefited favorable pricing personal care weakening european union euro british pound sterling us dollar resulted adverse exchange rate variance emea aspac disposal aroma chemicals business 2015 excluded market analysis included one variance segment total gross margin year increase 39 percentage points primarily driven greater proportion sales higher margin personal care business following disposal lower margin aroma chemicals business prior year together positive effect weaker exchange rates versus us dollar cost base emea aspac operating expenses year increase 13 million primarily due 10 million commercial legal settlement distributor together higher sharebased compensation accruals driven rise innospec share price year higher performance related compensation partly offset 06 million reduction due disposal aroma chemicals business prior year oilfield services net sales year decrease 733 million primarily due reduction customer activity especially well completion following decline oil prices prior years customer activity confidence improved 2016 leading 22 growth sales fourth quarter compared fourth quarter 2015 overall volumes declined 13 percent year together adverse price product mix 15 percent gross margin year increase 25 percentage points primarily due favorable sales mix driven higher proportion sales higher margin production business operating expenses year decrease 90 million driven cost reduction programs lower selling technical support expenses align decline customer demand octane additives net sales decreased 161 million compared prior year due phasing orders one remaining refinery customer gross margin year increase 122 percentage points primarily due higher volumes production 2016 generating favorable manufacturing variances together benefit weaker british pound sterling us dollar ellesmere port cost base operating expenses year decrease 04 million due continuing efficient management cost base benefit weaker british pound sterling us dollar ellesmere port cost base income statement captions pension creditcharge noncash 67 million net credit 2016 compared 02 million net credit 2015 primarily driven lower interest cost projected benefit obligation corporate costs year increase 156 million related 46 million higher amortization costs related emea aspac deployment group wide erp system 44 million acquisitionrelated professional fees 32 million higher legal professional expenses primarily due recovery legal fees prior year 34 million increase related higher personnelrelated compensation including higher accruals sharebased compensation driven rise innospec share price year adjustment fair value contingent consideration credit 94 million relates adjustment carrying value liability contingent consideration 103 million partly offset accretion charge 09 million relation acquisition independence oilfield chemicals llc “independence” contingent consideration payable december 31 2016 calculated based actual trading results period october 31 2016 although amount paid subject final agreement previous owners lossprofit disposal subsidiary disposal aroma chemicals business generated 14 million loss disposal 2016 compared profit disposal 16 million prior year loss disposal 2016 related finalization assets liabilities disposed net incomeexpense net income 09 million primarily related 44 million net gains foreign currency forward contracts partly offset losses 35 million translation net assets denominated nonfunctional currencies european businesses 2015 net expense 00 million primarily related gains 14 million foreign currency forward exchange contracts offset 14 million losses translation net assets denominated nonfunctional currencies european businesses interest expense net 32 million 2016 compared 40 million 2015 reduction due higher amortization deferred finance costs prior year lower average net debt 2016 lower borrowing costs within revised credit facility partly offset rise libor 2016 income taxes effective tax rate 211 215 2016 2015 respectively effective tax rate adjusted changes fair value contingent consideration adjustments income tax positions tax impact discrete items 224 2016 compared 201 2015 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2016 company’s income tax expense benefited greater degree proportion overall profits arising switzerland 2015 resulted 78 million benefit switzerland 2015 75 million addition 84 million benefit relation united kingdom 2015 68 million 05 million benefit relation germany 2015 03 million 03 million benefit jurisdictions 2015 01 million reduction foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2016 subpart f income associated section 78 gross resulted us taxation 57 million 2015 47 million certain overseas subsidiaries taxable us tax regime incurred losses 02 million 2015 02 million losses foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits total 61 million foreign tax credits utilized 2016 offset incremental us taxes arising foreign income inclusions year 2015 47 million balance 05 million foreign tax credit carry forwards earlier years utilized 2015 24 million december 31 2016 company utilized foreign tax credit carry forwards earlier years united kingdom’s 1 reduction corporation tax rate effective april 2020 18 17 enacted september 2016 resulted deferred tax credit 06 million fourth quarter 2016 primarily relation deferred tax position united kingdom defined benefit pension plan details given note 10 notes consolidated financial statements results operations fiscal 2015 compared fiscal 2014 fuel specialties net sales table details components comprise year change net sales spread across markets operate volumes americas higher prior year result increased demand emea volumes increased prior year driven strong performance core markets volumes lower aspac driven lower demand adverse price product mix emea negatively impacted revenues primarily due sales lower margin products compared prior year avtel volumes lower prior year due timing shipments customers opposed change longterm outlook market improved price product mix emea aspac adversely impacted exchange rate movements year driven primarily weakening european union euro british pound sterling us dollar gross margin year increase 29 percentage points primarily reflected higher margins achieved americas together higher margin contribution avtel positive effect weaker exchange rates versus us dollar cost base operating expenses year decrease 27 million primarily due favorable exchange rates emea aspac resulting weakening european union euro british pound sterling us dollar performance chemicals net sales table details components comprise year change net sales spread across markets operate volumes higher americas emea primarily due increased personal care volumes partly offset adverse pricing pressures affecting price product mix aspac saw lower volumes offset favorable price product mix weakening european union euro british pound sterling us dollar resulted adverse exchange variance emea aspac disposal aroma chemicals business excluded market analysis included one variance segment total gross margin year increase 28 percentage points primarily driven greater proportion sales higher margin personal care business following disposal aroma chemicals business start third quarter operating expenses year increase 02 million primarily due 08 million higher research development costs 04 million additional headcount support personal care growth partly offset 11 million reduction due disposal aroma chemicals business oilfield services net sales year increase 1037 million primarily due full year benefit acquisition independence gross margin year increase 08 percentage points primarily driven favorable product mix operating expenses year increase 492 million due full year effect acquisition independence business octane additives net sales year increase 43 million primarily due timing demand one remaining refinery customer gross margin year decrease 39 percentage points primarily driven timing efficiency production one remaining refinery customer operating expenses year decrease 22 million due continuing efficient management cost base income statement captions pension creditcharge noncash 02 million net credit 2015 compared 33 million net charge 2014 primarily driven lower interest cost projected benefit obligation corporate costs year decrease 04 million related 11 million lower legal professional expenses 2015 driven recovery legal fees 18 million nonrecurring professional costs 2014 related acquisition independence business 14 million lower insurance claims due nonrecurring charges 2014 relating selfinsured incidents partly offset 31 million higher personnelrelated compensation including higher accruals sharebased compensation net 08 million release severance provision 2014 adjustment fair value contingent consideration credit 407 million relates adjustment carrying value liability contingent consideration related independence acquisition 514 million partly offset accretion charge 107 million carrying value contingent consideration based estimated ebitda free cash flow generated independence business period october 31 2016 contingent consideration payable based management’s latest forecasts business current trading performance results business particularly sensitive level exploration development production activity customers oil gas sector directly affected trends oil prices profit disposal subsidiary disposal aroma chemicals business generated profit disposal 16 million third quarter net incomeexpense net expense 00 million primarily related 14 million losses translation net assets denominated nonfunctional currencies european businesses offset gains 14 million foreign currency forward exchange contracts 2014 net income 18 million primarily related net gains 34 million foreign currency forward exchange contracts partly offset 16 million losses translation net assets denominated nonfunctional currencies european businesses interest expense net 40 million 2015 34 million 2014 primarily driven higher borrowing 2015 resulting funding required acquisition independence business fourth quarter 2014 income taxes effective tax rate 215 242 2015 2014 respectively effective tax rate adjusted changes fair value contingent consideration adjustments income tax positions tax impact discrete items 201 2015 compared 249 2014 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2015 company’s income tax expense benefited lesser degree proportion overall profits arising switzerland 2014 resulted 75 million benefit switzerland 2014 94 million addition 68 million benefit relation united kingdom 2014 79 million 03 million benefit relation germany 2014 04 million offset 01 million reduction jurisdictions foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2015 subpart f income associated section 78 gross resulted us taxation 47 million 2014 50 million certain overseas subsidiaries taxable us tax regime incurred losses 02 million 2014 21 million income foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits total 47 million foreign tax credits utilized 2015 offset incremental us taxes arising foreign income inclusions year 2014 48 million balance 24 million foreign tax credit carry forwards earlier years utilized 2014 36 million december 31 2015 company utilized foreign tax credit carry forwards earlier years united kingdom’s 1 reduction corporation tax rate 20 19 april 2017 subsequent reduction 19 18 april 2020 enacted november 2015 resulted deferred tax credit 11 million fourth quarter 2015 relation deferred tax position united kingdom defined benefit pension plan details given note 10 notes consolidated financial statement liquidity financial condition working capital company believes adjusted working capital nongaap financial measure provides useful information investors evaluating company’s underlying performance identifying operating trends management uses nongaap financial measure internally allocate resources evaluate performance company’s operations items excluded adjusted working capital calculation listed table represent factors fluctuate line day working capital needs business 2016 working capital increased 54 million driven acquisition huntsman together various movements year included reconciliation adjust working capital better represent operational activity company adjusted working capital shown increased 134 million 122 million related acquisition huntsman excluding acquisition adjusted working capital increased 12 million primarily driven higher receivables company ended year high demand customers partly offset lower inventories year excluding huntsman acquisition 60 million increase trade accounts receivable 2016 primarily oilfield services segment days’ sales outstanding fuel specialties segment decreased 47 days 45 days increased 43 days 55 days performance chemicals segment increased 44 days 54 oilfield services segment excluding huntsman acquisition 73 million decrease inventories 2016 primarily related lower inventory fuel specialties business partly offset increased inventory higher production volumes octane additives segment days’ sales inventory fuel specialties segment decreased 96 days 84 days increased performance chemicals segment 83 days 94 days decreased 82 72 days oilfield services segment excluding huntsman acquisition prepaid expenses decreased 04 million 2016 61 million 57 million due timing invoicing excluding huntsman acquisition 29 million decrease accounts payable accrued liabilities 2016 creditor days fuel specialties segment increased 26 days 28 days performance chemicals segment increased 31 days 32 days remained unchanged year 32 days oilfield services segment operating cash flows generated cash operating activities 1045 million 2016 compared 1177 million 2015 year cash operating activities adversely impacted lower operating income partly offset lower cash outflows working capital requirements lower cash contributions defined benefit pension plans cash december 31 2016 2015 cash equivalents 1019 million 1369 million respectively 902 million 1188 million respectively held nonus subsidiaries principally united kingdom company position control whether repatriate foreign earnings currently expect make repatriation foreseeable future hence provided future income taxes cash held overseas subsidiaries amount unremitted earnings december 31 2016 approximately 788 million circumstances change would cause earnings repatriated additional us tax liability could incurred continue monitor position shortterm investments december 31 2016 2015 shortterm investments 00 million 48 million respectively debt december 14 2016 innospec certain subsidiaries company entered third amendment restatement agreement various lenders amends restates company’s credit facility agreement dated december 14 2011 amended restated august 28 2013 november 6 2015 “preexisting credit agreement” preexisting credit agreement amended restated pursuant third amendment restatement agreement “amended credit agreement” amended credit agreement retains 200000000 revolving credit facility available company adds term loan facility 110000000 termination date revolving facility remains november 6 2020 term loan 11000000 repayment installment due december 28 2017 16500000 installment due december 28 2018 22000000 installment due december 28 2019 outstanding balance due november 6 2020 term loan credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda must greater 301 2 ratio ebitda net interest must less 401 management determined company breached covenants throughout period december 31 2016 expect breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries current credit facility contains restrictions may limit activities operational financial flexibility may able borrow event default outstanding includes material adverse change assets operations financial condition credit facility contains number restrictions limit ability among things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments effect merger consolidation dispose assets materially change line business december 31 2016 1610 million debt outstanding revolving credit facility 1100 million debt outstanding new term loan 45 million obligations finance leases relating certain fixed assets within oilfield services segment december 31 2016 maturity profile longterm debt finance leases set fair value longterm debt approximates carrying value discounting present value offset payments interest rate swaps outlook positive results 2016 result strong business performance aligned proven strategy delivering new products customers key markets combined good customer service enabled us meet expectations spite challenging market conditions business continued generate good cash flows including significant acquisition huntsman leverage still relatively low level continue expectations fuel specialties performance chemicals businesses deliver good performances 2017 believe prospects oilfield services business look better 2016 although depend continued stability improvement crude oil prices expect continue focus development new technology combined good customer service order maintain competitive advantage anticipate decline revenues octane additives segment reached agreement new contract sole remaining refinery customer thus limited visibility 2017 beyond although received inquiry regarding additional supply tel 2017 possibly 2018 december 31 2016 company cash equivalents 1019 million longterm debt 2688 million finance leases 45 million giving total debt 2733 million resulting net debt position 1714 million 2016 company repurchased 161029 common stock cost 75 million authorized share repurchase program announced november 3 2015 company expects fund operations share repurchase program least next 12 months combination operating cash flows revolving credit facility contractual commitments following represents contractual commitments december 31 2016 effect obligations future cash flows operating activities amounts related pension obligations refer likely levels funding united kingdom defined benefit pension plan “plan” plan closed future service accrual large number deferred current pensioners company expects annual cash contribution 10 million 2017 19 million 201819 19 million 202021 considered meaningful predict amounts beyond 2021 since many uncertainties including future returns assets pension increases inflation evaluated plan undertakes actuarial valuation every three years remediation payments represent cash flows company currently obligated pay respect environmental remediation current former facilities include discretionary remediation costs company may choose incur operating lease commitments relate primarily office space motor vehicles various items computer office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty estimated payments included table reflect variable interest charge longterm debt obligations estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 10 notes consolidated financial statements investing activities capital commitments relate certain capital projects company committed undertake financing activities december 14 2016 innospec certain subsidiaries company entered third amendment restatement agreement various lenders amends restates company’s credit facility agreement dated december 14 2011 amended restated august 28 2013 november 6 2015 “preexisting credit agreement” preexisting credit agreement amended restated pursuant third amendment restatement agreement “amended credit agreement” amended credit agreement retains 200000000 revolving credit facility available company adds term loan facility 110000000 termination date revolving facility remains november 6 2020 term loan 11000000 repayment installment due december 28 2017 16500000 installment due december 28 2018 22000000 installment due december 28 2019 outstanding balance due november 6 2020 finance leases relate financing certain fixed assets oilfield services segment part acquisition independence innospec deferred consideration contingently payable two years post acquisition based multiple independence’s annualized earnings interest taxes depreciation amortization plus percentage free cash flow innospec paid 440 million part deferred consideration january 11 2016 line terms sale purchase agreement innospec provided deferred consideration payment 11 million paid early 2017 environmental matters plant closures certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us expect liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws amounting 395 million december 31 2016 remediation expenditure utilizing provisions 27 million 26 million 20 million years 2016 2015 2014 respectively item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto executive overview 2017 sales grew line expectations delivered strategy grow strategic business units sales fuel specialties performance chemicals reflected strength product portfolio research development pipeline markets oilfield services segment experienced strong growth reflecting increase customer activity market recovered octane additives segment performance line final stages transition unleaded gasoline automotive market avtel product line producing tel avgas 100ll piston engine aircraft included fuel specialties segment anticipate product line decline alternative avgas 100ll proven deliverable transition plan developed year completed integration business acquired huntsman end 2016 first quarter 2018 performance chemicals reported single business commentary longer report detailed split acquired heritage businesses critical accounting estimates note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation consolidated financial statements business combinations acquisition method accounting requires recognize assets acquired liabilities assumed acquisition date fair values goodwill measured excess consideration transferred acquisition date net fair values assets acquired liabilities assumed measurement fair values assets acquired liabilities assumed requires considerable judgment although independent appraisals may used assist determination fair values certain assets liabilities determinations usually based significant estimates provided management forecast revenue profit determining fair value intangible assets income approach generally used may incorporate use discounted cash flow method applying discounted cash flow method estimated future cash flows residual values intangible asset discounted present value using discount rate appropriate business acquired cash flow projections based management’s estimates economic market conditions including revenue growth rates operating margins capital expenditures working capital requirements use best estimates assumptions part process value assets acquired liabilities assumed acquisition date contingent consideration balance sheet reporting date estimates inherently uncertain subject refinement measurement period occurs finalization purchase price allocation changes assumptions estimates based new information previously available result adjustments fair values assets acquired liabilities assumed corresponding offset goodwill subsequent adjustments impact consolidated statements income environmental liabilities subject environmental laws countries conduct business principal site giving rise environmental remediation liabilities octane additives manufacturing site ellesmere port united kingdom also environmental remediation liabilities much smaller scale respect manufacturing sites us europe ellesmere port continuing asset retirement program related certain manufacturing units closed remediation provisions december 31 2017 amounted 461 million relate principally ellesmere port site united kingdom recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention pensions company maintains defined benefit pension plan covering number current former employees united kingdom company also much smaller pension arrangements us overseas obligations plans material united kingdom plan closed future service accrual large number deferred current pensioners movements underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future inflation change one assumptions could impact plan asset value pbo pension charge recognized income statement changes could adversely impact results operations financial position example 025 change discount rate assumption would change pbo approximately 25 million net pension credit 2018 would change approximately 01 million 025 change level price inflation assumption would change pbo approximately 18 million net pension credit 2018 would change approximately 15 million information provided note 9 notes consolidated financial statements income taxes subject income taxes us jurisdictions tax laws dynamic subject change new laws passed new interpretations law issued applied calculation tax liabilities involves evaluating uncertainties application accounting principles complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained based technical merits challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavorable tax settlement may require cash payments result increase effective tax rate year resolution favorable tax settlement may recognized reduction effective tax rate year resolution report interest penalties related uncertain income tax positions income taxes additional information regarding uncertain income tax positions see note 10 notes consolidated financial statements december 22 2017 us tax cuts jobs act “tax reform act” enacted significantly revises us corporate income tax regime new legislation contains several key tax provisions affect us including onetime mandatory transition tax accumulated foreign earnings reduction us corporate income tax rate 35 21 effective january 1 2018 amongst others december 22 2017 sec staff issued staff accounting bulletin 118 “sab 118” provides guidance accounting tax effects tax reform act sab 118 provides measurement period extend beyond one year tax reform act enactment date companies complete accounting asc 740 income taxes accounting complete companies may record provisional estimates result tax reform act recorded provisional amounts relation accounting transition tax 2017 consider accounting transition tax items disclosed note 10 incomplete due forthcoming guidance ongoing analysis final data tax positions may impact calculations expect complete analysis within measurement period accordance sab 118 goodwill company’s reporting units level goodwill assessed potential impairment consistent reportable segments components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows sufficiently distinguished operationally financial reporting purposes rest company initially company performs qualitative assessment determine whether likely fair value segment less carrying amount prior performing twostep goodwill impairment test twostep test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital december 31 2017 3618 million goodwill relating fuel specialties performance chemicals oilfield services segments impairment assessment concluded impairment goodwill respect reporting segments believe assumptions impairment assessments reasonable subjective judgments possible variations assumptions may result materially different calculations potential impairment charges property plant equipment intangible assets net depreciation amortization respectively december 31 2017 1960 million property plant equipment 1633 million intangible assets net depreciation amortization respectively discussed notes 6 8 notes consolidated financial statements respectively longlived assets relate reporting segments amortized depreciated straightline periods 17 years respect intangible assets 25 years respect property plant equipment continually assess markets products related longlived assets well specific carrying values concluded carrying values amortization depreciation periods remain appropriate also test longlived assets potential impairment events occur circumstances change suggests impairment may occurred types events changes circumstances could include limited • introduction new products enhanced features competitors • loss material reduction purchases nonrenewal contract significant customer • prolonged decline business consumer spending • sharp unexpected rise raw material chemical energy costs • new laws regulations inhibiting development manufacture distribution sale products order facilitate testing company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value assets cash flows lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital events occur circumstances change may cause reduction periods longlived assets amortized depreciated result noncash impairment portion carrying value reduction amortization depreciation periods would effect cash flows results operations following table provides operating income reporting segment results operations fiscal 2017 compared fiscal 2016 fuel specialties net sales table details components comprise year change net sales spread across markets operate volumes americas higher result increased demand following slower normal end 2016 price product mix americas adversely impacted increased sales lower margin products volumes emea aspac decreased due customer reformulation new technologies price product mix emea aspac benefited increased sales higher margin products avtel volumes lower prior year due variations timing level demand customers together favorable price mix emea benefited favorable exchange rate movements year driven strengthening european union euro us dollar gross margin year decrease 07 percentage points adversely impacted lower sales higher margin products compared strong prior year partly offset benefit stronger european union euro versus us dollar towards end year operating expenses year increase 53 million driven 34 million higher selling administrative expenses 19 million higher research development expenses higher performance based personnelrelated compensation increased expenses year performance chemicals net sales table details components comprise year change net sales spread across markets operate excluding huntsman acquisition increased personal care demand led higher volumes markets price product mix americas aspac adversely affected pricing pressures personal care emea benefited favorable price product mix personal care aspac adversely impacted exchange rate movements’ year driven weakening british pound sterling us dollar sales growth acquisition huntsman business end 2016 excluded market analysis included one variance segment total gross margin year decrease 132 percentage points driven dilutive effect lower margins acquired huntsman business together oneoff events unplanned plant outage raw materials purchasing pricing issues second quarter acquired business operating expenses year increase 158 million due 176 million additional expenses within acquired huntsman business partly offset reduction performance based personnelrelated compensation favorable impact 10 million oneoff commercial legal settlement prior year oilfield services net sales year increase 1127 million due improvement customer demand product lines following rising customer activity oil prices recovered overall volumes increased 60 percent year partly offset adverse price product mix 1 percent gross margin year decrease 40 percentage points compared strong prior year driven mix customer activity adverse effect hurricane harvey raw material prices availability operating expenses year increase 187 million primarily driven 153 million higher selling technical support expenses required service increase customer demand together 12 million additional research development expenses 22 million higher administration costs support business growth octane additives net sales increased 157 million compared prior year due phasing orders one remaining refinery customer gross margin year decrease 93 percentage points due lower volumes production current year leading higher manufacturing costs per tonne operating expenses year decrease 01 million primarily due reduction provisions doubtful debts income statement captions pension credit noncash 44 million net credit 2017 compared 67 million net credit 2016 primarily driven higher amortization actuarial losses corporate costs year decrease 60 million related 44 million nonrecurring acquisitionrelated costs prior year huntsman business partly offset 19 million integration related costs current year together lower performance based personnelrelated compensation benefit weaker british pound sterling us dollar ellesmere port cost base year adjustment fair value contingent consideration prior year contingent consideration credit 94 million related acquisition 2014 loss disposal subsidiary loss 09 million relates indemnity claim relation residual testing aroma chemicals business sold 2015 foreign exchange loss liquidation subsidiary 18 million loss relates reclassification historic foreign exchange translations net assets accumulated comprehensive losses captive insurance company liquidated first quarter 2017 net incomeexpense net income 66 million related 75 million gains translation net balances denominated nonfunctional currencies mainly european businesses partly offset losses 09 million foreign currency forward exchange contracts prior year net income 09 million primarily related 44 million net gains foreign currency forward contracts partly offset losses 35 million translation net assets denominated nonfunctional currencies european businesses interest expense net 82 million 2017 compared 32 million 2016 driven additional term loan related huntsman acquisition increased working capital requirements funded credit facility recent rise libor impacting revolving credit facility borrowing income taxes effective tax rate 518 211 2017 2016 respectively adjusted effective tax rate adjusted items set following table 202 2017 compared 224 2016 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods significant factor impacting effective rate recognized implications tax reform act result act accrued provisional estimate mandatory transition tax accumulated earnings december 31 2017 resulting increase income tax expense 477 million addition us deferred tax assets liabilities remeasured 35 21 date resulted 71 million deferred income tax benefit addition mentioned mix taxable profits different geographical jurisdictions group operates continues significant positive impact effective tax rate foreign tax rate differential arising profits earned foreign jurisdictions lower tax rates 2017 175 million 2016 171 million 2017 company’s income tax expense benefited greater degree proportion overall profits arising switzerland 2016 resulted 82 million benefit switzerland 2016 78 million addition 83 million benefit relation united kingdom 2016 84 million 07 million benefit relation germany 2016 05 million 03 million benefit jurisdictions 2016 03 million benefit foreign income inclusions arise year certain types income earned overseas taxable us tax regulations tax reform act substantially change us taxation income earned overseas 2018 future years 2017 income earned overseas taxable us regulations includes subpart f income principally foreign based company sales united kingdom associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2017 subpart f income associated section 78 gross resulted us taxation 71 million 2016 57 million certain overseas subsidiaries taxable us tax regime generated taxable income 24 million 2016 02 million loss foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits total 56 million foreign tax credits utilized 2017 offset incremental us taxes arising foreign income inclusions year excluding associated onetime mandatory transition tax inclusion 2016 61 million generated 2017 details given note 10 notes consolidated financial statements results operations fiscal 2016 compared fiscal 2015 fuel specialties net sales table details components comprise year change net sales spread across markets operate volumes americas lower prior year due softer fuel demand warmer winter change refinery crude slates emea aspac volumes increased prior year driven increased demand high volume low margin products price product mix emea aspac adversely impacted increased sales lower margin products together pricing pressures avtel volumes higher prior year due new customer orders combined favorable price product mix richer customer mix emea adversely impacted exchange rate movements year driven weakening european union euro british pound sterling us dollar gross margin year increase 36 percentage points primarily achieved reduced sales lower margin products americas together positive effect weaker exchange rates versus us dollar cost base emea aspac higher margin contribution additional avtel volumes operating expenses year increase 19 million primarily driven increased sharebased compensation accruals due rise innospec share price year together increased provisions doubtful debts performance chemicals net sales table details components comprise year change net sales spread across markets operate volumes higher regions driven increased personal care volumes americas emea experienced pricing pressures personal care adversely affected price product mix aspac benefited favorable pricing personal care weakening european union euro british pound sterling us dollar resulted adverse exchange rate variance emea aspac disposal aroma chemicals business 2015 excluded market analysis included one variance segment total gross margin year increase 39 percentage points primarily driven greater proportion sales higher margin personal care business following disposal lower margin aroma chemicals business prior year together positive effect weaker exchange rates versus us dollar cost base emea aspac operating expenses year increase 13 million primarily due 10 million commercial legal settlement distributor together higher sharebased compensation accruals driven rise innospec share price year higher performance related compensation partly offset 06 million reduction due disposal aroma chemicals business prior year oilfield services net sales year decrease 733 million primarily due reduction customer activity especially well completion following decline oil prices prior years customer activity confidence improved 2016 leading 22 growth sales fourth quarter compared fourth quarter 2015 overall volumes declined 13 percent year together adverse price product mix 15 percent gross margin year increase 25 percentage points primarily due favorable sales mix driven higher proportion sales higher margin production business operating expenses year decrease 90 million driven cost reduction programs lower selling technical support expenses align decline customer demand octane additives net sales decreased 161 million compared prior year due phasing orders one remaining refinery customer gross margin year increase 122 percentage points primarily due higher volumes production 2016 generating favorable manufacturing variances together benefit weaker british pound sterling us dollar ellesmere port cost base operating expenses year decrease 04 million due continuing efficient management cost base benefit weaker british pound sterling us dollar ellesmere port cost base income statement captions pension credit noncash 67 million net credit 2016 compared 02 million net credit 2015 primarily driven lower interest cost projected benefit obligation corporate costs year increase 156 million related 46 million higher amortization costs related emea aspac deployment group wide erp system 44 million acquisitionrelated professional fees 32 million higher legal professional expenses primarily due recovery legal fees prior year 34 million increase related higher personnelrelated compensation including higher accruals sharebased compensation driven rise innospec share price year adjustment fair value contingent consideration credit 94 million relates adjustment carrying value liability contingent consideration 103 million partly offset accretion charge 09 million relation acquisition independence oilfield chemicals llc “independence” contingent consideration payable december 31 2016 calculated based actual trading results period october 31 2016 although amount paid subject final agreement previous owners lossprofit disposal subsidiary disposal aroma chemicals business generated 14 million loss disposal 2016 compared profit disposal 16 million prior year loss disposal 2016 related finalization assets liabilities disposed net incomeexpense net income 09 million primarily related 44 million net gains foreign currency forward contracts partly offset losses 35 million translation net assets denominated nonfunctional currencies european businesses 2015 net expense 00 million primarily related gains 14 million foreign currency forward exchange contracts offset 14 million losses translation net assets denominated nonfunctional currencies european businesses interest expense net 32 million 2016 compared 40 million 2015 reduction due higher amortization deferred finance costs prior year lower average net debt 2016 lower borrowing costs within revised credit facility partly offset rise libor 2016 income taxes effective tax rate 211 215 2016 2015 respectively effective tax rate adjusted changes fair value contingent consideration adjustments income tax positions tax impact discrete items 224 2016 compared 201 2015 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2016 company’s income tax expense benefited greater degree proportion overall profits arising switzerland 2015 resulted 78 million benefit switzerland 2015 75 million addition 84 million benefit relation united kingdom 2015 68 million 05 million benefit relation germany 2015 03 million 03 million benefit jurisdictions 2015 01 million reduction foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2016 subpart f income associated section 78 gross resulted us taxation 57 million 2015 47 million certain overseas subsidiaries taxable us tax regime incurred losses 02 million 2015 02 million losses foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits total 61 million foreign tax credits utilized 2016 offset incremental us taxes arising foreign income inclusions year 2015 47 million balance 05 million foreign tax credit carry forwards earlier years utilized 2015 24 million december 31 2016 company utilized foreign tax credit carry forwards earlier years united kingdom’s 1 reduction corporation tax rate effective april 2020 18 17 enacted september 2016 resulted deferred tax credit 06 million fourth quarter 2016 primarily relation deferred tax position united kingdom defined benefit pension plan details given note 10 notes consolidated financial statements liquidity financial condition working capital company believes adjusted working capital nongaap financial measure provides useful information investors evaluating company’s underlying performance identifying operating trends management uses nongaap financial measure internally allocate resources evaluate performance company’s operations items excluded adjusted working capital calculation listed table represent factors fluctuate line day working capital needs business 2017 working capital increased 419 million adjusted working capital increased 660 million difference primarily due exclusion cash equivalents long term debt adjusted working capital measure huntsman acquisition accounted approximately 340 million movements included oneoff working capital funding requirement post acquisition reflecting structure acquisition excluded transfer trade receivables payables remaining movements primarily driven timing demand customers 901 million increase trade accounts receivable primarily related 619 million increase huntsman acquisition performance chemicals segment increase sales fuel specialties oilfield services segments also increased receivables balances days’ sales outstanding fuel specialties segment increased 46 days 51 days increased performance chemicals segment 55 days 68 days increased 54 days 58 days oilfield services segment 360 million increase inventories primarily related 234 million increase fuel specialties segment due timing demand customers days’ sales inventory fuel specialties segment increased 84 days 100 days decreased performance chemicals segment 94 days 51 days decreased 72 days 63 days oilfield services segment prepaid expenses increased 69 million 62 million 131 million driven payment advance 42 million south american business together timing invoices received normal expensing prepaid invoices 670 million increase accounts payable accrued liabilities primarily related 371 million increase huntsman acquisition performance chemicals segment 221 million increase oilfield services segment driven increased customer activity creditor days fuel specialties segment increased 28 days 32 days performance chemicals segment increased 32 days 50 days increased 32 days 51 days oilfield services segment operating cash flows generated cash operating activities 827 million 2017 compared 1055 million 2016 year cash operating activities adversely impacted oneoff working capital funding requirement 280 million huntsman acquisition cash december 31 2017 2016 cash equivalents 902 million 1019 million respectively 741 million 902 million respectively held nonus subsidiaries principally united kingdom company position control whether repatriate foreign earnings currently expect make repatriation foreseeable future tax reform act requires amongst provisions onetime mandatory transition tax accumulated foreign earnings recorded provisional estimated tax liability december 31 2017 477 million intend pay tax liability eightyear payment schedule prescribed tax reform act debt december 14 2016 innospec certain subsidiaries company entered third amendment restatement agreement various lenders amends restates company’s credit facility agreement dated december 14 2011 amended restated august 28 2013 november 6 2015 “preexisting credit agreement” preexisting credit agreement amended restated pursuant third amendment restatement agreement “amended credit agreement” amended credit agreement retains 200000000 revolving credit facility available company adds term loan facility 110000000 termination date revolving facility remains november 6 2020 repayment term loan 11000000 made december 29 2017 followed 16500000 installment due december 28 2018 22000000 installment due december 28 2019 outstanding balance due november 6 2020 term loan credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda must greater 301 2 ratio ebitda net interest must less 401 management determined company breached covenants throughout period december 31 2017 expect breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries current credit facility contains restrictions may limit activities operational financial flexibility may able borrow event default outstanding includes material adverse change assets operations financial condition credit facility contains number restrictions limit ability among things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments effect merger consolidation dispose assets materially change line business december 31 2017 1210 million debt outstanding revolving credit facility 990 million debt outstanding term loan 59 million obligations finance leases relating certain fixed assets within fuel specialties oilfield services segments december 31 2017 maturity profile longterm debt finance leases set fair value longterm debt approximates carrying value discounting present value offset interest rate swaps outlook business performed well 2017 reflected positive results continued evidence strategy working delivering new products customers key markets combined good customer service enabled us meet expectations spite challenging market conditions business continued generate good cash flows even light required working capital investments grow integrate acquired business leverage improved continue expectations fuel specialties performance chemicals oilfield services businesses deliver good performances 2018 expect continue focus development new technology combined good customer service order maintain competitive advantage anticipate decline revenues octane additives segment agreed new contract sole remaining customer thus limited visibility 2018 beyond december 31 2017 company cash equivalents 902 million longterm debt 2184 million finance leases 59 million giving total debt 2243 million resulting net debt position 1341 million 2017 company repurchase common stock authorized share repurchase program announced november 3 2015 company expects fund operations share repurchase program least next 12 months combination operating cash flows revolving credit facility contractual commitments following represents contractual commitments december 31 2017 effect obligations future cash flows operating activities amounts related pension obligations refer likely levels funding united kingdom defined benefit pension plan “plan” plan closed future service accrual large number deferred current pensioners company expects annual cash contribution 10 million 2018 21 million 201920 21 million 202122 considered meaningful predict amounts beyond 2022 since many uncertainties including future returns assets pension increases inflation evaluated plan undertakes actuarial valuation every three years remediation payments represent cash flows company currently obligated pay respect environmental remediation current former facilities include discretionary remediation costs company may choose incur operating lease commitments relate primarily office space motor vehicles various items computer office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty estimated payments included table reflect variable interest charge longterm debt obligations estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 10 notes consolidated financial statements investing activities capital commitments relate certain capital projects company committed undertake financing activities december 14 2016 innospec certain subsidiaries company entered third amendment restatement agreement various lenders amends restates company’s credit facility agreement dated december 14 2011 amended restated august 28 2013 november 6 2015 “preexisting credit agreement” preexisting credit agreement amended restated pursuant third amendment restatement agreement “amended credit agreement” amended credit agreement retains 200000000 revolving credit facility available company adds term loan facility 110000000 termination date revolving facility remains november 6 2020 repayment term loan 11000000 made december 29 2017 followed 16500000 installment due december 28 2018 22000000 installment due december 28 2019 outstanding balance due november 6 2020 finance leases relate financing certain fixed assets fuel specialties oilfield services segments environmental matters plant closures certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us expect liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws amounting 461 million december 31 2017 remediation expenditure utilizing provisions 24 million 27 million 26 million years 2017 2016 2015 respectively item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto executive overview 2018 strategy focus organic growth portfolio build integration major acquisition delivered line expectations sales revenue grew strategic business units new product development customer adoption strong product portfolio helped drive revenue growth fuel specialties performance chemicals oilfield services business grew acquired customers improved profitability reflecting strength market augmented acquisition biosuite llc may 2018 octane additives continued supply one remaining customer motor gasoline albeit reduced levels consistent customer’s transition unleaded fuel critical accounting estimates note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation consolidated financial statements business combinations acquisition method accounting requires recognize assets acquired liabilities assumed acquisition date fair values goodwill measured excess consideration transferred acquisition date net fair values assets acquired liabilities assumed measurement fair values assets acquired liabilities assumed requires considerable judgment although independent appraisals may used assist determination fair values certain assets liabilities determinations usually based significant estimates provided management forecast revenue profit determining fair value intangible assets income approach generally used may incorporate use discounted cash flow method applying discounted cash flow method estimated future cash flows residual values intangible asset discounted present value using discount rate appropriate business acquired cash flow projections based management’s estimates economic market conditions including revenue growth rates operating margins capital expenditures working capital requirements use best estimates assumptions part process value assets acquired liabilities assumed acquisition date contingent consideration balance sheet reporting date estimates inherently uncertain subject refinement measurement period occurs finalization purchase price allocation changes assumptions estimates based new information previously available result adjustments fair values assets acquired liabilities assumed corresponding offset goodwill subsequent adjustments impact consolidated statements income environmental liabilities subject environmental laws countries conduct business principal site giving rise environmental remediation liabilities octane additives manufacturing site ellesmere port united kingdom also environmental remediation liabilities much smaller scale respect manufacturing sites us europe ellesmere port continuing asset retirement program related certain manufacturing units closed remediation provisions december 31 2018 amounted 495 million relate principally ellesmere port site united kingdom recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention income taxes subject income taxes us jurisdictions tax laws dynamic subject change new laws passed new interpretations law issued applied calculation tax liabilities involves evaluating uncertainties application accounting principles complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained based technical merits position challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavourable tax settlement may require cash payments result increase effective tax rate year resolution report interest penalties related uncertain tax positions income taxes additional information regarding uncertain income tax positions see note 10 notes consolidated financial statements december 22 2017 us government enacted comprehensive tax legislation commonly referred tax cuts jobs act “tax act” tax act makes broad complex changes us tax code including limited 1 reducing us federal corporate tax rate 35 per cent 21 per cent 2 requiring companies pay onetime transition tax certain unrepatriated earnings foreign subsidiaries 3 generally eliminating us federal income taxes dividends foreign subsidiaries 4 requiring current inclusion us federal taxable income certain earnings controlled foreign corporations 5 creating new limitation deductible interest expense 6 changing rules related uses limitations nol carry forwards created tax years beginning december 31 2017 december 22 2017 sec staff issued staff accounting bulletin 118 “sab 118” provides guidance accounting tax effects tax act sab 118 provided measurement period extend beyond one year tax act enactment date companies complete accounting asc 740 income taxes result tax act recorded provisional amounts relation accounting transition tax 2017 december 31 2018 consider accounting transition tax items disclosed note 10 complete pensions company maintains defined benefit pension plan covering number current former employees united kingdom company also much smaller pension arrangements us overseas obligations plans material united kingdom plan closed future service accrual large number deferred current pensioners movements underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future inflation change one assumptions could impact plan asset value pbo pension charge recognized income statement changes could adversely impact results operations financial position example 025 change discount rate assumption would change pbo approximately 21 million net pension credit 2019 would change approximately 05 million 025 change level price inflation assumption would change pbo approximately 14 million net pension credit 2019 would change approximately 06 million information provided note 9 notes consolidated financial statements goodwill company’s reporting units level goodwill assessed potential impairment consistent reportable segments components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows sufficiently distinguished operationally financial reporting purposes rest company initially company performs qualitative assessment determine whether likely fair value segment less carrying amount prior performing twostep goodwill impairment test twostep test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital december 31 2018 3649 million goodwill relating fuel specialties performance chemicals oilfield services segments impairment assessment concluded impairment goodwill respect reporting segments believe assumptions impairment assessments reasonable subjective judgments possible variations assumptions may result materially different calculations potential impairment charges property plant equipment intangible assets net depreciation amortization respectively december 31 2018 1964 million property plant equipment 1363 million intangible assets net depreciation amortization respectively discussed notes 6 8 notes consolidated financial statements respectively longlived assets relate reporting segments amortized depreciated straightline periods 17 years respect intangible assets 25 years respect property plant equipment continually assess markets products related longlived assets well specific carrying values concluded carrying values amortization depreciation periods remain appropriate also test longlived assets potential impairment events occur circumstances change suggests impairment may occurred types events changes circumstances could include limited • introduction new products enhanced features competitors • loss material reduction purchases nonrenewal contract significant customer • prolonged decline business consumer spending • sharp unexpected rise raw material chemical energy costs • new laws regulations inhibiting development manufacture distribution sale products order facilitate testing company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value assets cash flows lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital events occur circumstances change may cause reduction periods longlived assets amortized depreciated result noncash impairment portion carrying value reduction amortization depreciation periods would effect cash flows results operations following table provides operating income reporting segment results operations fiscal 2018 compared fiscal 2017 recast certain prior period amounts confirm new accounting standards fuel specialties net sales table details components comprise year change net sales spread across markets operate volumes regions higher driven increased demand products technology price product mix americas benefited increased sales higher margin products avtel volumes higher prior year due variations timing level demand customers emea aspac benefited favorable exchange rate movements year driven strengthening british pound sterling european union euro us dollar gross margin year decrease 20 percentage points adversely affected mix product sales compared strong prior year comparative operating expenses year decrease 18 million driven reduction provisions doubtful debts lower accruals agents’ commissions partly offset increased expenses support business growth performance chemicals net sales table details components comprise year change net sales spread across markets operate increased demand personal care products led significantly higher volumes americas together favorable price product mix increased sales higher margin products emea benefited higher volumes personal care home care aspac volumes higher due increased demand personal care partly offset lower demand home care aspac impacted adverse price product mix due lower sales higher margin products emea aspac benefited favorable exchange rate movements year driven strengthening british pound sterling european union euro us dollar gross margin year increase 27 percentage points driven benefit several improvement projects favorable manufacturing variances due higher production volumes operating expenses year increase 96 million due additional personnelrelated expenses support business growth including increased performancerelated compensation accruals together additional amortization new information system platform adverse impact exchange rate movements year oilfield services net sales year increase 962 million due increased customer activity stimulation completion following rise crude oil prices first nine months year overall volumes increased 26 percent year together favorable price product mix 6 percent gross margin year decrease 33 percentage points due mix sales customers adverse raw material pricing higher transportation labor costs operating expenses year increase 85 million due higher selling technical support expenses required deliver increase customer demand partly offset reduction expenses reduction expenses driven lower general administration costs due effective cost control together lower amortization acquisition related intangible assets acquired assets become fully amortized octane additives net sales decreased 254 million compared prior year due expected reduction demand one remaining refinery customer gross margin year decrease 149 percentage points due higher manufacturing costs result lower production volumes align reduced customer demand operating expenses year decrease 11 million driven release historic provisions longer required either due settlement disputed liabilities passing relevant time limit statute limitations income statement captions corporate costs year increase 36 million relates higher personnelrelated compensation accruals including new longterm incentive plan higher costs additional corporate services required support enlarged group following growth acquisitions recent years also adverse effect stronger british pound sterling us dollar united kingdom cost base restructuring charge 71 million primarily relates closure costs including redundancies onerous leases operation belgium loss disposal subsidiary loss prior year 09 million indemnity claim relation residual testing aroma chemicals business sold 2015 foreign exchange loss liquidation subsidiary 18 million loss prior year related reclassification historic foreign exchange translations net assets accumulated comprehensive losses captive insurance company liquidated corresponding charge current year net incomeexpense 2018 2017 includes following interest expense net 69 million 2018 compared 82 million 2017 driven lower average net debt business generated cash inflows income taxes effective tax rate 354 518 2018 2017 respectively adjusted effective tax rate adjusted items set following table 237 2018 compared 202 2017 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods significant factor impacting effective tax rate 2018 2017 recognized implications tax act december 22 2017 us government enacted comprehensive tax legislation tax act date sec staff issued staff accounting bulletin 118 “sab 118” provided guidance accounting tax effects tax act sab 118 provides measurement period extend beyond one year tax act enactment date companies complete accounting asc 740 income taxes accounting impact tax act sab 118 complete deemed repatriation transition tax “transition tax” tax certain previously untaxed accumulated earnings profits “ep” company’s nonus subsidiaries december 31 2017 able reasonably estimate transition tax recorded provisional transition tax obligation 477 million basis revised ep computations completed reporting period adjusted transition tax estimate 611 million net related consequential impacts recorded 2017 us federal income tax return recorded additional 123 million income tax expense fourth quarter accounting relation transition tax complete details regarding accounting tax act transition tax given note 10 notes consolidated financial statements results operations fiscal 2017 compared fiscal 2016 recast certain prior period amounts confirm new accounting standards fuel specialties net sales table details components comprise year change net sales spread across markets operate volumes americas higher result increased demand following slower normal end 2016 price product mix americas adversely impacted increased sales lower margin products volumes emea aspac decreased due customer reformulation new technologies price product mix emea aspac benefited increased sales higher margin products avtel volumes lower prior year due variations timing level demand customers together favorable price mix emea benefited favorable exchange rate movements year driven strengthening european union euro us dollar gross margin year decrease 07 percentage points adversely impacted lower sales higher margin products compared strong prior year partly offset benefit stronger european union euro versus us dollar towards end year operating expenses year increase 52 million driven 33 million higher selling administrative expenses 19 million higher research development expenses higher performance based personnelrelated compensation increased expenses year performance chemicals net sales table details components comprise year change net sales spread across markets operate excluding huntsman acquisition increased personal care demand led higher volumes markets price product mix americas aspac adversely affected pricing pressures personal care emea benefited favorable price product mix personal care aspac adversely impacted exchange rate movements’ year driven weakening british pound sterling us dollar sales growth acquisition huntsman business end 2016 excluded market analysis included one variance segment total gross margin year decrease 132 percentage points driven dilutive effect lower margins acquired huntsman business together oneoff events unplanned plant outage raw materials purchasing pricing issues second quarter acquired business operating expenses year increase 158 million due 176 million additional expenses within acquired huntsman business partly offset reduction performance based personnelrelated compensation favorable impact 10 million oneoff commercial legal settlement prior year oilfield services net sales year increase 1127 million due improvement customer demand product lines following rising customer activity oil prices recovered overall volumes increased 60 percent year partly offset adverse price product mix 1 percent gross margin year decrease 40 percentage points compared strong prior year driven mix customer activity adverse effect hurricane harvey raw material prices availability operating expenses year increase 187 million primarily driven 153 million higher selling technical support expenses required service increase customer demand together 12 million additional research development expenses 22 million higher administration costs support business growth octane additives net sales increased 157 million compared prior year due phasing orders one remaining refinery customer gross margin year decrease 93 percentage points due lower volumes production current year leading higher manufacturing costs per tonne operating expenses year decrease 01 million primarily due reduction provisions doubtful debts income statement captions corporate costs year decrease 61 million related 44 million nonrecurring acquisitionrelated costs prior year huntsman business partly offset 19 million integration related costs current year together lower performance based personnelrelated compensation benefit weaker british pound sterling us dollar ellesmere port cost base year adjustment fair value contingent consideration prior year contingent consideration credit 94 million related acquisition 2014 loss disposal subsidiary loss 09 million relates indemnity claim relation residual testing aroma chemicals business sold 2015 foreign exchange loss liquidation subsidiary 18 million loss relates reclassification historic foreign exchange translations net assets accumulated comprehensive losses captive insurance company liquidated first quarter 2017 net incomeexpense 2017 2016 includes following interest expense net 82 million 2017 compared 32 million 2016 driven additional term loan related huntsman acquisition increased working capital requirements funded credit facility recent rise libor impacting revolving credit facility borrowing income taxes effective tax rate 518 211 2017 2016 respectively adjusted effective tax rate adjusted items set following table 202 2017 compared 224 2016 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods significant factor impacting effective rate recognized implications tax act result act accrued provisional estimate mandatory transition tax accumulated earnings december 31 2017 resulting increase income tax expense 477 million addition us deferred tax assets liabilities remeasured 35 21 date resulted 71 million deferred income tax benefit addition factors mentioned mix taxable profits different geographical jurisdictions group operates continues significant positive impact effective tax rate foreign tax rate differential arising profits earned foreign jurisdictions lower tax rates 2017 175 million 2016 171 million 2017 company’s income tax expense benefited greater degree proportion overall profits arising switzerland 2016 resulted 82 million benefit switzerland 2016 78 million addition 83 million benefit relation united kingdom 2016 84 million 07 million benefit relation germany 2016 05 million 03 million benefit jurisdictions 2016 03 million benefit foreign income inclusions arise year certain types income earned overseas taxable us tax regulations tax act substantially change us taxation income earned overseas 2018 future years 2017 income earned overseas taxable us regulations includes subpart f income principally foreign based company sales united kingdom associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2017 subpart f income associated section 78 gross resulted us taxation 71 million 2016 57 million certain overseas subsidiaries taxable us tax regime generated taxable income 24 million 2016 02 million loss foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits total 56 million foreign tax credits utilized 2017 offset incremental us taxes arising foreign income inclusions year excluding associated onetime mandatory transition tax inclusion 2016 61 million generated 2017 details given note 10 notes consolidated financial statements liquidity financial condition working capital company believes adjusted working capital nongaap financial measure provides useful information investors evaluating company’s underlying performance identifying operating trends management uses nongaap financial measure internally allocate resources evaluate performance company’s operations items excluded adjusted working capital calculation listed table represent factors fluctuate line day working capital needs business 2018 working capital increased 673 million adjusted working capital increased 350 million difference primarily due exclusion cash equivalents adjusted working capital measure 352 million increase trade accounts receivable increased sales segments increased receivables balances together higher indirect taxes receivable european businesses days’ sales outstanding fuel specialties segment increased 51 days 52 days decreased performance chemicals segment 68 days 65 days decreased 58 days 56 days oilfield services segment 382 million increase inventories primarily related higher inventory oilfield services businesses support strong sales growth days’ sales inventory fuel specialties segment decreased 100 days 90 days increased performance chemicals segment 51 days 59 days increased 63 days 82 days oilfield services segment prepaid expenses decreased 15 million 131 million 116 million due reduced payments advance timing invoices received 369 million increase accounts payable accrued liabilities driven increases fuel specialties oilfield services segments line customer demand creditor days fuel specialties segment decreased 32 days 29 days decreased performance chemicals segment 50 days 49 days decreased 51 days 48 days oilfield services segment operating cash flows generated cash operating activities 1049 million 2018 compared 827 million 2017 year cash operating activities benefitted effective control working capital businesses cash december 31 2018 2017 cash equivalents 1231 million 902 million respectively 1014 million 741 million respectively held nonus subsidiaries principally united kingdom increase cash equivalents 2018 driven strong operating cash flows effective control working capital debt december 14 2016 innospec certain subsidiaries company entered third amendment restatement agreement various lenders amends restates company’s credit facility agreement dated december 14 2011 amended restated august 28 2013 november 6 2015 “preexisting credit agreement” preexisting credit agreement amended restated pursuant third amendment restatement agreement “amended credit agreement” amended credit agreement retains 2000 million revolving credit facility available company adds term loan facility 1100 million termination date revolving facility remains november 6 2020 repayments term loan 110 million 165 million made december 29 2017 december 28 2018 respectively installment 220 million due december 28 2019 outstanding balance due november 6 2020 term loan credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda must greater 301 2 ratio ebitda net interest must less 401 management determined company breached covenants throughout period december 31 2018 expect breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries current credit facility contains restrictions may limit activities operational financial flexibility may able borrow event default outstanding includes material adverse change assets operations financial condition credit facility contains number restrictions limit ability among things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments effect merger consolidation dispose assets materially change line business december 31 2018 1260 million debt outstanding revolving credit facility 825 million debt outstanding term loan 33 million obligations finance leases relating certain fixed assets within fuel specialties oilfield services segments december 31 2018 maturity profile longterm debt finance leases set net deferred finance costs capitalized 09 million fair value longterm debt approximates carrying value discounting present value offset interest rate swaps outlook 2018 positive year innospec believe laid foundations future growth met expectations generated strong cash flow strengthening balance sheet continued development new products technologies strategic business units helped grow sales 2018 also generated good momentum expect increases revenue 2019 future maintain strategic focus concentrating key competencies technology customer service require continued investment new product development market conditions continue challenging strategic businesses specific challenges oilfield services commodity prices soften however feel confident well placed continue deliver profitable growth chosen markets anticipate decline possible conclusion revenues octane additives segment although cannot definitive possible sales segment continue beyond first half 2019 contractual commitments following represents contractual commitments december 31 2018 effect obligations future cash flows operating activities amounts related pension obligations refer likely levels funding united kingdom defined benefit pension plan “plan” plan closed future service accrual large number deferred current pensioners company expects annual cash contribution 10 million 2019 20 million 202021 20 million 202223 considered meaningful predict amounts beyond 2023 since many uncertainties including future returns assets pension increases inflation evaluated plan undertakes actuarial valuation every three years remediation payments represent cash flows company currently obligated pay respect environmental remediation current former facilities include discretionary remediation costs company may choose incur operating lease commitments relate primarily office space motor vehicles various items computer office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty estimated payments included table reflect variable interest charge longterm debt obligations estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 10 notes consolidated financial statements investing activities capital commitments relate certain capital projects company committed undertake financing activities december 14 2016 innospec certain subsidiaries company entered third amendment restatement agreement various lenders amends restates company’s credit facility agreement dated december 14 2011 amended restated august 28 2013 november 6 2015 “preexisting credit agreement” preexisting credit agreement amended restated pursuant third amendment restatement agreement “amended credit agreement” amended credit agreement retains 2000 million revolving credit facility available company added term loan facility 1100 million termination date revolving facility remains november 6 2020 repayments term loan 110 million 165 million made december 29 2017 december 28 2018 respectively installment 220 million due december 28 2019 outstanding balance due november 6 2020 finance leases relate financing certain fixed assets fuel specialties oilfield services segments environmental matters plant closures certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us expect liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws amounting 495 million december 31 2018 remediation expenditure utilizing provisions 31 million 24 million 27 million years 2018 2017 2016 respectively item 7aitem 7 managements discussion analysis results operation financial condition discussion pages 14 19 report incorporated herein reference item 7aitem 7 management’s discussion analysis financial condition results operation discussion read conjunction consolidated financial statements notes thereto included elsewhere herein factors affecting results octane additives market developments goodwill impairment second quarter 2005 filing form 10q company confirmed venezuela major customer permanently left octane additives formerly known tel market motor gasoline company planning acting accordingly 2004 2003 net sales customer 618 million 475 million respectively result company recognized significantly larger anticipated charge 1344 million year impairment octane additives business goodwill mainly reflects reduction anticipated discounted cash flows previously assumed company’s model supported value octane additives business goodwill end first quarter 2005 result loss major customer company also indicated loss customer would require restructuring cost base review manufacturing capacity company since completed relocation european head office activities uk manufacturing site ellesmere port well number high level personnel changes designed streamline corporate cost base fuel specialties business also consolidated research technology activities ellesmere port site following relocation certain activities former fuel technology center bletchley uk octane additives business scaled back production tel effective june 2005 order deal reduction demand company since announced round restructuring manufacturing support services ellesmere port recognized restructuring charges including pension curtailment charges associated program loss venezuela major octane additives customer required company review current projected operational flexibility liquidity company therefore initiated discussions senior lenders third quarter result discussions company agreed terms new three half year financing facility 1671 million appropriate company’s needs december 2005 december 31 2005 company 1400 million debt outstanding new senior credit facility agreement compliance financial covenants therein december 31 2005 company also current projections fully compliant financial covenants new financing facility acquisition finetex inc january 14 2005 company completed acquisition finetex inc finetex total consideration 212 million finetex manufacturer supplier specialty surfactants emollients personal care cosmetics industrial markets based new jersey usa north carolina usa results finetex period date acquisition december 31 2005 consolidated performance chemicals business acquisition financed drawdown company’s previous revolving credit facility resignation dennis kerrison president chief executive officer special investigation relating transaction chief executive officer associated octel company south africa pty limited wholly owned indirect subsidiary company independent counsel appointed members company’s audit committee company’s corporate governance nominating committee “special committee” completed march 2005 result investigation board directors mr kerrison agreed mr kerrison’s resignation board positions chief executive officer president company effective april 15 2005 mr kerrison seek reelection board company mr kerrison however remain available board advisor april 2007 terms mr kerrison’s resignation governed agreement company mr kerrison dated april 8 2005 “resignation agreement” resignation agreement mr kerrison receive salary bonus period including december 31 2005 thereafter april 2007 receive salary discretionary bonus mr kerrison 12 months date resignation exercise options due innospec inc performance related share option plan innospec inc company share option plan receive proportion matching shares co investment plan mr kerrison outstanding options mr kerrison serve advisor board 2007 resigned positions holds chief executive officer president board member trustee company affiliates charge 40 million recognized relating salary emoluments including pension costs mr kerrison together costs professional advice may entitled resignation agreement paul w jennings time executive vice president chief financial officer took administrative authorization responsibilities chief executive officer formal search new chief executive officer conducted appointment paul w jennings president chief executive officer june 23 2005 company announced paul w jennings appointed president chief executive officer immediate effect appointment james f lawler vice president chief financial officer august 1 2005 board innospec appointed james f lawler executive vice president chief financial officer immediate effect closure octel exhaust systems ltd adastra april 7 2005 company announced closure octel exhaust systems ltd “adastra” business engaged manufacturing systems remove particulate matter commercial diesel exhausts customers product previously significantly supported financial grants uk government recent removal grants made business economically nonviable current form limited period company continue engage supply technology via third party franchise arrangements arrangement reviewed regularly closure resulted loss 13 employees uk total cost closure 20 million including writeoffs inventory plant 16 million severance payments 04 million writeoff investment stylacats limited third quarter 2005 company recognized 55 million charge full write investment stylacats limited stylacats engaged development novel catalyst technology third quarter company informed significant reduction projected sales company new forecast apparent scale available commercial opportunity smaller previous business cases suggested consequently likely rate return investment fell available company’s core business company decided invest funds stylacats able secure alternative funding currently administration company expect recover significant value investment change name january 30 2006 company changed name innospec inc stock symbol also changed otl iop change effected merger wholly owned subsidiary company stockholder vote required obtained either merger name change name change implemented reflect developments company’s business strategic direction name change supplemented presentations made investors members company’s executive management team february 2006 copies presentations may accessed company’s website wwwinnospecinccom results operations results operations fiscal 2005 compared fiscal 2004 following table showing operating income reporting business also shows comparative results operations 2004 2003 product group data 2004 2003 results adjusted reflect effect discontinued operations also adjusted reflect newly announced reporting segments innospec business following table presented show incremental impact acquisitions leuna aroma fine chemicals “afc” finetex 2005 similar analysis presented later comparison 2004 results achieved 2003 effect acquisitions 2005 group results compared 2004 table includes impact acquisition leuna results consolidated six months 2004 results afc results consolidated four months 2004 results finetex acquired january 2005 impact acquisition remaining 50 shares octel starreon llc included results octel starreon llc fully consolidated company since inception joint venture 1999 corresponding charge minority interest line item minority interest charge period full acquisition octel starreon llc july 8 2004 19 million accordingly table impact acquisitions presented fuel specialties business effect acquisitions 2005 performance chemicals business results compared 2004 follows remaining effect acquisitions reported fuel specialties business results net sales net sales 2005 5277 million 596 million 127 higher 4681 million reported 2004 fuel specialties sales 2406 million 450 million 230 higher 2004 sales americas grew 344 due higher sales cetane number improver additives diesel ahead new legislation sales emea region grew 163 sales asia pacific grew 122 octane additives sales volumes 257 volumes 2004 sales value 195 mainly due price increases sales volumes americas 908 due loss business venezuela sales asia pacific proved resilient volumes actually 64 higher 2004 shipments middle east 957 ahead shipments 2004 sales africa fell 199 level 2004 south africa left market octane additives motor gasoline expect volumes 2006 newly acquired subsidiaries afc leuna finetex contributed 560 million 588 million additional sales performance chemicals year gross profit 1895 million gross profit 80 lower 2004 gross profit margin company 359 compared 440 2004 higher margin octane additives sales smaller proportion total sales 2005 period 2004 345 483 mix effect depressed overall gross profit margin approximately 48 points fuel specialties gross margin 333 13 percentage points lower gross margin 2004 gross margin impacted rapid growth sales relatively lower margin cetane number improvers usa loss manufacturing margin result bycosin disposal 2004 gross profit margin octane additives 510 64 percentage points lower gross margin 2004 fourth quarter 2004 surplus remediation provision 64 million relating former tel manufacturing site germany released represented 28 percentage points octane additives gross margin 2004 32 million provision related take pay contract materials released following review likely material requirements however recent loss venezuelan volumes forced review contract result provision 17 million recognized second quarter 2005 release provision represents 14 percentage points octane additives gross margin 2004 build provision 2005 represented 09 percentage points gross margin rest decline gross margin mainly due combination higher production costs per ton higher raw material costs per ton gross margin performance chemicals 158 2005 27 percentage points lower gross margin 2004 newly acquired subsidiaries lower gross margin previously existing businesses business unit although also lower selling general administrative costs operating expenses 976 million selling general administrative expenses 80 million higher 2004 extra cost primarily fuel specialties business costs increased 57 million included legal costs associated company’s voluntary disclosure ofac octane additives selling general administrative costs 19 million lower 2004 due rationalization selling expenses certain sales offices closed performance chemicals full year impact 2004 2005 acquisitions increased selling general administrative expenses 52 million represents increase division costs however 267 million corporate costs 63 million 191 lower compared 2004 reflects effect relocation european head office ellesmere port site streamlining executive structure reversal pension credit pension charge resulted additional costs 44 million savings offset legal costs associated governance special investigation restructuring charge company incurred restructuring costs 313 million 2005 equivalent charge 2004 83 million 22 million recognized relation new cost reduction program manufacturing support activities tel manufacturing site charge 16 million recognized relation severance corporate staff charge 14 million recognized fas 146 previous cost reduction program leavers stayed longer contractual notice periods associated 2005 severance programs pension charge 125 million recognized fas 88 curtailment event due significant restructuring activity uk 2005 charge 12 million recognized relation closure european head office manchester uk charge represents writeoff fixed assets value impaired closure costs closure charge 09 million recognized relating fixed asset writeoffs resulting closure fuel technology centre bletchley uk charge 11 million recognized relating severance costs arising decision relocate research technology activities previously carried site ellesmere port uk site charge 20 million recognized relation decision dispose adastra diesel particulate filters business included 16 million fixed asset writeoffs 04 million severance costs charge 04 million recognized relation severance costs associated plan consolidate manufacturing activities one site one us businesses charges relate costs site clearance uk 34 million non uk severance fuel specialties business 06 million charge 40 million recognized relating costs salary additional costs professional advice emoluments paid previous chief executive officer fully described “resignation dennis kerrison president chief executive officer” amortization intangible assets amortization charge 127 million 2005 15 million higher charge recognized 2004 periods charge 101 million year related veritel intangible asset amortized straightline basis charge comparable year remaining 26 million relates amortization intangible assets recognized 2004 2005 acquisition accounting recent acquisitions impairment octane additives business goodwill company recognized charge 1344 million impairment octane additives business goodwill 2005 loss anticipated sales venezuela principal reason unexpectedly high charge reflects loss anticipated future cash flows previously assumed model supported value octane additives business goodwill end 2004 charge 2004 407 million company continue test value octane additives business goodwill end quarter expects recognize charge approximately 300 million year ending december 31 2006 actual cash flows line company’s current forecasts charge remains critically dependent upon developments affect company’s best estimates future volumes octane additives future revenue gross margins selling administrative costs well fixed working capital requirements business interest expense interest income expense net 76 million net interest expense 20 million higher 2004 principally higher average level net debt 2005 compared equivalent period 2004 following acquisition outflows second half 2004 early 2005 increase us base rates 2005 interest expense 95 million interest income 19 million 2004 interest expense 64 million interest income 08 million income expense 126 million consists mainly 55 million charge writeoff investment third quarter charge 12 million fully provide two investments 22 million sundry charges 37 million charge exchange losses forward foreign exchange contracts income taxes headline rate income tax 35 2005 compared 628 2004 change effective tax rate reason company paying taxes loss making operation charge impairment octane additives business goodwill allowable deduction tax purposes effective rate tax 2005 excluding impairment octane additives goodwill 258 compared 276 2004 discontinued operations loss 14 million relates disposal opci gamlen waste water treatment business results operations fiscal 2004 compared fiscal 2003 following table presented show impact acquisitions 2004 effect acquisitions 2004 group results compared 2003 table includes impact acquisition leuna results consolidated six months 2004 results afc results consolidated four months 2004 impact acquisition remaining 50 shares octel starreon llc included results octel starreon llc fully consolidated company since inception joint venture 1999 corresponding charge minority interest line item minority interest charge period full acquisition octel starreon llc july 8 2004 19 million effect acquisitions 2004 performance chemicals business results compared 2003 follows net sales total net sales 2004 4681 million 250 million 56 ahead 2003 sales 2003 sales figures adjusted previously reported sales reflect disposal bycosin mexico business 2004 disposals octel performance chemicals inc gamlen waste water treatment 2005 results businesses reported discontinued operations line item net tax effect acquisitions reflected table adjusting effect acquisitions sales fell 40 million 09 net sales fuel specialties 223 million 129 ahead 2003 sales adjustment disposal bycosin mexico 73 million 42 due effect appreciation euro sterling us dollar strong growth experienced usa fuel specialties business also growth european refinery performance business octane additives net sales fell 227 million 91 volumes 151 2003 volumes reduction volume due lower sales middle east 73 volume south east asia 25 volume sales africa outside south africa 24 ahead 2003 volumes good price management mitigated effect decrease volumes net sales performance chemicals significantly impacted acquisitions year demonstrated table adjusting effect acquisitions net sales unchanged compared 2004 gross profit total gross profit 2004 2060 million 72 million 36 ahead 2003 gross profit fuel specialties gross profit increased 39 million 61 however gross profit margin fell 368 346 major reason delay passing higher costs oil based raw materials selling prices also fair value adjustment arising acquisition remaining 50 octel starreon llc period required 04 million uplift carrying value inventory recognized gross profit octane additives business 1298 million 14 million lower 2003 despite 91 reduction net sales gross profit margin increased 527 574 boosted 64 million 28 margin release remediation provisions former production site doberitz germany company reached agreement fourth quarter 2004 local authorities germany scope work carried result level provision required reviewed adjusted accordingly addition 32 million provision created 2003 potential liability take pay contract raw material tel released decision delay reduction manufacturing capacity eliminated expected liability contract release accounts 14 increase gross profit margin 2004 remaining increase gross profit margin attributed strong selling price management performance chemicals effect acquisitions gross margin seen gross profit margin including impact acquisitions remained static around 185 operating expenses operating expenses consist selling general administrative expenses research development expenses increased 241 million 319 2004 997 million 27 million increase due effect acquisitions fuel specialties operating expenses 422 million 468 million main reason increase impact weaker us dollar significant sterling euro denominated cost base octane additives increase operating expenses 41 million including effect weaker us dollar 13 million rest due increased administrative selling costs uk performance chemicals effect acquisitions operating expenses seen table existing business operating income held constant lower gross profits balanced savings selling general administrative expense research development spending 74 million 289 increase corporate costs effect weaker us dollar predominantly uk based corporate cost base 29 million external cost compliance sarbanesoxley section 404 certification process 15 million remaining 30 million increase corporate costs line item due inflation increase resources predominantly areas technology finance human resources due high proportion inactive members company’s principal defined benefit pension scheme uk net pension credit associated reported separately net pension credit 66 million lower 2004 27 million mainly due derisking pension fund result decision invest higher proportion bonds rather equities increase 55 million 101 million reported research development expense mainly due reclassification cost uk fuel technology centre research development cost selling general administrative expense 2003 restructuring costs charge 83 million recognized 2004 related restructuring activities compared charge 149 million 2003 major elements charge • 32 million expense discretionary demolition redundant facilities ellesmere port • 20 million relation programme streamline production capacity site support costs commenced 2003 • 15 million relating severance certain senior uk employees • 14 million related restructuring back office operations european petroleum specialties business • 02 million related severance french octane additives sales office amortization intangible assets 112 million charge recognized 2004 relation amortization intangible assets 08 million higher charge 2003 fuel specialties business charge 06 million recognized relating amortization certain intangible assets identified acquisition remaining 50 octel starreon llc july 2004 charge 103 million recognized octane additives business due amortization intangible asset arising permanent source interruption payments veritel amortized straight line basis six years ending december 31 2007 performance chemicals business charge 03 million recognized relation acquisition certain intangible assets identified fair value exercise undertaken acquisition afc operating income business fuel specialties operating income 07 million 33 2003 208 million although sales gross profits boosted effect weaker us dollar operating expenses outweighed benefit reduced operating income addition effects fair value inventory charge amortization intangible assets octel starreon llc reduced operating income 11 million offset 10 million increase operating income aviation gas due higher gross margins octane additives operating income 55 million 50 2003 1044 million oneoff releases mentioned broadly offset volume effect lower sales however higher operating expenses incurred main reason reduced operating income performance chemicals operating income 25 million 2003 profit 02 million effect acquisitions significant reason improvement shown table impairment octane additives business goodwill company recognized charge 407 million impairment octane additives business goodwill 2004 charge 2003 review discounted future cash flows indicated sufficient support value octane additives business goodwill date company tested octane additives business goodwill end quarter 2004 recognized charge quarter charge first quarter relatively small surplus discounted cash flow existed end 2003 exhausted loss disposals discontinued operations company recognized total charge 130 million respect disposal certain noncore businesses fuel specialties business manufacturing assets bycosin ab wholly owned swedish subsidiary known octel sweden ab right supply distribute certain power products certain geographic regions net consideration 29 million total charge 85 million represents writeoff goodwill share goodwill written represents proportion disposed business relative fair value integrated petroleum specialties business outside usa bycosin mexico subsidiaries disposed entirety ongoing involvement business loss associated disposal along operating income year date disposal included discontinued operations net loss disposal bycosin mexico subsidiaries 39 million remaining 91 million loss disposal bycosin assets included operating income loss disposals line item business continues source product bycosin sweden support power marine markets also included loss disposals line item 47 million profit arising disposal paris office octel france longer required following integration business gamlen france interest expense interest income interest expense 64 million compared 126 million 2003 main reasons significantly lower level average net debt 2004 compared 2003 significantly lower interest rates payable following refinancing company’s finance facility completed january 2004 2003 interest expense also included charge 19 million relating amortization deferred finance costs incurred arranging previous finance facility written fourth quarter 2003 prior completion new facility january 2004 interest income 03 million higher 2003 due higher average level cash deposit 2004 expense net expense charge 21 million charge 42 million 2003 lower level foreign exchange charge 32 million main reason reduction minority interest charge minority interest 2004 20 million 43 million 2003 due purchase remaining 50 octel starreon llc july 2004 results octel starreon previously fully consolidated corresponding charge minority interest income taxes charge income tax 201 million effective rate tax 628 300 2003 main reasons increase effective rate non taxable effect octane additives business goodwill impairment certain costs associated disposal bycosin mexico subsidiaries bycosin assets foreign exchange movements release 39 million certain precautionary tax reserves following review tax expenses faced company longer considered probable tax payments made share affiliated company earnings 10 million charge 2004 related disposal company’s 49 stake joss holdings bv joss first quarter 2004 company sold stake majority shareholders joss sold tel certain territories function undertaken another subsidiary company distribution agreement joss expired end 2003 renewed loss 10 million recognized disposal company’s investment joss 06 million related tax charge holding company held investment discontinued operations charge 47 million 2004 relates disposal bycosin mexico subsidiaries operating losses octel performance chemicals inc gamlen waste water treatment liquidity financial condition net cash provided operating activities year ended december 31 2005 inflow 438 million compared inflow 624 million 2004 net income lower 1299 million mainly result noncash octane additives impairment charge 1344 million compared 407 million 2004 higher restructuring costs 313 million compared 83 million 2004 271 million decline sbu operating income including corporate costs net interest expense higher 20 million income tax charge 159 million lower large tax payments year relating tax charges prior periods low current charge taxation resulted significant reduction accrual income taxes liabilities 225 million compared 114 million increase accrual 2004 12 million decrease working capital 155 million due decrease accounts receivable mainly due timing year end shipments payments octane additives business inventory increased 203 million 45 million relates build tel inventory 2005 partly due deliberate build inventory order accelerate downturn production volume tel inventory also increased support sales growth fuel specialties business 115 million increased cash flow 60 million due increases accounts payable accruals since december 31 2004 100 million reduction pension prepayment mainly due curtailment charge 125 million relating higher liabilities arising restructuring yet cash effect funding defined benefit plan high levels restructuring expense recognized date resulted increase plant closure provision 21 million 223 million outflow business combinations mainly represents outlay net cash acquired purchase finetex 212 million 11 million outflow company increased stake one unconsolidated investments 2004 802 million outflow due 438 million cash outlay acquire 50 share octel starreon llc previously held starreon corporation llc 308 million cash outlay acquire aroma fine chemicals limited afc 52 million outlay net cash acquire control leuna polymer gmbh 26 million outflow acquire 20 shareholding deurex microtechnologies gmbh sundry investments associates 18 million less 42 million received sale 49 interest joss holdings bv 02 million net outflow bycosin disposal loss venezuela major octane additives customer second quarter 2005 required company review current projected operational flexibility liquidity company therefore initiated discussions senior lenders third quarter result discussions company agreed terms new three one half year financing facility appropriate company’s needs new facility contains certain financial ratio covenants specifically ratio net debt ebitda nonus gaap measure represents liquidity ratio net interest expense ebita another nonus gaap measure ratio net operating cash flow pre finance costs scheduled debt amortization interest costs ebitda ebita defined facility agreement new financing facility also requires “look forward” test applied ratio net debt ebitda exceeds 20 “look forward” test applicable company 2005 due ratio exceeded december 31 2005 company 1400 million debt outstanding new senior credit facility agreement compliance financial covenants therein december 31 2005 issue treasury stock holders options chose exercise options raised 14 million 2005 25 million spent 2005 repurchase 146862 shares average price 1699 300 million repayment due former term loan made january 30 2005 date 510 million former revolving credit facility drawn net 210 million drawdown used finance acquisition shares finetex inc properties business uses associated fees january 2004 975 million previous borrowing facility repaid 1000 million new borrowing facility drawn december 2005 company drew new term loan 1000 million 400 million new revolving credit facility debt profile december 31 2005 including principal facility group debt set april 1 2005 company paid dividend 7 cents per share shareholders semiannual program announced 2002 september 30 2005 company paid dividend 7 cents per share company expects fund operations operating cash flows existing financing facility next twelve months critical accounting estimates policies estimates company considers critical terms subjectivity judgment assessment related environmental liabilities identification impairment goodwill intangible assets pension accounting restructuring costs marketing agreements ethyl adverse variance actual results future projections areas may impact results operations financial condition environmental liabilities company records environmental liabilities probable costs estimated reasonably remediation provisions december 31 2005 amounted 232 million relate principally sites uk france germany company anticipate program work required associated future costs comply environmental legislation relevant countries company views costs vacating main uk site contingent liability present intention exit site company determined due uncertain product life octane additives particularly market aviation gas exists uncertainty timing cash flows possible estimate flows sufficiently reliably recognize provision goodwill company adopted fas 142 “goodwill intangible assets” effective january 1 2002 requires goodwill longer amortized subject annual impairment review years events occur circumstances change suggest impairment may occurred company elected perform annual tests respect fuel specialties performance chemicals goodwill december 31 year reviewing impairment charge fair value reporting units underlying segments estimated using tax cash flow methodology based management’s best estimates time 2002 2003 goodwill impairment test octane additives business performed annually december 31 reviews showed fair value reporting unit based tax cash flows company’s weighted average cost capital exceeded carrying value octane additives assets accordingly indicator impairment existed step 2 fas 142 impairment test performed light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash flows derived octane additives business reduced accordingly fair value octane additives reporting unit reduced based company’s detailed forecast model assumptions december 31 2003 indicated reduction forecast future cash flows 2004 would reduce fair value reporting unit carrying value octane additives assets accordingly likely significant goodwill impairment charge year ended december 31 2004 result company determined quarterly impairment reviews performed january 1 2004 impairment charge arising recognized relevant quarter value remaining cash flows octane additives business calculated review date reference best available estimates future revenues gross margins selling administrative costs well fixed working capital requirements business resulting cash flows discounted total discounted cash flows octane additives business allocated fair value octane additives business unit date company uses information derive implied goodwill value compared carrying value determine impairment needed using methodology assumptions underlying detailed forecast model company believes possible predict pattern likely future impairment charges octane additives business goodwill method reflects relatively unique nature octane additives business result reviews performed 2005 impairment charge 1344 million recognized year company expects incur charges subsequent years octane additives market continues decline goodwill 324 million associated sales tel aviation gasoline transferred fuel specialties business 615 million goodwill relating octane additives business intangible assets december 31 2005 company performed annual impairment review goodwill fuel specialties performance chemicals believes impairment goodwill respect reporting segments goodwill 36 million created acquisition finetex 2005 part fair value accounting acquisitions company identified certain intangible assets finetex intangible asset 42 million recognized finetex respect number ongoing customer relationships company intangible asset 29 million recognized respect certain patents held company assets amortized estimated economic life thirteen years ten years respectively charge 06 million recognized respect amortization assets 2005 pensions company accounts pensions accordance fas 87 provides associated disclosures accordance fas 132 company also recognized charge 125 million respect curtailment event 2005 accordance fas 88 prepaid pension cost material balance sheet net prepayment 1130 million december 31 2005 underlying plan asset value projected benefit obligation 7107 million 7252 million respectively end 2005 movements underlying plan asset value projected benefit obligation dependent actual return investments pay awards well assumptions future trends areas continuation prepayment depends fair value plan assets exceeding accumulated benefit obligation surplus measurement date october 5 2005 151 million event deficit liability would created equal sum prepayment deficit related charge would reported accumulated comprehensive income company’s independent advisors carried full actuarial valuation pension plan 2003 updated 2004 2005 results reflected financial statements company continue monitor status plan quarterly basis full actuarial valuation carried december 31 2005 results available reflected company’s financial statements discount rate used represents annualised yield medium longer term aa rated corporate bonds uk 025 reduction discount rate would increase projected benefit obligation around 27 million increase net periodic pension cost 2006 15 million restructuring costs company embarked upon restructuring program 2003 uk tel manufacturing site accounted fas 146 initiated january 1 2003 scheme statutory element incentive element agreeing voluntary severance terms also generous statutory terms statutory minimum element recognized date individual agreed voluntary redundancy amount total severance cost excess statutory requirements recognized remaining service life agreed leaving dates beyond contractual notice period charge 17 million related program recognized 2004 charge 10 million recognized 2005 cash restructuring costs recognized expended sales marketing agreement company entered number sales marketing agreements ethyl corporation ethyl sale tel areas world except north america european economic area december 31 2009 agreements produce tel marketing sales effort innospec name ethyl provides bulk distribution marketing services net proceeds paid ethyl innospec agreed formula innospec receiving 68 total sales expenses incurred agreement included within company’s income statement ethyl’s share net proceeds services charged within cost goods sold majority net proceeds calculated settled monthly basis element receivable company ethyl computed annually arrears prior years amounts involved significant increases value retrospective element decided effective january 1 2002 appropriate recognize prudent accrual year based best current estimates expected outcome management’s discussion analysis financial condition results operations discusses innospec’s consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgments including related environmental remediation impairment goodwill intangible assets pension accounting restructuring costs marketing agreements ethyl management bases estimates judgments historical experience various factors believed reasonable circumstances results form basis making judgments carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions note 1 financial statements includes summary significant accounting policies methods used preparation financial statements policies estimates company considers critical terms complexity subjectivity assessment related environmental liabilities impairment goodwill intangible assets pension accounting restructuring costs marketing agreements ethyl corporation adverse variance actual results company’s projections areas may impact results operations financial condition contractual commitments following represents contractual commitments december 31 2005 effect obligations future cash flows company issued £25 million loan notes two equal tranches acquisition afc loan notes mature 2006 remediation payments represent cashflows company currently obligated pay respect current former facilities include discretionary remediation costs company may choose incur unconditional purchase obligations relate certain raw material take pay contracts entered company capital commitments relate certain capital projects company committed undertake operating lease commitments relate primarily office space motor vehicles items office equipment expected renewed replaced normal course business company subject interest variable rates certain elements long term debt estimated payments included table assume constant us base interest rate 555 main credit facility estimated commitment fees also included interest income excluded amounts related pension scheme refer likely levels company funding uk defined benefit pensions scheme certain pension commitments senior employees meaningful predict amount five years many uncertainties wage rates employment levels environmental matters plant closures company subject environmental laws countries operates certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside united states therefore liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision 232 million made costs committed environmental laws expenditure provisions 22 million 20 million 37 million years 2005 2004 2003 respectively also incurred personnel severance costs relation management decline tel market restructuring fuel specialties business total severance expenditure 97 million 60 million 82 million years 2005 2004 2003 respectively provision made severance costs conditions fas 146 fas 112 provision december 31 2005 78 million severance charges recognized income statement 2005 relating restructuring program 118 million company expects 01 million recognized 2006 respect current severance programs fas 146 inflation significant factor company last several years management believes inflation continue moderate next several years cautionary statement safe harbor purposes certain written oral statements made company subsidiaries approval authorized executive officer company including statements made management’s discussion analysis financial condition results operations elsewhere report filings securities exchange commission may constitute “forwardlooking statements” defined private securities litigation reform act 1995 forwardlooking statements include statements address operating performance events developments expect anticipate occur future although statements believed management reasonable made caution exercised place undue reliance forwardlooking statements subject certain risks uncertainties assumptions risks uncertainties ever materialize assumptions prove incorrect actual results may differ materially expressed implied forwardlooking statements assumptions risks assumptions uncertainties include without limitation changes terms trading significant customers gain loss thereof effects changing government regulations economic market conditions competition changes demand business legal risks inherent nonus activities including political economic uncertainty import export limitations market risks related changes interest rates foreign exchange rates government investigations material fines penalties resulting company’s voluntary disclosure office foreign assets control us department treasury risks uncertainties assumptions identified company’s annual report form 10k year ended december 31 2005 identified company’s reports filed securities exchange commission company undertakes obligation publicly update revise forwardlooking statements whether result new information future events otherwise item 7aitem 7 managements discussion analysis results operation financial condition discussion pages 22 29 report incorporated herein reference critical accounting policies financial reporting release 60 recently released securities exchange commission sec requires companies include discussion critical accounting policies methods used preparation financial statements note 1 notes financial statements includes summary significant accounting policies methods used preparation financial statements following brief discussion significant accounting policies methods used octel managements discussion analysis financial condition results operations discusses octels consolidated financial statements prepared accordance accounting principles generally accepted united states america preparation financial statements requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period ongoing basis management evaluates estimates judgements including related environmental remediation carrying values goodwill intangible assets management bases estimates judgements historical experience various factors believed reasonable circumstances results form basis making judgements carrying values assets liabilities readily apparent sources actual results may differ estimates different assumptions conditions management believes following critical accounting policies among others affect significant judgements estimates used preparation consolidated financial statements octel records environmental remediation liabilities probable cost reasonably estimated although liabilities adjusted information available greater experience gained actual costs may differ accrued impact results operations cash flows octel regularly reviews carrying value goodwill intangible assets reference forecasted cash flows underlying assets contractual obligations actual cash flows may differ forecast adverse circumstances may result impairment charge critical accounting policies pages 28 29 report incorporated herein reference addition financial reporting release 61 recently released sec require companies include discussion address among things liquidity offbalance sheet arrangements contractual obligations commercial commitments octel extensive trading relationship ethyl longterm supply agreements sales marketing agreements joint venture separate legal entity established result agreements discussed ethyl agreements page 5 10k longterm marketing supply service agreement veritel chemicals bv entered fiscal 2001 contained terms could trigger accelerated payments terms triggered december 2001 note 8 financial statements incorporated herein reference following represents contractual commitments december 31 2001 effect obligations future cash flows item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto executive overview business performance 2014 grew line expectations delivered strategy expand oilfield specialties business sales growth businesses fuel specialties personal care reflected strength product portfolio research development pipeline markets decline octane additives line final stages transition unleaded gasoline managed investments capital equipment working capital recruitment additional skilled personnel line market factors capital program expenses 2014 included continued investment new information system platform expect add value business future years 2014 completed acquisition independence oilfield specialties llc build presence market critical accounting estimates note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation consolidated financial statements contingencies subject legal regulatory proceedings claims company discloses information concerning contingent liabilities respect claims proceedings unfavorable outcome remote potential loss could materially impact results operations financial position cash flows recognize within selling general administrative expenses liabilities claims proceedings probable company incurred loss based unfavorable outcome amount loss reasonably estimated endeavor fairly present conjunction disclosures matters consolidated financial statements management’s view exposure review outstanding claims proceedings external counsel appropriate assess probability estimates loss reasonable estimate range recognized liability best estimate within range amount range better estimate amount minimum amount range recognized reevaluate assessments quarter new significant information becomes available actual cost ultimately resolving claim proceeding may significantly different amount recognized liability addition permissible recognize liability loss probable estimable cases may insufficient time recognize liability prior actual incurrence loss upon verdict judgment trial example case quickly negotiated settlement environmental liabilities remediation provisions december 31 2014 amounted 341 million relate principally ellesmere port site united kingdom recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention company determined due uncertain product life tel particularly market aviation gasoline products manufactured site uncertainties probability timing expected costs uncertainties considered estimating provision pensions company maintains defined benefit pension plan covering number current former employees united kingdom company also much smaller pension arrangements us overseas obligations plans material united kingdom plan closed future service accrual large number deferred current pensioners movements underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future inflation change one assumptions could impact plan asset value pbo pension charge recognized income statement changes could adversely impact results operations financial position example 025 change discount rate assumption would change pbo approximately 29 million net pension credit 2015 approximately 03 million 025 change level price inflation assumption would change pbo approximately 22 million net pension credit 2015 would significantly changed information provided note 9 notes consolidated financial statements deferred tax uncertain income tax positions december 31 2014 valuation allowance required foreign tax credit carry forwards within deferred tax management believes foreign tax credit carry forwards utilized future periods prior expiration deferred taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered permanent duration current intention repatriate past future earnings overseas subsidiaries consider earnings reinvested overseas circumstances change would cause earnings repatriated additional us tax liability could incurred continue monitor position calculation tax liabilities involves evaluating uncertainties application complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained based technical merits challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavorable tax settlement may require cash payments result increase effective tax rate year resolution favorable tax settlement may recognized reduction effective tax rate year resolution report interest penalties related uncertain income tax positions income taxes additional information regarding uncertain income tax positions see note 10 notes consolidated financial statements business combinations acquisition method accounting requires recognize assets acquired liabilities assumed acquisition date fair values goodwill measured excess consideration transferred acquisition date net fair values assets acquired liabilities assumed measurement fair values assets acquired liabilities assumed requires considerable judgment although independent appraisals may used assist determination fair values certain assets liabilities determinations usually based significant estimates provided management forecast revenue profit determining fair value intangible assets income approach generally used may incorporate use discounted cash flow method applying discounted cash flow method estimated future cash flows residual values intangible asset discounted present value using discount rate appropriate business acquired cash flow projections based management’s estimates economic market conditions including revenue growth rates operating margins capital expenditures working capital requirements use best estimates assumptions part process value assets acquired liabilities assumed acquisition date estimates inherently uncertain subject refinement measurement period occurs finalization purchase price allocation changes assumptions estimates result adjustments fair values assets acquired liabilities assumed corresponding offset goodwill subsequent adjustments impact consolidated statements income goodwill company’s reporting units level goodwill tested impairment consistent reportable segments components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows sufficiently distinguished operationally financial reporting purposes rest company tests goodwill annually impairment years events occur circumstances change suggest impairment may occurred company performs annual goodwill tests respect fuel specialties performance chemicals december 31 year reviewing impairment charge fair values reporting segments estimated using aftertax cash flow methodology based management’s best available estimates time key assumptions underpinning calculations include future revenue growth gross margins company’s weighted average cost capital december 31 2014 2294 million 467 million goodwill relating fuel specialties performance chemicals segments respectively annual impairment tests date indicated impairment estimated fair values reporting segments substantially exceeded carrying values believe assumptions impairment tests reasonable subjective judgments possible variations assumptions may result materially different calculations impairment charges property plant equipment intangible assets net amortization december 31 2014 808 million property plant equipment 1811 million intangible assets net amortization discussed notes 5 7 notes consolidated financial statements respectively longlived assets relate reporting segments amortized depreciated straightline periods 16 years respect intangible assets 25 years respect property plant equipment continually assess markets products related longlived assets well specific carrying values concluded carrying values amortization depreciation periods remain appropriate also test longlived assets potential impairment events occur circumstances change suggest impairment may occurred types events changes circumstances could include limited • introduction new products enhanced features competitors • loss material reduction purchases nonrenewal contract significant customer • prolonged decline business consumer spending • sharp unexpected rise raw material chemical energy costs • new laws regulations inhibiting development manufacture distribution sale products order facilitate testing company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value assets cash flows lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital events occur circumstances change may cause reduction periods longlived assets amortized depreciated result noncash impairment portion carrying value reduction amortization depreciation periods would effect cash flows 2014 continued process developing new companywide information system platform provider well established market implementation phased riskmanaged site deployment follows multistage user acceptance program existing platform providing fallback position implemented new platform majority us sites third quarter 2013 next phase implementation includes majority reporting units outside us internally developed software costs capitalized december 31 2014 278 million 2013 195 million amortization expense 38 million recognized 2014 2013 10 million selling general administrative expenses results operations following table provides operating income reporting segment results operations fiscal 2014 compared fiscal 2013 fuel specialties net sales table details components comprise year change net sales spread across markets operate americas saw increase volumes result higher demand benefiting improved price product mix acquisitions americas relating bachman independence generated additional sales compared prior year emea volumes decreased prior year due weaker trading conditions impact government sanctions related russia partly offset improved price product mix volumes lower aspac due loss contract 2013 offset increased underlying volumes together adverse price product mix result lower sales higher margin products avtel volumes higher due timing shipments customers opposed change longterm outlook market price product mix negatively impacted adverse customer mix gross margin year increase 02 percentage points primarily reflected mix increased sales higher margin products higher margin contribution oilfield specialties acquisitions operating expenses year increase 30 262 million due 208 million additional costs bachman businesses 63 million additional costs independence business 14 million increase bad debt provisions excluding recent acquisitions partly offset 10 million decrease personnelrelated compensation costs primarily due lower accruals sharebased compensation expense 08 million decrease costs strata business 05 million decrease expenses performance chemicals net sales table details components comprise year change net sales spread across markets operate volumes americas lower primarily due lower volumes fragrance ingredients industrial product partly offset increased personal care volumes acquisitions americas relating chemsil chemtec generated additional sales compared prior year volumes emea higher prior year primarily due higher volumes personal care fragrance ingredients negatively impacted adverse price product mix higher volumes aspac driven increases personal care markets benefited favorable exchange rate movements year driven primarily strengthening european union euro british pound sterling us dollar gross margin year increase 02 percentage points primarily reflected richer sales mix driven greater proportion sales personal care market including chemsil business operating expenses year increase 27 61 million primarily respect 52 million additional costs chemsil chemtec businesses 09 million increase costs partly driven additional headcount several locations octane additives net sales year decrease 6 primarily due timing shipments declining demand one remaining customer gross margin year increase 47 percentage points primarily due favorable manufacturing variances operating expenses year decrease 03 million due efficient management cost base income statement captions pension creditcharge noncash 33 million net charge 2014 compared 23 million net charge 2013 primarily due higher interest cost projected benefit obligation corporate costs year decrease 11 49 million related 28 million higher costs amortization new information system platform 13 million higher insurance claims offset 10 million lower personnelrelated compensation costs primarily due lower accruals sharebased compensation expense together accruals new cashbased longterm incentive plan release 08 million restructuring provision longer required 72 million lower legal professional expenses impairment octane additives segment goodwill 00 million 2014 13 million 2013 following final impairment charge fourth quarter 2013 net incomeexpense net income 18 million primarily related net gains 34 million foreign currency forward exchange contracts partly offset 16 million losses translation net assets denominated nonfunctional currencies european businesses 2013 net income 41 million primarily related gains 58 million translation net assets denominated nonfunctional currencies european businesses partly offset net foreign exchange losses foreign currency forward exchange contracts 16 million interest expense net 34 million 2014 19 million 2013 due higher level borrowing 2014 used primarily fund acquisition activity second half 2013 income taxes effective tax rate 242 162 2014 2013 respectively effective tax rate adjusted income tax provisions tax impact discrete items 249 2014 compared 159 2013 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2014 company’s income tax expense benefited greater degree proportion overall profits arising switzerland 2013 resulted 94 million benefit switzerland 2013 93 million addition 79 million benefit relation united kingdom 2013 39 million 04 million benefit relation germany 2013 03 million foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2014 amount subpart f income associated section 78 gross amounted 50 million 2013 43 million income earned certain overseas subsidiaries taxable us tax regime increased 21 million 12 million 2013 foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits total 48 million foreign tax credits utilized 2014 partially offset incremental us taxes arising foreign income inclusions year 2013 42 million balance 36 million foreign tax credit carry forwards earlier years utilized 2013 24 million resulted decrease recognition foreign tax credit carry forwards 36 million year 2013 24 million decrease details given note 10 notes consolidated financial statements results operations fiscal 2013 compared fiscal 2012 fuel specialties net sales table details components comprise year change net sales spread across markets operate americas saw increase volumes 2013 result higher demand offset adverse price product mix result lower sales high margin products acquisitions americas relating strata bachman generated additional sales compared 2012 emea volumes remained par prior year benefiting improved price product mix emea benefited favorable exchange rates driven primarily strengthening european union euro us dollar volumes higher aspac adverse price product mix result lower sales higher margin products avtel volumes increased due timing shipments customers opposed change longterm outlook market price product mix benefiting favorable customer mix gross margin year increase 18 percentage points reflected richer price product mix emea continued benefit higher margin sales strata business favorable customer mix higher margin avtel business offset adverse price product mix americas aspac operating expenses year increase 24 173 million due 67 million additional costs strata business 34 million additional costs bachman businesses 24 million increased personnelrelated compensation costs partly due higher accruals share based compensation expense driven rise stock price compared period prior year 29 million additional research development new product testing costs 14 million additional commissions 05 million increase expenses performance chemicals net sales table details components comprise year change net sales spread across markets operate americas volumes lower fragrance ingredients partly offset improved price product mix resulting retrospective price adjustment customer acquisitions americas relating chemsil chemtec generated additional sales compared 2012 volumes emea par prior year combined marginally weaker price product mix fragrance ingredients partially offset improved sales mix personal care aspac volumes moved higher impacted higher sales lower margin products gross margin year decrease 03 percentage points reflected competitive pricing pressures fragrance ingredients partly offset richer price product mix personal care market together retrospective price adjustment customer americas emea higher margins chemsil business operating expenses year increase 16 32 million reflected 31 million additional costs recently acquired chemsil chemtec businesses 03 million higher personnelrelated compensation costs driven rise stock price compared period prior year 02 million decrease expenses octane additives net sales decreased 15 decreased volumes 18 percentage points due timing shipments declining demand major customers improved customer mix 4 percentage points together reduced revenue environmental remediation business 1 percentage points 2013 2012 sales focused middle east northern africa gross margin decreased 16 percentage points 487 471 due lower manufacturing volumes partly offset favorable customer mix nonrecurring freight storage costs prior year operating expenses decreased 16 million 79 million 63 million due efficient management cost base income statement captions pension creditcharge noncash charge increased 23 million net charge 2013 compared 16 million net charge 2012 revising amortization actuarial losses 2012 increase net charge 2013 primarily relates increased actuarial net losses amortized income statement corporate costs year increase 13 50 million reflected 83 million higher legal compliance professional expenses including acquisitionrelated costs 18 million 2013 compared 28 million 2012 18 million higher personnelrelated compensation costs primarily due higher accruals share based compensation expense driven rise stock price compared period prior year 07 million higher information technology service platform costs offset 58 million reduction charge longterm incentive plan completed end 2012 impairment octane additives segment goodwill 13 million 2013 12 million 2012 net incomeexpense net income 41 million primarily related gains 58 million translation net assets denominated nonfunctional currencies european businesses partly offset net foreign exchange losses foreign currency forward exchange contracts 16 million 2012 net expense 20 million primarily related losses translation net assets denominated nonfunctional currencies european businesses offset net foreign exchange gains foreign currency forward exchange contracts interest expense net increased 19 million 2013 12 million 2012 due higher level borrowing 2013 used primarily fund acquisition activity income taxes effective tax rate 162 283 2013 2012 respectively effective tax rate adjusted income tax provisions tax impact acquisitionrelated funding 159 2013 compared 202 2012 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods addition mentioned following factors significant impact company’s effective tax rate compared us federal income tax rate 35 impact effective tax rate profits earned foreign jurisdictions lower tax rates varies geographical mix company’s profits changes year 2013 company’s income tax expense benefited lesser degree proportion overall profits arising switzerland 2012 resulted 93 million benefit switzerland 2012 120 million addition 39 million benefit relation united kingdom 2012 33 million 03 million benefit relation germany 2012 07 million foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime 2013 amount subpart f income associated section 78 gross amounted 43 million 2012 43 million income earned certain overseas subsidiaries taxable us tax regime decreased 12 million 25 million 2012 dividend overseas subsidiary remitted us increased foreign income inclusions 390 million 2012 2013 dividends remitted us foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits total 42 million foreign tax credits utilized 2013 partially offset incremental us taxes arising foreign income inclusions year 2012 overseas dividend remitted us provide funding company’s acquisition program 428 million foreign tax credits utilized 2012 balance 24 million foreign tax credit carry forwards earlier years utilized 2012 142 million resulted decrease recognition foreign tax credit carry forwards 24 million year 2012 66 million decrease united kingdom’s 3 reduction corporation tax rate 23 20 april 2015 enacted july 2013 resulted net deferred tax charge 09 million 2012 net deferred tax credit 05 million third quarter 2013 primarily relation deferred tax position united kingdom defined benefit pension plan details given note 10 notes consolidated financial statements liquidity financial condition working capital company believes adjusted working capital nongaap financial measure provides useful information investors evaluating company’s underlying performance identifying operating trends management uses nongaap financial measure internally allocate resources evaluate performance company’s operations items excluded adjusted working capital calculation listed table represent factors fluctuate line day working capital needs business 2014 adjusted working capital increased 290 million primarily due 289 million working capital independence business december 31 2014 285 million increase trade accounts receivable 2014 primarily related acquisition independence partly offset lower receivables octane additives segment due declining demand timing shipments one remaining customer days’ sales outstanding fuel specialties segment increased 49 days 52 days decreased 51 days 48 days performance chemicals segment 260 million increase inventories 2014 primarily related acquisition independence together slightly higher inventories fuel specialties segment days’ sales inventory fuel specialties segment decreased 79 days 76 days increased performance chemicals segment 96 days 99 days prepaid expenses increased 25 million 58 million 83 million partly related acquisition independence 280 million increase accounts payable accrued liabilities 2014 primarily related acquisition independence creditor days fuel specialties segment increased 32 days 40 days performance chemicals segment decreased 42 days 31 days operating cash flows generated cash operating activities 1063 million 2014 compared 613 million 2013 year cash operating activities positively impacted increased net income adding back increased amortization costs recent acquisitions significant movements income taxes cash december 31 2014 2013 cash equivalents 416 million 802 million respectively 301 million 733 million respectively held nonus subsidiaries principally united kingdom company position control whether repatriate foreign earnings currently expect make repatriation foreseeable future hence provided future income taxes cash held overseas subsidiaries circumstances change would cause earnings repatriated additional us tax liability could incurred continue monitor position shortterm investments december 31 2014 2013 shortterm investments 47 million 66 million respectively debt august 28 2013 amended fiveyear revolving credit facility “the facility” amendment provided increase facility available company certain subsidiaries company 1000 million 1500 million retains term facility december 2016 addition amendment allowed company request additional amount 500 million committed lenders 300 million committed fourth quarter 2013 july 31 2014 company increased borrowing capacity 200 million credit facility provides borrowings us 2000 million expires december 14 2016 may drawn full us credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda must greater 251 2 ratio ebitda net interest must less 401 management determined company breached covenants throughout period december 31 2014 expects breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries current credit facility contains restrictions may limit activities operational financial flexibility may able borrow event default outstanding includes material adverse change assets operations financial condition credit facility contains number restrictions limit ability among things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments effect merger consolidation dispose assets materially change line business december 31 2014 1390 million debt outstanding revolving credit facility 04 million debt financing within independence business 22m obligations finance leases relating certain fixed assets within independence business december 31 2014 maturity profile longterm debt finance leases set outlook december 31 2014 company cash equivalents shortterm investments 463 million longterm debt 1394 million finance leases 22 million giving total debt 1416 million resulting net debt 953 million company expects fund operations least next 12 months combination operating cash flows revolving credit facility company funded acquisition independence 2014 existing cash debt facilities company believes continue provide adequate sources liquidity future working capital needs contractual commitments following represents contractual commitments december 31 2014 effect obligations future cash flows operating activities amounts related pension obligations refer likely levels funding united kingdom defined benefit pension plan “plan” plan closed future service accrual large number deferred current pensioners company expects annual cash contribution 108 million 2015 153 million 201617 109 million 201819 considered meaningful predict amounts beyond 2020 since many uncertainties including future returns assets pension increases inflation evaluated plan undertakes actuarial valuation every three years remediation payments represent cash flows company currently obligated pay respect environmental remediation current former facilities include discretionary remediation costs company may choose incur operating lease commitments relate primarily office space motor vehicles various items computer office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancelable without penalty estimated payments included table reflect variable interest charge longterm debt obligations estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 10 notes consolidated financial statements investing activities capital commitments relate certain capital projects company committed undertake financing activities december 14 2011 entered fiveyear revolving credit facility “the facility” provides borrowings 1000 million credit facility drawn expires december 14 2016 august 28 2013 amended facility increase amount available company certain subsidiaries company 1000 million 1500 million retaining term conditions facility december 2016 addition amendment allowed company request additional amount 500 million committed lenders 300 million committed fourth quarter 2013 july 31 2014 company increased borrowing capacity 200 million credit facility provides borrowings us 2000 million expires december 14 2016 may drawn full us finance leases relate financing certain fixed assets recent acquisition independence oilfield chemicals llc “independence” part acquisition independence innospec deferred consideration contingently payable next two years based multiple independence’s annualized earnings interest taxes depreciation amortization plus percentage free cash flow based current forecasts independence’s performance innospec make two deferred consideration payments first one 457 million payable approximately one year closing second one 495 million payable approximately two years closing portion deferred payments payable innospec’s election shares innospec’s common stock environmental matters plant closures certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us expect liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws amounting 341 million december 31 2014 remediation expenditure utilizing provisions 20 million 19 million 21 million years 2014 2013 2012 respectively item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto executive overview 2019 continued focus organic growth portfolio delivered line expectations sales revenue growth across group driven new product development customer adoption strong product portfolio strategic businesses octane additives continued supply one remaining customer motor gasoline albeit reduced levels consistent customer’s transition unleaded fuel critical accounting estimates note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation consolidated financial statements environmental liabilities subject environmental laws countries conduct business principal site giving rise environmental remediation liabilities octane additives manufacturing site ellesmere port united kingdom also environmental remediation liabilities much smaller scale respect manufacturing sites us europe ellesmere port continuing asset retirement program related certain manufacturing units closed remediation provisions december 31 2019 amounted 493 million relate principally ellesmere port site united kingdom recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated develop assumptions utilizing latest information available together recent costs believe assumptions environmental liabilities reasonable subjective judgements possible variations assumptions result materially different calculations liabilities reported income taxes subject income taxes us jurisdictions tax laws dynamic subject change new laws passed new interpretations law issued applied calculation tax liabilities involves evaluating uncertainties application accounting principles complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained based technical merits position challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities effective tax rate given period may materially affected unfavourable tax settlement may require cash payments result increase effective tax rate year resolution report interest penalties related uncertain tax positions income taxes additional information regarding uncertain income tax positions see note 10 notes consolidated financial statements pensions company maintains defined benefit pension plan covering number current former employees united kingdom company also smaller pension arrangements us overseas disclosed note 9 notes consolidated financial statements united kingdom plan closed future service accrual large number deferred current pensioners movements underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future inflation change one assumptions could impact plan asset value pbo pension charge recognized income statement changes could adversely impact results operations financial position example 025 change discount rate assumption would change pbo approximately 24 million net pension credit 2020 would change approximately 01 million 025 change level price inflation assumption would change pbo approximately 18 million net pension credit 2020 would change approximately 11 million information provided note 9 notes consolidated financial statements goodwill company’s reporting units level goodwill assessed potential impairment consistent reportable segments components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows sufficiently distinguished operationally financial reporting purposes rest company test impairment company performs qualitative assessment determine whether likely likelihood 50 percent fair value segment less carrying amount prior performing quantitative goodwill impairment test factors utilized qualitative assessment process include macroeconomic conditions industry market considerations cost factors overall financial performance company specific events quantitative test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital fair value techniques require management judgment estimates including revenue growth rates projected operating margins changes working capital discount rates would develop assumptions considering recent financial performance trends industry growth estimates believe assumptions impairment assessments reasonable subjective judgments possible variations assumptions result materially different calculations potential impairment charges december 31 2019 3630 million goodwill relating fuel specialties performance chemicals oilfield services segments impairment assessment concluded impairment goodwill respect reporting segments property plant equipment intangible assets net depreciation amortization respectively december 31 2019 1987 million property plant equipment 1135 million intangible assets net depreciation amortization respectively discussed notes 5 8 notes consolidated financial statements respectively longlived assets relate reporting segments amortized depreciated straightline periods 17 years respect intangible assets 25 years respect property plant equipment continually assess markets products related longlived assets well specific carrying values concluded carrying values amortization depreciation periods remain appropriate results operations following table provides operating income reporting segment results operations fiscal 2019 compared fiscal 2018 financial information respect domestic foreign operations contained note 3 notes consolidated financial statements fuel specialties net sales table details components comprise year change net sales spread across markets operate lower volumes americas primarily driven specific issue second half 2019 related disruption one supplier volumes emea aspac higher driven increased demand products technology price product mix americas emea aspac benefited increased sales higher margin products avtel volumes higher prior year due variations demand customers partly offset adverse price product mix emea aspac negatively impacted exchange rate movements year driven weakening british pound sterling european union euro us dollar gross margin year increase 11 percentage points benefitted improvement mix product sales operating expenses year increase 92 million driven increased selling expenses including higher agents’ commissions higher personnel related performancebased remuneration due increased sharebased compensation accruals performance chemicals net sales table details components comprise year change net sales spread across markets operate lower volumes americas emea driven customer taking volume inhouse higher volumes aspac driven increased demand personal care products partly offset adverse price product mix price product mix americas benefitted increased sales higher margin products emea adversely impacted lower raw material prices driving lower selling prices certain products emea aspac negatively impacted exchange rate movements year due weakening british pound sterling european union euro us dollar gross margin year increase 25 percentage points driven improved sales mix lower raw material prices continued benefit several improvement projects operating expenses year decrease 14 million primarily due benefit weaker european union euro us dollar lower costs result closure operation belgium prior year oilfield services net sales year increase 793 million 20 percent due improved customer activity stimulation production driving increased demand technology customer service sales higher margin products benefited price product mix gross margin year increase 07 percentage points due improved customer product mix leading increased sales higher margin products operating expenses year increase 119 million driven higher selling technical support expenses required deliver increase customer demand octane additives net sales 210 million 2019 compared 337 million 2018 reduced sales line expectations one remaining customer moves closer completing transition unleaded fuel gross margin year decrease 278 percentage points due lower production volumes spread predominantly fixed cost manufacturing operations operating expenses year increase 02 million principally due higher yearend provisions personnel related performancebased remuneration income statement captions corporate costs year increase 20 million primarily relates higher personnel related performancebased remuneration including higher sharebased compensation accruals partly offset reduction amortization internally developed software following completed amortization first deployment americas ended third quarter 2018 together benefit weakening british pound sterling us dollar united kingdom cost base restructuring charge 2019 compared charge 71 million prior year related closure costs including redundancies onerous leases operation belgium net incomeexpense 2019 2018 includes following interest expense net 48 million 2019 compared 69 million prior year driven lower average net debt business generated cash inflows income taxes effective tax rate 254 354 2019 2018 respectively adjusted effective tax rate adjusted items set following table 226 2019 compared 237 2018 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate company’s operations planning forecasting subsequent periods significant factors impacting effective tax rate 2019 explained note 10 notes consolidated financial statements results operations fiscal 2018 compared fiscal 2017 financial information respect domestic foreign operations contained note 3 notes consolidated financial statements fuel specialties net sales table details components comprise year change net sales spread across markets operate volumes regions higher driven increased demand product technology customer service price product mix americas benefited increased sales higher margin products avtel volumes higher prior year due variations timing level demand customers emea aspac benefited favorable exchange rate movements year driven strengthening british pound sterling european union euro us dollar gross margin year decrease 20 percentage points adversely affected mix product sales compared strong prior year comparative operating expenses year decrease 18 million driven reduction provisions doubtful debts lower accruals agents’ commissions partly offset increased expenses support business growth performance chemicals net sales table details components comprise year change net sales spread across markets operate increased demand personal care led significantly higher volumes americas together favorable price product mix increased sales higher margin products emea benefited higher volumes personal care home care aspac volumes higher due increased demand personal care partly offset lower demand home care aspac impacted adverse price product mix due lower sales higher margin products emea aspac benefited favorable exchange rate movements year driven strengthening british pound sterling european union euro us dollar gross margin year increase 27 percentage points driven benefit several improvement projects favorable manufacturing variances due higher production volumes operating expenses year increase 96 million due additional personnelrelated expenses support business growth including increased performancerelated compensation accruals together additional amortization new information system platform adverse impact exchange rate movements year oilfield services net sales year increase 962 million due increased customer activity stimulation completion following rise crude oil prices first nine months year overall volumes increased 26 percent year together favorable price product mix 6 percent gross margin year decrease 33 percentage points due mix customer activity adverse raw material pricing higher transportation labor costs operating expenses year increase 85 million due higher selling technical support expenses required deliver increase customer demand partly offset reduction expenses reduction expenses driven lower general administration costs due effective cost control together lower amortization acquisition related intangible assets acquired assets become fully amortized octane additives net sales decreased 254 million compared prior year due expected reduction demand one remaining refinery customer gross margin year decrease 149 percentage points due higher manufacturing costs result lower production volumes align reduced customer demand operating expenses year decrease 11 million driven release historic provisions longer required either due settlement disputed liabilities passing relevant time limit statute limitations income statement captions corporate costs year increase 36 million relates higher personnelrelated compensation accruals including new longterm incentive plan higher costs additional corporate services required support enlarged group following growth acquisitions recent years also adverse effect stronger british pound sterling us dollar united kingdom cost base restructuring charge 71 million primarily relates closure costs including redundancies onerous leases operation belgium loss disposal subsidiary loss prior year 09 million indemnity claim relation residual testing aroma chemicals business sold 2015 foreign exchange loss liquidation subsidiary 18 million loss prior year related reclassification historic foreign exchange translations net assets accumulated comprehensive losses captive insurance company liquidated corresponding charge current year net incomeexpense 2018 2017 includes following interest expense net 69 million 2018 compared 82 million 2017 driven lower average net debt business generated cash inflows income taxes effective tax rate 354 518 2018 2017 respectively adjusted effective tax rate adjusted items set following table 237 2018 compared 202 2017 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate company’s operations planning forecasting subsequent periods significant factor impacting effective tax rate 2018 2017 recognized implications tax act december 22 2017 date tax act enacted sec staff issued staff accounting bulletin 118 “sab 118” provided guidance accounting tax effects tax act sab 118 provides measurement period extend beyond one year tax act enactment date companies complete accounting asc 740 income taxes accounting impact tax act sab 118 complete deemed repatriation transition tax “transition tax” tax certain previously untaxed accumulated earnings profits “ep” company’s nonus subsidiaries december 31 2017 able reasonably estimate transition tax recorded provisional transition tax obligation 477 million basis revised ep computations completed reporting period adjusted transition tax estimate 611 million net related consequential impacts recorded 2017 us federal income tax return recorded additional 123 million income tax expense fourth quarter 2018 accounting relation transition tax complete liquidity financial condition working capital company believes adjusted working capital nongaap financial measure provides useful information investors evaluating company’s underlying performance identifying operating trends management uses nongaap financial measure internally allocate resources evaluate performance company’s operations items excluded adjusted working capital calculation listed table represent factors fluctuate line day working capital needs business 2019 working capital decreased 405 million adjusted working capital decreased 51 million difference primarily due changes cash equivalents longterm debt together exclusion current portion operating lease liabilities adjusted working capital 123 million increase trade accounts receivable driven higher sales oilfield services segment days’ sales outstanding fuel specialties segment remained unchanged 52 days decreased performance chemicals segment 65 days 64 days increased 56 days 66 days oilfield services segment 34 million decrease inventories following expected high demand fourth quarter particular oilfield services segment days’ sales inventory fuel specialties segment increased 90 days 97 days increased performance chemicals segment 59 days 66 days decreased 82 days 71 days oilfield services segment prepaid expenses increased 31 million 116 million 147 million due timing invoices received new prepayments 171 million increase accounts payable accrued liabilities due timing supplier payments higher accruals sharebased payments linked increase innospec share price year creditor days including grni fuel specialties segment increased 43 days 52 days increased performance chemicals segment 52 days 54 days decreased oilfield services segment 49 days 43 days operating cash flows generated cash operating activities 1616 million 2019 compared cash inflows 1049 million 2018 year cash operating activities benefitted effective control working capital across business particular oilfield services segment controlled inventory levels sales significantly increased year also favorable cash flow timing income tax payments cash december 31 2019 2018 cash equivalents 757 million 1231 million respectively 579 million 1014 million respectively held nonus subsidiaries principally united kingdom decrease cash equivalents 2019 474 million driven repayment 660 million revolving credit facility 825 million repayment term loan partly offset strong operating cash flows including effective control working capital net capital investment dividend payments debt september 26 2019 innospec certain subsidiaries entered new agreement 2500 million revolving credit facility september 25 2023 option request extension facility year facility also contains accordion feature whereby company may elect increase total available borrowings aggregate amount 1250 million september 30 2019 company repaid preexisting term loan revolving credit facility amended restated december 14 2016 replaced borrowing new credit facility result refinancing costs 15 million capitalized amortized expected life facility new revolving credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda must greater 3010 2 ratio ebitda net interest must less 4010 management determined company breached covenants expect breach covenants next 12 months current credit facility contains restrictions may limit activities operational financial flexibility may able borrow event default outstanding includes material adverse change assets operations financial condition credit facility contains number restrictions limit ability among things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments effect merger consolidation dispose assets materially change line business december 31 2019 600 million debt outstanding revolving credit facility 15 million obligations finance leases relating certain fixed assets within fuel specialties oilfield services segments december 31 2019 maturity profile longterm debt finance leases set net deferred finance costs capitalized 14 million outlook 2019 focused consolidating strengthening enlarged business several promising organic growth projects support future growth continued deliver strong financial performance believe longterm strategy much line expectations current year successful financially notably ended year net cash position balance sheet organic growth new product development key feature 2019 intend continue key focus coming years successful year issues global trade disputes beyond control give us cause caution consider prospects 2020 plan maintaining existing strategy grow business based twin competencies technology customer service continued investment rd require continued investment new product development latter part 2019 suggested market conditions challenging 2020 strategic businesses however feel confident organic growth projects potential acquisitions support continued growth expect possible conclusion revenues octane additives segment early part 2020 contractual commitments following represents contractual commitments december 31 2019 effect obligations future cash flows operating activities remediation payments represent cash flows company currently obligated pay respect environmental remediation current former facilities include discretionary remediation costs company may choose incur operating lease commitments relate primarily rightofuse assets third party manufacturing facilities office space motor vehicles various items computer office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancellable without penalty estimated payments included table reflect variable interest charge longterm debt obligations estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 10 notes consolidated financial statements investing activities capital commitments relate certain capital projects company committed undertake financing activities september 26 2019 innospec certain subsidiaries entered new agreement 2500 million revolving credit facility september 25 2023 option request extension facility year facility also contains accordion feature whereby company may elect increase total available borrowings aggregate amount 1250 million september 30 2019 company repaid preexisting term loan revolving credit facility amended restated december 14 2016 replaced borrowing new credit facility finance leases relate financing certain fixed assets fuel specialties oilfield services segments environmental matters plant closures certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us expect liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws amounting 493 million december 31 2019 remediation expenditure utilizing provisions 44 million 31 million 24 million years 2019 2018 2017 respectively item 7aitem 7 management’s discussion analysis financial condition results operations discussion read conjunction consolidated financial statements notes thereto executive overview much 2020 customer demand adversely impacted covid19 pandemic unprecedented collapse demand crude oil low point year decline customer demand second quarter businesses showing recovery since time although yet returned prepandemic levels also successfully navigated number world trade disputes threatened negative impact business performance chemicals continued organic growth driven new product development new customers personal care home care agrochemical metal extraction markets fuel specialties oilfield services suffered dramatic drop demand oilfield services responded making substantial cuts costs reflect reduced customer activity levels believe markets showing signs good recovery end year octane additives business concluded trading last customer motor gasoline year sole customer completed transition unleaded fuel critical accounting estimates note 2 notes consolidated financial statements includes summary significant accounting policies methods used preparation consolidated financial statements environmental liabilities subject environmental laws countries conduct business ellesmere port united kingdom principal site giving rise environmental remediation liabilities associated production tel also environmental remediation liabilities much smaller scale respect manufacturing sites us europe ellesmere port continuing asset retirement program related certain manufacturing units closed remediation provisions december 31 2020 amounted 585 million relate principally ellesmere port site united kingdom recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated develop assumptions utilizing latest information available together recent costs believe assumptions environmental liabilities reasonable subjective judgements possible variations assumptions result materially different calculations liabilities reported income taxes subject income taxes us uk eu jurisdictions tax laws dynamic subject change new laws passed new interpretations law issued applied calculation tax liabilities involves evaluating uncertainties application accounting principles complex tax regulations recognize liabilities anticipated tax audit issues based estimate whether extent additional taxes required ultimately determine payment amounts unnecessary reverse liability recognize tax benefit period determine liability longer necessary also recognize tax benefits extent likely positions sustained based technical merits position challenged taxing authorities extent prevail matters liabilities established required pay amounts excess liabilities recorded financial statements effective tax rate given period may materially affected unfavourable tax settlement may require cash payments result increase effective tax rate year resolution report interest penalties related uncertain tax positions income taxes additional information regarding uncertain income tax positions see note 11 notes consolidated financial statements pensions company maintains defined benefit pension plan covering number current former employees united kingdom company also smaller pension arrangements us overseas disclosed note10 notes consolidated financial statements united kingdom plan closed future service accrual large number deferred current pensioners movements united kingdom’s underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future inflation change one assumptions could impact plan asset value pbo pension charge recognized income statement changes could adversely impact results operations financial position example 025 change discount rate assumption would change pbo approximately 26 million net pension credit 2020 would change approximately 04 million 025 change level price inflation assumption would change pbo approximately 19 million net pension credit 2021 would change approximately 12 million information provided note 10 notes consolidated financial statements goodwill company’s reporting units level goodwill assessed potential impairment consistent reportable segments components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows sufficiently distinguished operationally financial reporting purposes rest company test impairment company performs qualitative assessment determine whether likely likelihood 50 percent fair value segment less carrying amount prior performing quantitative goodwill impairment test factors utilized qualitative assessment process include macroeconomic conditions industry market considerations cost factors overall financial performance company specific events quantitative test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital fair value techniques require management judgment estimates including revenue growth rates projected operating margins changes working capital discount rates would develop assumptions considering recent financial performance trends industry growth estimates believe assumptions impairment assessments reasonable subjective judgments possible variations assumptions result materially different calculations potential impairment charges december 31 2020 3712 million goodwill relating fuel specialties performance chemicals oilfield services segments due triggering events covid19 pandemic reduction oil prices impact business performed step one impairment review june 30 2020 impairment assessment indicated fair values substantially exceeded carrying values operating segments despite due significant downturn one entities performed assessment intangible assets entity resulted impairment 198 million june 30 2020 property plant equipment intangible assets net depreciation amortization respectively december 31 2020 2108 million property plant equipment 753 million intangible assets net depreciation amortization respectively discussed notes 6 8 notes consolidated financial statements respectively longlived assets relate reporting segments amortized depreciated straightline periods 17 years respect intangible assets 25 years respect property plant equipment continually assess markets products related longlived assets well specific carrying values concluded carrying values amortization depreciation periods remain appropriate impact covid19 pandemic current economic environment company’s results adversely impacted 2020 due covid19 pandemic global economic environment fuel specialties impacted reduced demand stemming reduction freight transport passenger miles widespread grounding aircraft large part year seen improvement fourth quarter travel begun increase demand returned precovid19 levels expect demand continue improve 2021 extent global economic activity recovers subject continuation current lockdowns europe particular potential future lockdowns restrictions around world related spread new covid variants performance chemicals experienced little overall impact pandemic increased demand certain products linked health hygiene cleaning outweighed lost revenues linked shortterm shutdown customers manufacturing facilities oilfield services heavily impacted reduction oil exploration production wider industry reacts reduction demand low oil price seen improvement second half year increasing demand benefit reduction headcount occurred second quarter know long downturn last rate recovery depend heavily rate extent government restrictions movement lifted reimposed manufacturing facilities continued operate minor interruption expect continue implemented flexible working including working home employees possible line advice rules jurisdictions operate additional costs incurred ensure manufacturing administrative facilities covid safe employees costs significant date may increased costs future safety restrictions required raw material sourcing significantly impacted expect change remainder year logistics operating delays products currently delivered customers believe financial position remains strong expect sufficient access capital needed including 250 million revolving credit facility entered september 2019 anticipate issues meeting covenants debt agreements extended facility twelve months september 2024 third quarter 2020 major capital projects continuing progress planned operate chemical industry continue focused protecting health safety employees procedures place operating facilities help ensure wellbeing know long pandemic current economic environment continue made estimates potential impacts financial position operations ultimate impact business depend many factors difficult predict certainty substantially beyond control results operations following table provides operating income reporting segment results operations fiscal 2020 compared fiscal 2019 financial information respect domestic foreign operations contained note 3 notes consolidated financial statements fuel specialties net sales table details components comprise year change net sales spread across markets operate volumes regions suffered adverse impact covid19 pandemic reduced global demand fuel additive products second half 2020 seen customer demand recovering steadily lockdowns countries around world eased however reintroduction lockdowns european countries january 2021 could slow return customer demand prepandemic level price product mix regions adverse due lower sales higher margin products avtel volumes higher prior year due variations demand customers offset adverse price product mix emea benefitted favorable exchange rate movements year due strengthening british pound sterling european union euro us dollar gross margin year decrease 37 percentage points driven impact covid19 pandemic reducing demand higher margin products together adverse raw material costs higher provisions slow moving inventory operating expenses year decrease 121 million due cost savings result covid19 pandemic including lower travel entertainment costs together lower personnel related performancebased remuneration due decrease sharebased compensation accruals linked innospec share price performance chemicals net sales table details components comprise year change net sales spread across markets operate higher volumes americas aspac driven increased demand personal care home care products volumes lower emea primarily due lower demand home care products americas emea suffered adverse price product mix due increased sales lower priced products due largely lower raw material costs aspac benefitted favorable price product mix due increased sales higher priced products emea aspac benefitted favorable exchange rate movements year due strengthening british pound sterling european union euro us dollar gross margin year increase 11 percentage points due richer sales mix continued benefit margin improvement projects timing pricing movements certain raw materials operating expenses year decrease 24 million driven lower personnel related performancebased remuneration due decrease sharebased compensation accruals linked innospec share price together cost savings result covid19 pandemic including lower travel entertainment costs oilfield services net sales year decrease 2249 million 47 percent primarily due collapse customer activity us onshore market result covid19 pandemic reducing worldwide demand together depressed price crude oil previously expected recovery us completions market delayed however company seen improvement demand crude oil second half 2020 leading higher sales production drag reducing agent products gross margin year decrease 16 percentage points primarily due significant inventory adjustments second quarter 2020 result collapse demand partly offset margin improvements second half year due favorable sales mix management cost control initiatives operating expenses year decrease 299 million driven rightsizing operations adjust reduction demand caused covid19 pandemic together lower accruals longterm performancebased incentive plans due decrease sharebased compensation accruals linked innospec share price octane additives octane additives business ceased trading longer reporting segment july 1 2020 production tel use motor gasoline finished legacy costs related operations recorded operating expenses within corporate costs prior july 1 2020 net sales nil 2020 compared 210 million prior year gross loss 22 million 2020 compared 17 million gross profit prior year operating expenses 06 million 2020 compared 24 million prior year income statement captions corporate costs year decrease 22 million driven lower accruals longterm performancebased incentive plans due impact covid19 pandemic group’s profit performance together decrease sharebased compensation accruals linked innospec share price also reduction travel entertainment expenses resulting covid19 pandemic restrictions local international travel decrease costs partly offset 42 million acquisition related costs 2020 inclusion legacy costs related closed octane additives segment 25 million higher spending information technology following network security incident second quarter 2019 restructuring charge 213 million related cessation production sales tel use motor gasoline see note 5 notes condensed consolidated financial statements information impairment intangible assets 198 million related acquired intangible assets oilfield services segment see note 9 notes condensed consolidated financial statements information net incomeexpense 2020 2019 includes following interest expense net 18 million 2020 compared 48 million prior year driven lower average net debt business generated cash inflows income taxes effective tax rate 277 254 2020 2019 respectively adjusted effective tax rate adjusted items set following table 235 2020 compared 226 2019 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods significant factors impacting effective tax rate 2020 explained note 11 notes consolidated financial statements results operations fiscal 2019 compared fiscal 2018 financial information respect domestic foreign operations contained note 3 notes consolidated financial statements fuel specialties net sales table details components comprise year change net sales spread across markets operate lower volumes americas primarily driven specific issue second half 2019 related disruption one supplier volumes emea aspac higher driven increased demand products technology price product mix americas emea aspac benefited increased sales higher margin products avtel volumes higher prior year due variations demand customers partly offset adverse price product mix emea aspac negatively impacted exchange rate movements year driven weakening british pound sterling european union euro us dollar gross margin year increase 11 percentage points benefitted improvement mix product sales operating expenses year increase 92 million driven increased selling expenses including higher agents’ commissions higher personnel related performancebased remuneration due increased sharebased compensation accruals performance chemicals net sales table details components comprise year change net sales spread across markets operate lower volumes americas emea driven customer taking volume inhouse higher volumes aspac driven increased demand personal care products partly offset adverse price product mix price product mix americas benefitted increased sales higher margin products emea adversely impacted lower raw material prices driving lower selling prices certain products emea aspac negatively impacted exchange rate movements year due weakening british pound sterling european union euro us dollar gross margin year increase 25 percentage points driven improved sales mix lower raw material prices continued benefit several improvement projects operating expenses year decrease 14 million primarily due benefit weaker european union euro us dollar lower costs result closure operation belgium prior year oilfield services net sales year increase 793 million 20 percent due improved customer activity stimulation production driving increased demand technology customer service sales higher margin products benefited price product mix gross margin year increase 07 percentage points due improved customer product mix leading increased sales higher margin products operating expenses year increase 119 million driven higher selling technical support expenses required deliver increase customer demand octane additives net sales 210 million 2019 compared 337 million 2018 reduced sales line expectations one remaining customer moves closer completing transition unleaded fuel gross margin year decrease 278 percentage points due lower production volumes spread predominantly fixed cost manufacturing operations operating expenses year increase 02 million principally due higher yearend provisions personnel related performancebased remuneration income statement captions corporate costs year increase 20 million primarily relates higher personnel related performancebased remuneration including higher sharebased compensation accruals partly offset reduction amortization internally developed software following completed amortization first deployment americas ended third quarter 2018 together benefit weakening british pound sterling us dollar united kingdom cost base restructuring charge 2019 compared charge 71 million prior year related closure costs including redundancies onerous leases operation belgium net incomeexpense 2019 2018 includes following interest expense net 48 million 2019 compared 69 million prior year driven lower average net debt business generated cash inflows income taxes effective tax rate 254 354 2019 2018 respectively adjusted effective tax rate adjusted items set following table 226 2019 compared 237 2018 company believes adjusted effective tax rate nongaap financial measure provides useful information investors may assist evaluating company’s underlying performance identifying operating trends addition management uses nongaap financial measure internally evaluate performance company’s operations planning forecasting subsequent periods significant factor impacting adjusted effective tax rate 2019 relates adjustment income tax provisions 2019 company recorded additional tax interest arising consequence tax audit innospec performance chemicals italia srl item negative impact effective tax rate subsequently excluded determining adjusted effective tax rate note finally determined tax liabilities would reimbursed previous owner terms sale purchase agreement significant factor impacting adjusted effective tax rate 2018 recognized implications tax act december 22 2017 us government enacted comprehensive tax legislation tax act date sec staff issued staff accounting bulletin 118 “sab 118” provided guidance accounting tax effects tax act sab 118 provides measurement period extend beyond one year tax act enactment date companies complete accounting asc 740 income taxes accounting impact tax act sab 118 completed 2018 deemed repatriation transition tax “transition tax” tax certain previously untaxed accumulated earnings profits “ep” company’s nonus subsidiaries december 31 2017 able reasonably estimate transition tax recorded provisional transition tax obligation 477 million basis revised ep computations completed 2018 adjusted transition tax estimate 611 million net related consequential impacts recorded 2017 us federal income tax return recorded additional 123 million income tax expense fourth quarter 2018 liquidity financial condition working capital 2020 working capital decreased 130 million adjusted working capital decreased 475 million difference primarily due exclusion increase cash equivalents together exclusion decrease current portion income taxes liability company believes adjusted working capital nongaap financial measure provides useful information investors evaluating company’s underlying performance identifying operating trends management uses nongaap financial measure internally allocate resources evaluate performance company’s operations items excluded adjusted working capital calculation listed table represent factors fluctuate line day working capital needs business 706 million decrease trade accounts receivable primarily driven decline sales fuel specialties oilfield services segments result covid19 pandemic days’ sales outstanding fuel specialties segment remained unchanged 52 days decreased performance chemicals segment 64 days 60 days decreased 66 days 63 days oilfield services segment 246 million decrease inventories net 49 million increase allowances managed inventory levels anticipation increased demand expect 2021 days’ sales inventory fuel specialties segment increased 97 days 117 days decreased performance chemicals segment 66 days 58 days increased 71 days 95 days oilfield services segment prepaid expenses increased 02 million 147 million 149 million 475 million decrease accounts payable accrued liabilities primarily due lower production activity align reduced customer demand together lower accruals sharebased payments linked decrease innospec share price year creditor days including goods received invoiced fuel specialties segment decreased 52 days 34 days decreased performance chemicals segment 54 days 48 days increased 43 days 49 days oilfield services segment operating cash flows generated cash operating activities 1459 million 2020 compared cash inflows 1616 million 2019 reduction cash generated operating activities primarily related adverse impact covid19 fall oil prices customer activity timing payments income taxes cash december 31 2020 2019 cash equivalents 1053 million 757 million respectively 525 million 579 million respectively held nonus subsidiaries principally united kingdom increase cash equivalents 2020 296 million primarily driven cash inflows operating activities including reductions working capital partly offset repayment 600 million revolving credit facility together normal investments capital projects payment semiannual dividends debt december 31 2020 company repaid borrowings revolving credit facility result related deferred finance costs 13 million included within current noncurrent assets balance sheet date september 16 2020 innospec certain subsidiaries agreed extend term revolving credit facility described september 25 2024 costs 03 million extending term capitalized balance sheet amortized expected life facility september 30 2019 company repaid preexisting term loan revolving credit facility amended restated december 14 2016 replaced borrowing new credit facility result refinancing costs 15 million capitalized amortized expected life facility september 26 2019 innospec certain subsidiaries entered new agreement 2500 million revolving credit facility september 25 2023 option request extension facility year facility also contains accordion feature whereby company may elect increase total available borrowings aggregate amount 1250 million revolving credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda must greater 3010 2 ratio ebitda net interest must less 4010 management determined company breached covenants expect breach covenants next 12 months revolving credit facility contains restrictions may limit activities operational financial flexibility may able borrow event default outstanding includes material adverse change assets operations financial condition credit facility contains number restrictions limit ability among things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments effect merger consolidation dispose assets materially change line business december 31 2020 debt outstanding revolving credit facility 06 million obligations finance leases relating certain fixed assets within fuel specialties oilfield services segments december 31 2020 maturity profile longterm debt finance leases set outlook early part 2020 focused growing business developing strong pipeline believe promising organic growth projects support future growth rest year continued strategy also deal impacts covid19 pandemic collapse crude oil prices events created unprecedented demand destruction however financial performance difficult environment combined strong balance sheet financial prudence solid foundation able weather storm indeed ended year strong net cash position requirement call additional financial support banks pandemic believe financial strength means wellplaced resource growth projects organic acquisitive believe longterm strategy remains valid supported recovery markets towards end 2020 optimistic prospects 2021 beyond also cautious given current circumstances global pandemic yet control potential adversely impact demand near term continue strategy investing rd continuously improve products technology innovations combined high quality customer service confident solid foundation future organic growth also remain active corporate development enter 2021 balance sheet strength gives us ability participate appropriate acquisition opportunities arise contractual commitments following represents contractual commitments december 31 2020 effect obligations future cash flows operating activities remediation payments represent cash flows company currently obligated pay respect environmental remediation current former facilities include discretionary remediation costs company may choose incur operating lease commitments relate primarily rightofuse assets third party manufacturing facilities office space motor vehicles various items computer office equipment expected renewed replaced normal course business raw material purchase obligations relate certain longterm raw material contracts stipulate fixed minimum quantities purchased fixed minimum variable cost provisions approximate timing transaction purchase obligations exclude agreements cancellable without penalty estimated payments included table reflect variable interest charge longterm debt obligations estimated commitment fees also included interest income excluded due uncertainty regarding nature tax audits particularly currently underway meaningful predict outcome obligations related unrecognized tax benefits disclosure provided note 11 notes consolidated financial statements investing activities capital commitments relate certain capital projects company committed undertake financing activities september 16 2020 innospec certain subsidiaries agreed extend term revolving credit facility described september 25 2024 september 30 2019 company repaid preexisting term loan revolving credit facility amended restated december 14 2016 replaced borrowing new credit facility september 26 2019 innospec certain subsidiaries entered new agreement 2500 million revolving credit facility september 25 2023 option request extension facility year facility also contains accordion feature whereby company may elect increase total available borrowings aggregate amount 1250 million finance leases relate financing certain fixed assets fuel specialties oilfield services segments environmental matters plant closures certain environmental laws company responsible remediation hazardous substances wastes currently formerly owned operated properties manufacturing operations conducted outside us expect liability pertaining investigation remediation contaminated properties likely determined nonus law evaluate costs remediation decontamination demolition projects regular basis full provision made costs committed environmental laws amounting 585 million december 31 2020 remediation expenditure utilizing provisions 41 million 44 million 31 million years 2020 2019 2018 respectively item 7a item 7a quantitative qualitative disclosures market risk information relating companys exposure market risk set raw materials raw material purchases comprise approximately 20 companys total cost goods sold major purchases lead ethylene salt dibromoethane materials available readily one source company uses long term contracts manage risk price escalation foreign currency company invoices 50 60 sales us dollars match dollar outgoings principally debt interest payments balance mainly invoiced uk pounds sterling match companys sterling costs company uses financial instruments hedge firm foreign currency commitments required used minimize exposure speculative trading purposes december 31 1998 company outstanding foreign exchange fluctuations foreign currency may also impact stockholders equity company local currency used functional currency company throughout group exchange differences arising retranslation nonus company balance sheets year end rates recorded stockholders funds cumulative translation adjustments interest rates company exposed interest rate fluctuations borrowings company manages exposure borrowing fixed variable rates entering interest rate swap floor collar cap agreements exchange floating rate fixed rate interest payments periodically life debt agreements december 31 1998 company following interest rate instruments effect notional amount fair value millions fair value financial instruments following table presents carrying amounts fair values companys financial instruments december 31 1998 1997 carrying amount cash equivalents approximates fair value short term maturities instruments long term debt carrying amount approximates fair value variable rate debt fair value fixed rate debt based quoted market prices similar debt fair value derivatives estimated based current settlement prices comparable contracts using current assumptions item 8item 7a quantitative qualitative disclosure market risk information relating companys exposure market risk pages 41 42 report incorporated herein reference item 8item 7a quantitative qualitative disclosure market risk information relating companys exposure market risk pages 21 22 44 report incorporated herein reference item 8item 7a quantitative qualitative disclosure market risk information relating company’s exposure market risk pages 23 46 report incorporated herein reference item 8item 7a quantitative qualitative disclosure market risk information relating company’s exposure market risk pages 33 34 note 18 financial statements pages 57 58 report incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk company operates manufacturing blending facilities offices laboratories around world though largest manufacturing facility located uk company sells range fuel specialties performance chemicals octane additives customers around world company uses floating rate debt finance global operations consequently company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required company uses derivatives including interest rate swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order monitor exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flow lower overall borrowing costs company’s objective managing exposure changes foreign exchange rates reduce volatility earnings cash flow associated changes interest rate risk company uses interest swaps manage interest rate exposure december 31 2006 company cash equivalents 1019 million bank overdraft longterm debt 1481 million longterm debt comprised 900 million senior term loan 580 million revolving credit 01 million capital leases january 2007 company repaid 730 million principal facility consisting scheduled 150 million senior term loan repayment 580 million revolving credit facility 2005 company entered interest swap agreements cover 500 million remaining term loan december 31 2006 900 million basis 500 million 1480 million longterm debt excluding capital leases hedged interest movements company would receive interest 1019 million positive cash balances unhedged debt 980 million covered positive cash balances gross basis assuming additional interest cash balances hypothetical absolute change 1 us base interest rate gross amount balances 980 million oneyear period would impact net income cash flows approximately 10 million tax consider effect interest exchange rate changes overall activity management action mitigate changes exchange rate risk approximately 50 company’s forecast sales 2007 denominated us dollars balance mainly comprising euros 40 sterling around 10 reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate fuel specialties business 50 forecast sales denominated us dollars 45 euros fuel specialties business reasonably well hedged 5 strengthening us dollar euro reason shift exchange rates reducing net sales would increase operating income around 02 million business performance chemicals business approximately 50 forecast sales denominated euros remainder split us dollars around 20 sterling around 30 due mainly large operating profits denominated euros 5 strengthening us dollar sterling euro would reduce operating profit approximately 03 million octane additives market predominantly us dollar market although sales certain territories transacted euros tel raw materials purchased mixture us dollars sterling euros ethyl compensation payments denominated us dollars selling general administrative expenses generally currency legal entity majority denominated sterling 5 strengthening us dollar sterling euro would result additional operating income 03 million due mainly lower burden sterling denominated cost goods sold operating expenses corporate costs largely denominated sterling 5 strengthening us dollar euro sterling would increase reported operating income approximately 13 million cases 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income item 8item 7a quantitative qualitative disclosures market risk company operates manufacturing blending facilities offices laboratories around world though largest manufacturing facility located united kingdom company sells range fuel specialties active chemicals octane additives customers around world company uses floating rate debt finance global operations consequently company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order monitor exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing costs raw materials subject variability company uses commodity swaps hedge price raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating prices raw materials interest rate risk company uses interest swaps manage interest rate exposure december 31 2007 company cash equivalents 243 million bank overdraft longterm debt including current portion 810 million longterm debt comprised 750 million senior term loan 60 million revolving credit 2005 2007 company entered interest swap agreements convert floating rate debt fixed rate cover 300 million 200 million respectively remaining longterm debt including current portion december 31 2007 810 million basis 500 million 810 million longterm debt including current portion hedged interest movements company would receive interest 243 million positive cash balances unhedged debt 310 million largely covered positive cash balances gross basis assuming additional interest cash balances hypothetical absolute change 1 us base interest rates gross amount balances 310 million oneyear period would impact net income cash flows approximately 02 million tax consider effect interest exchange rate changes overall activity management action mitigate changes exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations foreign subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation financial statements well results operations trading three business segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 13 million 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material price risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased feedstocks subject periods rapid significant price instability fluctuations price caused political instability oil producing nations elsewhere factors influencing global supply demand little control innospec entered hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase innospec’s businesses able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material prices increase significantly company’s need working capital could increase would adversely impact cash flows operating activities item 8item 7a quantitative qualitative disclosures market risk company operates manufacturing blending facilities offices laboratories around world though largest manufacturing facility located united kingdom company sells range fuel specialties active chemicals octane additives customers around world company uses floating rate debt finance global operations consequently company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order monitor exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing costs raw materials subject variability company uses commodity swaps hedge price raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating prices raw materials interest rate risk company uses interest swaps manage interest rate exposure december 31 2008 company cash equivalents 139 million bank overdraft longterm debt 730 million longterm debt comprised 550 million senior term loan 180 million revolving credit 2005 company entered interest swap agreements convert floating rate debt fixed rate cover 500 million remaining longterm debt including current portion december 31 2008 730 million basis 500 million 730 million longterm debt including current portion hedged interest movements company would receive interest 139 million positive cash balances interest payable unhedged debt 230 million largely offset interest receivable positive cash balances similar maturity profile gross basis assuming additional interest cash balances hypothetical absolute change 1 us base interest rates gross amount balances 230 million oneyear period would impact net income cash flows approximately 02 million tax consider effect interest exchange rate changes overall activity management action mitigate changes exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations foreign subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency rate changes accordingly company enters various contracts change value foreign exchange rates change protect us dollar value existing foreign currencydenominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currencydenominated revenues gains losses contracts offset changes us dollar value related foreign currencydenominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading three business segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 11 million excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material price risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased feedstocks subject periods rapid significant price instability fluctuations price caused political instability oil producing nations elsewhere factors influencing global supply demand little control innospec entered hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase innospec’s businesses able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material prices increase significantly company’s need working capital could increase would adversely impact cash flows operating activities item 8item 7a quantitative qualitative disclosures market risk company operates manufacturing blending facilities offices laboratories around world though largest manufacturing facility located united kingdom company sells range fuel specialties active chemicals octane additives customers around world company uses floating rate debt finance global operations consequently company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order monitor exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing costs raw materials subject variability company uses commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk company uses interest rate swaps manage interest rate exposure december 31 2009 company cash equivalents 686 million bank overdraft longterm debt 510 million longterm debt comprises 500 million senior term loan 10 million drawn revolving credit facility 2009 company entered interest rate swap agreements convert floating rate debt fixed rate cover 500 million remaining longterm debt including current portion december 31 2009 510 million basis 500 million 510 million longterm debt including current portion hedged interest movements company would receive interest 686 million positive cash balances interest payable unhedged debt 10 million largely offset interest receivable positive cash balances similar maturity profile gross basis assuming additional interest cash balances hypothetical absolute change 1 us base interest rates gross amount balances 10 million oneyear period would materially impact net income cash flows consider effect interest exchange rate changes overall activity management action mitigate changes exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations foreign subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency rate changes accordingly company enters various contracts change value foreign exchange rates change protect us dollar value existing foreign currencydenominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currencydenominated revenues gains losses contracts offset changes us dollar value related foreign currencydenominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading three business segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 12 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand little control use longterm contracts generally fixed costs escalation terms help ensure availability continuity supply manage risk cost increases entered hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could increase would adversely impact cash flows operating activities item 8item 7a quantitative qualitative disclosures market risk company operates manufacturing blending facilities offices laboratories around world company sells range fuel specialties active chemicals octane additives customers around world company uses floating rate debt finance global operations consequently company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order monitor exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign currency exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing raw material costs subject variability company uses commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk company uses interest rate swaps manage interest rate exposure december 31 2010 company cash equivalents shortterm investments 1113 million bank overdraft longterm debt 470 million longterm debt comprises 400 million senior term loan 70 million drawn revolving credit facility 2009 company entered interest rate swap agreements convert floating rate debt fixed rate cover 400 million 470 million remaining longterm debt including current portion december 31 2010 basis 400 million 470 million longterm debt including current portion hedged interest movements company would receive interest 1113 million positive cash balances shortterm investments interest payable unhedged debt 70 million offset interest receivable positive cash balances shortterm investments gross basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates unhedged debt 70 million oneyear period would impact net income cash flows approximately 01 million tax net basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 10 million tax consider effect interest exchange rate changes overall activity management action mitigate changes exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations foreign subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation consolidated financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency rate changes accordingly company enters various contracts change value foreign currency exchange rates change protect us dollar value existing foreign currency denominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currency denominated revenues gains losses contracts offset changes us dollar value related foreign currency denominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading three business segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 14 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand materials little control use longterm contracts generally fixed costs formula based costs help ensure availability continuity supply manage risk cost increases entered hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could similarly increase risks could adversely impact results operations financial position cash flows item 8item 7a quantitative qualitative disclosures market risk company uses floating rate debt finance global operations company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order manage exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign currency exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing raw material costs subject variability company uses commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk company uses interest rate swaps manage interest rate exposure december 31 2011 company cash equivalents shortterm investments 810 million bank overdraft longterm debt 350 million including current portion longterm debt comprises new revolving credit facility provides borrowings us 1000 million 150 million promissory note newmarket corporation facility carries interest rate based us libor plus margin 150 225 dependant company’s ratio net debt ebitda nongaap measure liquidity defined finance facility promissory note carries simple interest 1 per annum december 31 2011 200 million drawn revolving credit facility management expect facility drawn longterm company entered interest rate swap agreements relation basis interest 150 million 350 million longterm debt including current portion fixed company would receive interest 810 million positive cash balances shortterm investments interest payable unhedged debt offset interest receivable positive cash balances shortterm investments gross basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates unhedged debt 200 million oneyear period would impact net income cash flows approximately 02 million tax net basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 06 million tax consider effect interest exchange rate changes overall activity management action mitigate changes exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations foreign subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling swiss franc changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation consolidated financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency rate changes accordingly company enters various contracts change value foreign currency exchange rates change protect us dollar value existing foreign currency denominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currency denominated revenues gains losses contracts offset changes us dollar value related foreign currency denominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading fuel specialties active chemicals reporting segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position cost base octane additives reporting segment corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 30 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand materials little control use longterm contracts generally fixed costs formula based costs help ensure availability continuity supply manage risk cost increases entered hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could similarly increase risks could adversely impact results operations financial position cash flows item 8item 7a quantitative qualitative disclosures market risk company uses floating rate debt finance global operations company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order manage exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign currency exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing raw material costs subject variability company uses commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk company uses interest rate swaps manage interest rate exposure december 31 2012 company cash equivalents shortterm investments 275 million bank overdraft longterm debt 300 million including current portion longterm debt comprises revolving credit facility provides borrowings us 1000 million 100 million promissory note newmarket corporation credit facility carries interest rate based us libor plus margin 150 225 dependent company’s ratio net debt ebitda nongaap measure liquidity defined credit facility promissory note carries simple interest 1 per annum december 31 2012 200 million drawn revolving credit facility management expect credit facility drawn longterm company entered interest rate swap agreements relation basis interest 100 million 300 million longterm debt including current portion fixed company would receive interest 275 million positive cash balances shortterm investments interest payable variable debt excluding margin offset interest receivable positive cash balances shortterm investments gross basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates variable debt 200 million oneyear period would impact net income cash flows approximately 02 million tax net basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 01 million tax consider effect interest exchange rate changes overall activity management action mitigate changes exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations overseas subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling swiss franc changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation consolidated financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency exchange rate changes accordingly company enters various contracts change value foreign currency exchange rates change protect us dollar value existing foreign currency denominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currency denominated revenues gains losses contracts offset changes us dollar value related foreign currency denominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading fuel specialties performance chemicals reporting segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position cost base octane additives reporting segment corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 29 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand materials little control use longterm contracts generally fixed formulabased costs advance bulk purchases help ensure availability continuity supply manage risk cost increases entered hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could similarly increase risks could adversely impact results operations financial position cash flows item 8item 7a quantitative qualitative disclosures market risk company uses floating rate debt finance global operations company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order manage exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign currency exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing raw material costs subject variability company uses commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk company uses interest rate swaps manage interest rate exposure december 31 2013 company cash equivalents shortterm investments 868 million bank overdraft longterm debt 1480 million including current portion longterm debt comprises revolving credit facility provides borrowings us 2000 million 50 million promissory note newmarket corporation credit facility carries interest rate based us dollar libor plus margin 150 225 dependent company’s ratio net debt ebitda net debt ebitda nongaap measures liquidity defined credit facility promissory note carries simple interest 1 per annum december 31 2013 1420 million drawn revolving credit facility management expect credit facility drawn longterm company entered interest rate swap agreements relation basis interest 50 million 1480 million longterm debt including current portion fixed company would receive interest 868 million positive cash balances shortterm investments interest payable variable debt excluding margin exceeds interest receivable positive cash balances shortterm investments gross basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates variable debt 1430 million oneyear period would impact net income cash flows approximately 14 million tax net basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 06 million tax consider effect interest exchange rate changes overall activity management action mitigate changes exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations overseas subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling swiss franc changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation consolidated financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency exchange rate changes accordingly company enters various contracts change value foreign currency exchange rates change protect us dollar value existing foreign currency denominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currency denominated revenues gains losses contracts offset changes us dollar value related foreign currency denominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading fuel specialties performance chemicals reporting segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position cost base octane additives reporting segment corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 26 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand materials little control use longterm contracts generally fixed formulabased costs advance bulk purchases help ensure availability continuity supply manage risk cost increases entered hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could similarly increase risks could adversely impact results operations financial position cash flows item 8item 7a quantitative qualitative disclosures market risk company uses floating rate debt finance global operations company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required time company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order manage exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign currency exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing raw material costs subject variability company may use commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk time company uses interest rate swaps manage interest rate exposure december 31 2015 company cash equivalents shortterm investments 1417 million bank overdraft longterm debt finance leases 1361 million including current portion longterm debt comprises revolving credit facility provides borrowings us 2000 million credit facility carries interest rate based us dollar libor plus margin 120 245 dependent company’s ratio net debt ebitda net debt ebitda nongaap measures liquidity defined credit facility december 31 2015 1330 million drawn revolving credit facility cash equivalents offset longterm debt company entered interest rate swap agreements relation exposure company 1361 million longterm debt finance leases including current portion offset 1369 million cash equivalents 48 million shortterm investments therefore interest payable longterm debt excluding margin exceeds interest receivable positive cash balances shortterm investments gross basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 13 million tax net basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 01 million tax consider effect interest exchange rate changes overall activity management action mitigate changes exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations overseas subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling brazilian real changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation consolidated financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency exchange rate changes accordingly company enters various contracts change value foreign currency exchange rates change protect us dollar value existing foreign currency denominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currency denominated revenues gains losses contracts offset changes us dollar value related foreign currency denominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading fuel specialties performance chemicals reporting segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position cost base octane additives reporting segment corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 28 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand materials little control use longterm contracts generally fixed formulabased costs advance bulk purchases help ensure availability continuity supply manage risk cost increases time enter hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could similarly increase risks could adversely impact results operations financial position cash flows item 8item 7a quantitative qualitative disclosures market risk company uses floating rate debt finance global operations company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required time company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order manage exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign currency exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing raw material costs subject variability company may use commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk time company uses interest rate swaps manage interest rate exposure december 31 2016 company cash equivalents shortterm investments 1019 million bank overdraft longterm debt finance leases 2733 million including current portion longterm debt comprises 200000000 revolving credit facility available company term loan facility 110000000 credit facilities carry interest rate based us dollar libor plus margin 120 245 dependent company’s ratio net debt ebitda net debt ebitda nongaap measures liquidity defined credit facility december 31 2016 1610 million drawn revolving credit facility term loan facility 1100 million drawn term loan 11000000 repayment installment due december 28 2017 16500000 installment due december 28 2018 22000000 installment due december 28 2019 outstanding balance due november 6 2020 company taken interest rate swaps hedge interest rate risk core debt 31 december 2016 interest rate swaps notional value 160000000 place fixed interest rates payable interest rate swaps vary 141 167 interest rate swaps place hedge interest rate risk term loan amortizing profile matching amortization term loan company 2733 million longterm debt finance leases including current portion partly offset 1019 million cash equivalents interest payable longterm debt excluding margin exceeds interest receivable positive cash balances gross basis assuming additional interest cash balances hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 22 million tax net basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 12 million tax consider effect interest exchange rate changes overall activity management action mitigate changes december 31 2016 innospec interest rate swaps mitigate proportion risk identified exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations overseas subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling brazilian real changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation consolidated financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency exchange rate changes accordingly company enters various contracts change value foreign currency exchange rates change protect us dollar value existing foreign currency denominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currency denominated revenues gains losses contracts offset changes us dollar value related foreign currency denominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading fuel specialties performance chemicals oilfield services segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position cost base octane additives reporting segment corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 25 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand materials little control use longterm contracts generally fixed formulabased costs advance bulk purchases help ensure availability continuity supply manage risk cost increases time enter hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could similarly increase risks could adversely impact results operations financial position cash flows item 8item 7a quantitative qualitative disclosures market risk company uses floating rate debt finance global operations company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required time company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order manage exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign currency exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing raw material costs subject variability company may use commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk time company uses interest rate swaps manage interest rate exposure december 31 2017 company cash equivalents 902 million longterm debt finance leases 2243 million including current portion longterm debt comprises 200000000 revolving credit facility available company remaining term loan facility 99000000 credit facilities carry interest rate based us dollar libor plus margin 120 245 dependent company’s ratio net debt ebitda net debt ebitda nongaap measures liquidity defined credit facility december 31 2017 1210 million drawn revolving credit facility term loan facility 990 million drawn repayment term loan 11000000 made december 29 2017 followed 16500000 installment due december 28 2018 22000000 installment due december 28 2019 outstanding balance due november 6 2020 company taken interest rate swaps hedge interest rate risk core debt december 31 2017 interest rate swaps notional value 149000000 place fixed interest rates payable interest rate swaps vary 142 167 interest rate swaps place hedge interest rate risk term loan amortizing profile matching amortization term loan company 2243 million longterm debt finance leases including current portion partly offset 902 million cash equivalents interest payable longterm debt excluding margin exceeds interest receivable positive cash balances gross basis assuming additional interest cash balances deducting interest rate hedging hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 07 million tax net basis assuming additional interest cash balances hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 02 million tax consider effect interest exchange rate changes overall activity management action mitigate changes december 31 2017 innospec interest rate swaps mitigate proportion risk identified exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations overseas subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling brazilian real changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation consolidated financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency exchange rate changes accordingly company enters various contracts change value foreign currency exchange rates change protect us dollar value existing foreign currency denominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currency denominated revenues gains losses contracts offset changes us dollar value related foreign currency denominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading fuel specialties performance chemicals oilfield services segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position cost base octane additives reporting segment corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 28 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased vegetablebased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand materials little control use longterm contracts generally fixed formulabased costs advance bulk purchases help ensure availability continuity supply manage risk cost increases time enter hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could similarly increase risks could adversely impact results operations financial position cash flows item 8item 7a quantitative qualitative disclosures market risk company uses floating rate debt finance global operations company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required time company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order manage exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign currency exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing raw material costs subject variability company may use commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk time company uses interest rate swaps manage interest rate exposure december 31 2018 company cash equivalents 1231 million longterm debt finance leases 2109 million including current portion longterm debt comprises 2000 million revolving credit facility available company remaining term loan facility 825 million credit facilities carry interest rate based us dollar libor plus margin 120 245 dependent company’s ratio net debt ebitda net debt ebitda nongaap measures liquidity defined credit facility december 31 2018 1260 million drawn revolving credit facility term loan facility 825 million drawn repayments term loan 110 million 165 million made december 29 2017 december 28 2018 respectively installment 220 million due december 28 2019 outstanding balance due november 6 2020 company taken interest rate swaps hedge interest rate risk core debt december 31 2018 interest rate swaps notional value 1325 million place fixed interest rates payable interest rate swaps vary 142 167 interest rate swaps place hedge interest rate risk term loan amortizing profile matching amortization term loan company 2109 million longterm debt finance leases including current portion partly offset 1231 million cash equivalents interest payable longterm debt excluding margin exceeds interest receivable positive cash balances deducting interest rate hedging gross basis assuming additional interest cash balances deducting interest rate hedging hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 08 million tax net basis assuming additional interest cash balances hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 05 million tax consider effect interest exchange rate changes overall activity management action mitigate changes december 31 2018 innospec interest rate swaps mitigate proportion risk identified exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations overseas subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling brazilian real changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation consolidated financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency exchange rate changes accordingly company enters various contracts change value foreign currency exchange rates change protect us dollar value existing foreign currency denominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currency denominated revenues gains losses contracts offset changes us dollar value related foreign currency denominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading fuel specialties performance chemicals oilfield services segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position cost base octane additives reporting segment corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 23 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased vegetablebased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand materials little control use longterm contracts generally fixed formulabased costs advance bulk purchases help ensure availability continuity supply manage risk cost increases time enter hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could similarly increase risks could adversely impact results operations financial position cash flows item 8item 7a quantitative qualitative disclosure market risk information relating companys exposure market risk page 39 report incorporated herein reference item 8item 7a quantitative qualitative disclosure market risk company operates manufacturing blending facilities offices laboratories around world though largest manufacturing facility located uk company sells range fuel specialties performance chemicals octane additives customers around world company uses floating rate debt finance global operations consequently company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required company uses derivatives including interest rate swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order monitor exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flow lower overall borrowing costs company’s objective managing exposure changes foreign exchange rates reduce volatility earnings cash flow associated changes interest rate risk company uses interest swaps manage interest rate exposure december 31 2005 company cash equivalents 732 million bank overdraft december 31 2005 longterm debt stood 1446 million including current component 145 million company entered new interest swap agreements 2005 cover 500 million 1000 million term debt basis 500 million 1000 million senior term loan hedged interest movements company would receive interest positive cash balances unhedged debt net cash balances 168 million thus hypothetical absolute change 1 interest rates net amount balances oneyear period would reduce net income cash flows around 02 million tax gross basis assuming additional interest cash balances 1 increase us libor interest rates would reduce net income cash flows approximately 09 million tax consider effect interest exchange rate changes overall activity management action mitigate changes exchange rate risk approximately 50 company’s forecast sales 2006 denominated us dollars balance mainly comprising euros 40 sterling around 10 reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency nature markets operate fuel specialties business 50 forecast sales denominated dollars 45 euros fuel specialties reasonably well hedged 5 increase us dollar euro expenses sterling exceed gross profit reason shift exchange rates reducing net sales around 60 million would increase operating income around 10 million business octane additives market predominantly us dollar market although sales certain territories transacted euros tel raw materials purchased mixture us dollars sterling euros ethyl compensation payments taken account 110 gross profit denominated us dollars unmatched expenses sterling selling administrative general expenses generally currency legal entity majority denominated sterling 5 increase us dollar sterling euro would result additional operating income 10 million due mainly lower burden sterling denominated cost goods sold operating expenses performance chemicals business approximately 50 forecast sales denominated euros remainder split us dollars around 17 sterling around 30 due mainly large operating profits denominated euros 5 increase us dollar sterling euro would reduce operating profit approximately 05 million corporate costs largely denominated sterling 5 increase us dollar euro sterling would increase reported operating income approximately 10 million cases 5 increase us dollar used illustration 5 decrease would expected opposite effect operating income future outlook future outlook reflects dichotomy growing fuel specialties performance chemicals businesses declining octane additives business fuel specialties business grew significantly 2001 acquisitions purchase remaining 50 octel starreon 2004 gave company control strategy growth key us fuel additives market particularly field additives growing diesel market business grew organically 23 2005 business continue pursue organic growth 5 10 three key regions europe middle east africa emea usa asia pacific company taken steps restructure back office support operations support growth last three years octane additives sales declined 56 34 company total share gross profit fallen 66 49 expect octane additives continue decline importance overall company results tel market decline since 1970s trend expected continue given uncertainties asian african south american markets world market decline 2006 likely high end 50 60 range cost control initiatives reduction manufacturing capacity delivered benefits current year company continue manage costs area expect octane additives business continue cash generative performance chemicals business grew substantially acquisition 2005 full year impact acquisitions operating income seen 2005 accordance company’s strategy reinvesting cash flows octane additives growth opportunities businesses company completed acquisition finetex inc january 2005 company building strategic positions personal care aroma markets also field waxes company also toll manufacturing base usa growth sales business segment expected around approximately 10 per year business seek step change operating margins 2006 addresses balance raw material energy costs selling prices addresses certain production bottlenecks following adoption fas 142 2002 annual amortization charge goodwill replaced impairment review process continued decline octane additives market inevitably result impairment charges future years latest review revealed need recognize impairment charges octane additives business goodwill impairment period octane additives business cash flows exhausted annual impairment review goodwill relating fuel specialties performance chemicals business segments indicates requirement recognize impairment charge respect goodwill item 8item 7a quantitative qualitative disclosure market risk company operates manufacturing blending facilities offices laboratories around world though largest manufacturing facility far located uk sells range tel petroleum additives major oil refineries throughout world company uses floating rate debt finance global operations consequently company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks related companys foreign operations mitigated due stability countries largest operations located credit limits ongoing credit evaluation account monitoring procedures utilised minimise bad debt risk collateral generally required normal course business company uses derivative financial instruments including interest rate swaps foreign currency forward exchange contracts manage market risks derivative financial instruments utilized company hedging activities considered risk management tools used trading purposes addition derivative financial instruments entered diversified group major financial institutions order monitor exposure nonperformance instruments additional information regarding companys financial instruments contained notes 1 16 financial statements incorporated herein reference companys objective managing exposure changes interest rates limit impact changes earnings cash flow lower overall borrowing costs objective managing exposure changes foreign exchange rates reduce volatility earnings cash flow associated changes information relating companys exposure market risk pages 27 52 report incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk company uses floating rate debt finance global operations company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required time company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order manage exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign currency exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing raw material costs subject variability company uses commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk company uses interest rate swaps manage interest rate exposure december 31 2014 company cash equivalents shortterm investments 463 million bank overdraft longterm debt 1394 million including current portion longterm debt comprises revolving credit facility provides borrowings us 2000 million credit facility carries interest rate based us dollar libor plus margin 150 225 dependent company’s ratio net debt ebitda net debt ebitda nongaap measures liquidity defined credit facility december 31 2014 1390 million drawn revolving credit facility management expect credit facility drawn longterm company entered interest rate swap agreements relation company 1394 million longterm debt including current portion partly offset 416 million cash equivalents 47 million shortterm investments therefore interest payable longterm debt excluding margin exceeds interest receivable positive cash balances shortterm investments gross basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 14 million tax net basis assuming additional interest cash balances shortterm investments hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 09 million tax consider effect interest exchange rate changes overall activity management action mitigate changes exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations overseas subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling swiss franc changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation consolidated financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency exchange rate changes accordingly company enters various contracts change value foreign currency exchange rates change protect us dollar value existing foreign currency denominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currency denominated revenues gains losses contracts offset changes us dollar value related foreign currency denominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading fuel specialties performance chemicals reporting segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position cost base octane additives reporting segment corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 25 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand materials little control use longterm contracts generally fixed formulabased costs advance bulk purchases help ensure availability continuity supply manage risk cost increases time enter hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could similarly increase risks could adversely impact results operations financial position cash flows item 8item 7a quantitative qualitative disclosures market risk company uses floating rate debt finance global operations company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required time company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order manage exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign currency exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing raw material costs subject variability company may use commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk time company uses interest rate swaps manage interest rate exposure december 31 2019 company cash equivalents 757 million longterm debt finance leases 601 million including current portion longterm debt comprises 2500 million revolving credit facility available company credit facilities carry interest rate based us dollar libor plus margin 105 230 dependent company’s ratio net debt ebitda net debt ebitda nongaap measures liquidity defined credit facility december 31 2019 600 million drawn revolving credit facility company previously entered interest rate swap contracts reduce interest rate risk core debt december 31 2019 interest rate swaps place swaps settled year december 31 2018 interest rate swaps notional value 1325 million place interest rate swaps place hedge interest rate risk term loan notional value matched repayment profile term loan company 601 million longterm debt finance leases including current portion offset 757 million cash equivalents interest payable longterm debt excluding margin exceeds interest receivable positive cash balances gross basis assuming additional interest cash balances deducting interest rate hedging hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 06 million tax net basis assuming additional interest cash balances hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 02 million tax consider effect interest exchange rate changes overall activity management action mitigate changes december 31 2019 innospec interest rate swaps mitigate risk identified exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations overseas subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling brazilian real changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation consolidated financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency exchange rate changes accordingly company enters various contracts change value foreign currency exchange rates change protect us dollar value existing foreign currency denominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currency denominated revenues gains losses contracts offset changes us dollar value related foreign currency denominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading fuel specialties performance chemicals oilfield services segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position cost base octane additives reporting segment corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 22 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased vegetablebased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand materials little control use longterm contracts generally fixed formulabased costs advance bulk purchases help ensure availability continuity supply manage risk cost increases time enter hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could similarly increase risks could adversely impact results operations financial position cash flows item 8item 7a quantitative qualitative disclosures market risk company uses floating rate debt finance global operations company subject business risks inherent nonus activities including political economic uncertainty import export limitations market risk related changes interest rates foreign currency exchange rates political economic risks mitigated stability countries company’s largest operations located credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required time company uses derivatives including interest rate swaps commodity swaps foreign currency forward exchange contracts normal course business manage market risks derivatives used hedging activities considered risk management tools used trading purposes addition company enters derivative instruments diversified group major financial institutions order manage exposure nonperformance instruments company’s objective managing exposure changes interest rates limit impact changes earnings cash flows lower overall borrowing costs company’s objective managing exposure changes foreign currency exchange rates reduce volatility earnings cash flows associated changes company offers fixed prices longterm sales contracts manufacturing raw material costs subject variability company may use commodity swaps hedge cost raw materials thus reducing volatility earnings cash flows derivatives considered risk management tools used trading purposes company’s objective manage exposure fluctuating costs raw materials interest rate risk time company uses interest rate swaps manage interest rate exposure december 31 2020 company cash equivalents 1053 million longterm debt finance leases 06 million including current portion longterm debt comprises 2500 million revolving credit facility available company credit facilities carry interest rate based us dollar libor plus margin 105 230 dependent company’s ratio net debt ebitda net debt ebitda nongaap measures liquidity defined credit facility december 31 2020 00 million drawn revolving credit facility company previously entered interest rate swap contracts reduce interest rate risk core debt december 31 2020 december 31 2019 interest rate swaps place swaps settled year december 31 2018 interest rate swaps notional value 1325 million place interest rate swaps place hedge interest rate risk term loan notional value matched repayment profile term loan company 06 million longterm debt finance leases including current portion offset 1053 million cash equivalents interest payable longterm debt excluding margin exceeds interest receivable positive cash balances gross basis assuming additional interest cash balances deducting interest rate hedging hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 00 million tax net basis assuming additional interest cash balances hypothetical absolute change 1 us base interest rates oneyear period would impact net income cash flows approximately 11 million tax consider effect interest exchange rate changes overall activity management action mitigate changes december 31 2020 innospec interest rate swaps mitigate risk identified exchange rate risk company generates element revenues incurs operating costs currencies us dollar reporting currency company us dollar company evaluates functional currency reporting unit according economic environment operates several major subsidiaries company operating outside us dollar functional currency due nature markets operate addition financial position results operations overseas subsidiaries reported relevant local currency translated us dollars applicable currency exchange rate inclusion consolidated financial statements primary foreign currencies exchange rate fluctuation exposure european union euro british pound sterling brazilian real changes exchange rates foreign currencies us dollar affect recorded levels assets liabilities extent figures reflect inclusion foreign assets liabilities translated us dollars presentation consolidated financial statements well results operations company’s objective managing exposure foreign currency fluctuations reduce earnings cash flow volatility associated foreign currency exchange rate changes accordingly company enters various contracts change value foreign currency exchange rates change protect us dollar value existing foreign currency denominated assets liabilities commitments cash flows company also uses foreign currency forward exchange contracts offset portion company’s exposure certain foreign currency denominated revenues gains losses contracts offset changes us dollar value related foreign currency denominated revenues objective hedging program reduce earnings cash flow volatility related changes foreign currency exchange rates trading fuel specialties performance chemicals oilfield services segments inherently naturally hedged accordingly changes exchange rates would material earnings financial position cost base corporate costs however largely denominated british pound sterling 5 strengthening us dollar british pound sterling would increase reported operating income approximately 14 million oneyear period excluding impact foreign currency forward exchange contracts 5 strengthening us dollar used illustration 5 weakening would expected opposite effect operating income raw material cost risk use variety raw materials chemicals energy manufacturing blending processes many raw materials use derived petrochemicalbased vegetablebased feedstocks subject periods rapid significant cost instability fluctuations cost caused political instability oil producing nations elsewhere factors influencing global supply demand materials little control use longterm contracts generally fixed formulabased costs advance bulk purchases help ensure availability continuity supply manage risk cost increases time enter hedging arrangements certain raw materials typically enter hedging arrangements raw materials chemicals energy costs raw materials chemicals energy increase able pass cost increases customers operating margins cash flows operating activities would adversely impacted raw material costs increase significantly company’s need working capital could similarly increase risks could adversely impact results operations financial position cash flows item 8 item 8 financial statements supplementary data consolidated financial statements together report pricewaterhousecoopers dated february 9 1999 quarterly financial information pages 14 47 report incorporated herein reference financial highlights inside front cover report also incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements together report pricewaterhousecoopers dated february 9 2000 quarterly financial information pages 14 43 report incorporated herein reference financial highlights inside front cover report also incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements together report pricewaterhousecoopers llp dated february 10 2003 quarterly financial information pages 18 46 report incorporated herein reference financial highlights page 2 report also incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements together report pricewaterhousecoopers llp dated february 9 2004 quarterly financial information pages 18 49 report incorporated herein reference financial highlights page 16 report also incorporated herein reference item 9item 8 financial statements supplementary data consolidated financial statements together report pricewaterhousecoopers llp dated march 31 2005 quarterly financial information pages 39 61 report incorporated herein reference financial highlights page 21 report also incorporated herein reference item 9item 8 financial statements supplementary data financial statements see supplementary data see quarterly summary unaudited information item 6 report independent registered public accounting firm board directors stockholders innospec inc completed integrated audits innospec inc’s consolidated financial statements internal control financial reporting december 31 2006 accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements opinion accompanying consolidated balance sheets related consolidated statements income stockholders’ equity cash flows present fairly material respects financial position innospec inc subsidiaries december 31 2006 2005 results operations cash flows three years period ended december 31 2006 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 2 consolidated financial statements company changed manner accounts share based compensation adoption fas 123r sharebased payment effective january 1 2006 defined benefit pension plans adoption fas 158 employers’ accounting defined benefit pension postretirement plans effective december 31 2006 internal control financial reporting also opinion management’s assessment included management’s report internal control financial reporting appearing item 9a company maintained effective internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp london united kingdom march 16 2007 consolidated statements income millions except per share data accompanying notes integral part statements consolidated balance sheets millions except per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 11m 2005 13m year included depreciation amortization cash flow statement interest income statement accompanying notes integral part statements consolidated statements stockholders’ equity millions 1 changes unrealized exchange gainslosses derivative instruments net tax 2 changes cumulative translation adjustment 3 following adoption fas 123r stock option liability 30 million accrued apb 25 reclassified consolidated statements comprehensive income millions accumulated comprehensive loss millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations company develops manufactures blends delivers fuel additives specialty chemicals company serves global markets americas europe middle east africa asia pacific products sold primarily oil refineries chemical industrial companies principal product lines reportable segments fuel specialties performance chemicals octane additives october 1 1998 company entered sales marketing agreements ethyl corporation “ethyl” market sell tel areas world except north america european economic area period lasting december 31 2009 subject renewal thereafter marketing sales effort made arrangement made name innospec continues produce tel marketed agreements also provide marketing services ethyl continues provide marketing services net proceeds agreements paid innospec ethyl compensation services based agreedupon formula innospec receiving 68 total compensation services provided separate legal entity joint venture established consequence agreements sales expenses incurred agreements included within innospec’s income statement comprise revenues costs incurred directly innospec together costs recharged ethyl marketing services provided terms agreements ethyl’s share net proceeds services charged within cost goods sold relationship extended effective january 1 2000 oboadler entered similar agreement effective july 1 2001 ethyl agreed participate veritel agreement see note 10 scope agreements extended include european economic area refer note 3 financial information company’s reportable segments note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles united states america include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation acquisitions accounted purchases results operations acquired businesses included consolidated financial statements date acquisition results discontinued operations shown separately income statement notes consolidated financial statementscontinued use estimates preparation consolidated financial statements accordance generally accepted accounting principles united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents accounts receivable company records accounts receivable net realizable value maintains allowance customers making required payments company determines adequacy allowance periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method market price cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement provision made slowmoving obsolete inventories appropriate property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method cost additions improvements capitalized maintenance repairs charged expenses assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows buildings 7 25 years equipment 3 10 years notes consolidated financial statementscontinued goodwill intangible assets goodwill intangible assets deemed indefinite lives longer amortized subject least annual impairment tests intangible assets continue amortized using straightline method estimated useful lives annual measurement date impairment testing fuel specialties performance chemicals goodwill december 31 octane additives business goodwill reviewed impairment end quarter company regularly reviews goodwill intangible assets impairment based projected posttax cash flows discounted company’s weighted average cost capital expected decline octane additives market resulted quarterly impairment charges incurred first quarter 2004 onwards highly likely quarterly charges incurred future years market continues decline impairment reviews goodwill relating fuel specialties performance chemicals businesses indicates requirement recognize impairment charge respect goodwill deferred finance costs relating debt financing capitalized separately disclosed balance sheets new financing arrangement entered december 13 2005 costs financing arrangements 26 million capitalized amortized using average interest method expected life agreement impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result assets compared carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative financial instruments company uses various derivative instruments including forward currency contracts options interest rate swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes notes consolidated financial statementscontinued fas 133 accounting derivative instruments hedging activities establishes accounting reporting standards derivative instruments requires entity recognize derivatives either assets liabilities consolidated balance sheet measure instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting fas 133 recognized earnings derivatives tested effectiveness quarterly basis ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive loss hedged item recognized earnings company employs interest rate swaps convert variable rate debt 500 million remaining 900 million senior term loan fixed rate designated cash flow hedges underlying variable rate obligation tested effectiveness using dollar offset method end term swap arrangements cumulative gain loss reclassified income statement interest rate swaps recorded noncurrent liability balance sheet environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs environmental costs accrued environmental assessments remedial efforts probable cost reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s weighted average cost capital revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized transfer legal title defined generally accepted standard terms conditions arises company customer company recognizes total revenue octane additive sales ethyl agreements 32 compensation paid ethyl recognized cost goods sold component ethyl’s share net proceeds see note 1 amount recoverable ethyl calculated annually arrears company recognizes quarterly based best current estimates expected outcome provisions sales discounts rebates customers based upon terms sales contracts recorded period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time shipping notes consolidated financial statementscontinued components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials production costs including labor costs maintenance utility costs plant engineering overhead warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item 32 compensation paid ethyl recognized cost goods sold components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal costs litigation company involved made reported administrative expense line item research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur entities gains losses monetary assets relating currencies us dollar taken income statement gains losses foreign currency transactions included net incomeexpense income statement notes consolidated financial statementscontinued stock option plans effective january 1 2006 company adopted provisions fas 123r sharebased payment requires employee stock options accounted fair value method accordingly sharebased compensation measured grant date based fair value options prior january 1 2006 company accounted employee stock options using intrinsic value method prescribed accounting principles board opinion 25 accounting stock issued employees “apb 25” related interpretations provided required pro forma disclosures prescribed fas 123 accounting stockbased compensation fas 148 accounting stockbased compensation transition disclosure apb 25 fixed awards exercise price employee stock options equal market price underlying stock date grant compensation expense recorded company adopted fas 123r using modified prospective transition method compensation cost recognized company beginning 2006 includes compensation cost stock options granted prior yet vested january 1 2006 based grantdate fair value estimated accordance original provisions fas 123 b compensation cost stock options granted subsequent january 1 2006 based grantdate fair value estimated accordance provisions fas 123r company uses straightline attribution method recognize sharebased compensation costs service period option pension plans postemployment benefits effective fiscal year 2006 company adopted provisions fas 158 employers’ accounting defined benefit pension postretirement plans fas 158 requires funded status definedbenefit postretirement plans recognized company’s consolidated balance sheets changes funded status reflected comprehensive income fas 158 also requires measurement date plan’s funded status company’s fiscal yearend although measurement date provision required adopted fiscal year 2008 company earlyadopted provision fiscal year 2006 incremental effect applying fas 158 individual line items consolidated balance sheet december 31 2006 follows notes consolidated financial statementscontinued pension plans accounted accordance fas 87 employers’ accounting pensions fas 158 employers’ accounting defined benefit pension postretirement plans fas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits revision classification certain items final quarter 2006 company revised classification certain shipping handling costs commission charges results 2006 comparable information 2005 2004 previously charges netted sales charged cost goods sold selling expenses respectively impact 2006 prior periods’ reported income taxes net income earnings per share net cash provided operating activities balance sheet category classification charges 286 million 371 million years ended december 31 2006 2005 respectively 1 respect shipping handling costs revised reduction net sales increase costs goods sold 231 million 265 million respectively 2 respect commission charges revised reduction net sales increase selling expenses 55 million 106 million respectively impact net sales gross profit selling general administrative expenses previously reported quarters 2006 fourth quarter two years ended december 31 2006 provided item 6 notes consolidated financial statementscontinued note 3 business segment geographical area data company divides business three distinct segments management reporting purposes fuel specialties performance chemicals octane additives fuel specialties performance chemicals businesses operate markets actively seek growth opportunities albeit end customers different octane additives business operates markets mature generally declining demand 2006 2005 single customer accounted 10 net sales 2004 company one significant customer octane additives business accounted 657 million 13 net sales second quarter 2005 customer permanently left market tel use automotive gasoline following table analyzes sales financial information product group product group data notes consolidated financial statementscontinued company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources corporate secretary legal fees investor relations • running corporate offices usa europe • corporate development function since relate current trading activities business segments • corporate share information technology accounting human resources departments sales geographic area reported source transaction originates destination final sale customers made intercompany sales priced recover cost plus appropriate markup profit eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued geographical area data notes consolidated financial statementscontinued note 4 stock option plans company five active stock option plans four provide grants options key employees nonemployee directors one plan provides stock options equal basis uk employees current limit number shares common stock issued awarded plans 3043000 stock options issued vesting period three four years expire within ten years date grant grants sole discretion compensation committee board directors administers plans grants may priced market value premium discount january 1 2006 company adopted fas 123r fas 123r requires company estimate number forfeitures expected occur record expense based upon number awards expected vest prior adoption company accounted forfeitures occurred permitted previous accounting standards cumulative effect adopting change estimating forfeitures material company’s financial statements year ended december 31 2006 majority options granted company dependent upon internally focused factors financial performance company’s reporting units fair value options calculated using blackscholes model cases certain performance related options dependent upon external factors company’s share price fair value options calculated using monte carlo model following assumptions used determine fair value options calculated using blackscholes model notes consolidated financial statementscontinued following table summarizes transactions company’s stock option plans three year period ended december 31 2006 following table summarizes information options outstanding december 31 2006 aggregate intrinsic value fully vested stock options december 31 2006 271168 358171 stock options exercisable 15607 performance conditions attached 2006 total fas 123r compensation cost 1618000 gross tax 1052000 net tax total compensation cost related nonvested stock options yet recognized 1708000 cost expected recognized weightedaverage period 106 years notes consolidated financial statementscontinued modified stock option awards 2006 2005 2004 total intrinsic value options exercised 2006 875603 amount cash received exercise stock option awards 2006 30 million company’s policy issue shares treasury stock holders stock options exercise options 2006 new total fair value shares vested 887135 respectively company adopted fas 123r using modified prospective transition method beginning january 1 2006 company previously recorded charge stock options based intrinsic value method outlined apb 25 following table summarizes effect net income earnings per share year ended december 31 2005 2004 company adopted fas 123r january 1 2006 compensation expense recorded within financial statements calculated consistently method prescribed standard notes consolidated financial statementscontinued note 5 earnings per share basic earnings per share based weighted average number common shares outstanding year diluted earnings per share includes effect options dilutive outstanding year per share amounts computed follows 2006 2005 2004 respectively average number antidilutive options excluded calculation diluted earnings per share 4125 127718 4525 respectively note 6 pension plans company maintains contributory defined benefit pension plan covering number uk employees “the plan” projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement company contributing amounts plan cover service costs date employee employer contributions since january 1 2004 5 226 respectively notes consolidated financial statementscontinued pensionable pay plan’s assets invested six investment management companies funds holding uk overseas equities uk overseas fixed interest securities index linked securities property unit trusts cash equivalents full actuarial valuation plan carried 2006 update carried january 19 2007 results reflected calculations effective fiscal year 2006 company adopted provisions fas 158 employers’ accounting defined benefit pension postretirement plans fas 158 requires funded status definedbenefit postretirement plans recognized company’s consolidated balance sheets changes funded status reflected comprehensive income fas 158 also requires measurement date plan’s funded status company’s fiscal yearend although measurement date provision required adopted fiscal year 2008 company earlyadopted provision fiscal year 2006 effect applying fas 158 record total reduction equity recognition accumulated comprehensive loss 970 million aftertax basis company previously used measurement date october 5 accordingly accounting disclosure plan 12 months ending october 5 accordance fas 158 net pension charge 15 million transition period three months december 31 2006 included total reduction equity 970 million disclosures 2005 2004 modified previously reported notes consolidated financial statementscontinued discount rate used represents annualised yield medium longer term aa rated corporate bonds uk 025 reduction discount rate would increase projected benefit obligation around 31 million increase net periodic pension cost 2007 20 million rate increase compensation levels assumes real salary growth innospec average restricted 075 assumed level price inflation 28 current investment strategy plan obtain asset allocation 70 favour debt securities 30 equity securities order achieve predictable return assets overall assumption expected return marketrelated value assets three month period december 31 2006 525 per annum 12 month period october 5 2006 530 per annum assumed rate return based fair value equity securities 76 per annum 12 month period october 5 2006 850 per annum debt securities 46 per annum 12 month period october 5 2006 460 per annum overall return three month period december 31 2006 12 month period october 5 2006 adjusted allow difference marketrelated value fair value plan’s assets projected net pension cost year ending december 31 2007 follows estimated level company contributions plan 2007 71 million following benefit payments reflect expected future service appropriate expected made company contributions defined contribution schemes 2006 17 million 2005 15 million notes consolidated financial statementscontinued movements pbo fair value plan assets follows underlying pbo fair value plan assets denominated sterling previously translated historic exchange rates adoption fas 158 december 31 2006 underlying pbo fair value plan assets translated 2006 year end exchange rate accumulated benefit obligation plan 8717 million 6956 million december 31 2006 2005 respectively curtailment loss 125 million reported restructuring costs 2005 notes consolidated financial statementscontinued note 7 income taxes income taxes accounted using asset liability method pursuant fas 109 accounting income taxes deferred taxes recognized tax consequences “temporary differences” applying enacted statutory rates applicable future years differences financial statements carrying amounts tax bases existing assets liabilities effect deferred taxes change tax rates recognized income period includes enactment date addition fas 109 requires recognition future tax benefits extent realization benefits likely sources incomeloss income taxes follows components income tax charges summarized follows cash receiptspayments income taxes 07 million 214 million 137 million 2006 2005 2004 respectively notes consolidated financial statementscontinued effective tax rate varies us federal statutory rate factors indicated 367 million charge respect impairment octane additives business goodwill cash taxation impact represents significant factor variation us federal statutory rate significant factors affecting variation statutory rate upstream loan treated dividend us tax rules net foreign tax credits use tax losses deferred tax asset recognized mix taxable profits generated different geographical localities group operates positive impact effective tax rate 2006 details deferred tax assets liabilities follows notes consolidated financial statementscontinued result company’s assessment net deferred tax assets december 31 2006 company considers likely valuation allowance required 08 million 2005 08 million net operating loss carry forwards net operating loss carry forwards 2004 2003 generated france result restructuring activity europe expected sufficient taxable profits generated net operating loss carry forwards relieved usage expires approximately two years time determined future longer likely assets realized additional valuation allowance would required company’s operating results would adversely affected period determination would made company made provision unremitted earnings overseas subsidiaries grounds remitted required entities concerned continue used fund investment territories determination potential amount unrecognized deferred taxes practicable due complexities associated hypothetical calculation note 8 acquisitions january 14 2005 company acquired 100 interest finetex inc “finetex” consideration 212 million company purchased 234 common shares valued 174 million balance funds used separately acquire two properties business operates pay costs acquisition notes consolidated financial statementscontinued finetex manufacturer supplier specialty surfactants emollients personal care cosmetics industrial markets results finetex consolidated since acquisition date reported performance chemicals business segment 2005 since acquisition company finetex contributed 184 million net sales net profit 02 million consolidated net loss 002 profit per basic share third quarter 2005 inventory standard costing process finetex updated led increase 05 million fair value inventory acquired corresponding reduction goodwill following values assigned major classes assets liabilities balance sheets acquired entities acquisition date goodwill recognized respect finetex included within performance chemicals business segment see note 9 following intangible assets recognized respect finetex following unaudited information illustrates results operations years ended december 31 2005 2004 acquisitions occurred january 1 2003 adjusted reflect amortization goodwill acquisitions financing transactions related interest expense information illustrative purposes meant indicative actual results might achieved results might attained future notes consolidated financial statementscontinued unaudited proforma information june 30 2004 company acquired 100 interest leuna polymer gmbh “leuna” consideration 81 million company purchased one common share valued 1 leuna manufacturer diesel fuel additives specialty waxes leuna released receivership late june 2004 consequently results consolidated since beginning july 2004 july 8 2004 company purchased 50 share octel starreon llc called innospec fuel specialties llc previously held starreon corporation llc total consideration 438 million value partnership interest acquired starreon corporation llc 06 million results innospec fuel specialties llc already consolidated prior acquisition remaining 50 though july 2004 charge income statement minority interests relation innospec fuel specialties llc august 26 2004 company acquired 100 interest aroma fine chemicals limited “afc” 345 million results afc consolidated since september 1 2004 13 million common shares purchased value 02 million total consideration 48 million form loan notes half repaid january 2006 remaining half repaid october 2006 afc manufactures aroma chemicals principally sold household institutional industrial personal care markets following unaudited information illustrates results operations year ended december 31 2004 acquisitions made january 1 2004 unaudited proforma information innospec fuel specialties llc fully consolidated company prior acquisition remaining 50 held starreon corporation llc appropriate 50 proportion net income balance sheet recognized minority interest notes consolidated financial statementscontinued goodwill recognized respect innospec fuel specialties llc included within petroleum specialties business segment goodwill respect afc included within performance chemicals see note 9 note 9 goodwill comprises following company’s reporting units generally consistent operating segments underlying segments identified note 3 company adopted fas 142 goodwill intangible assets effective january 1 2002 requires goodwill deemed indefinite life longer amortized subject annual impairment review years events occur circumstances change suggest impairment may occurred due continuing decline world market octane additives goodwill respect octane additives business segment reviewed impairment quarterly basis company elected perform annual tests respect fuel specialties performance chemicals goodwill december 31 year notes consolidated financial statementscontinued reviewing impairment charge fair value impaired reporting units underlying segments estimated using tax cash flow methodology based management’s best estimates time based impairment reviews conducted respect octane additives business 2006 2005 impairment charges 367 million 1344 million respectively recognized charges noncash nature impact taxation company continue perform impairment reviews respect octane additives business segment quarterly basis recognize charges appropriate end fourth quarter 2006 company performed annual impairment review goodwill fuel specialties performance chemicals believes impairment goodwill respect reporting segments note 10 intangible assets intangible assets comprise following veritel intangible asset recognized 2001 relation amounts payable veritel chemicals bv swiss subsidiary pursuant marketing agreement effective july 1 2001 initial signing fee 50 million paid entering agreement december 2001 notice given permanent source interruption triggered payments due veritel 700 million terms separate marketing agreement ethyl 245 million recoverable ethyl company’s share 505 million capitalized swiss subsidiary asset amortized straightline basis six years ending december 31 2007 notes consolidated financial statementscontinued technology following acquisition remaining 50 octel starreon llc called innospec fuel specialties llc july 8 2004 company recognized intangible asset 23 million respect various technological approvals business received certain military civilian authorities approvals act barrier entry potential competitor market would wish supply products intangible asset 48 million recognized respect number specialized manufacturing processes carried aroma fine chemicals limited following acquisition entity august 2004 assets expected life ten years amortized straightline basis period residual value anticipated customer relationships following acquisition finetex company recognized intangible asset totalling 71 million 42 million relation customer lists acquired asset expected life thirteen years amortised straight line basis period residual value anticipated intangible assets recognized 2004 respect octel starreon llc 90 million called innospec fuel specialties llc aroma fine chemicals limited 28 million acquisitions relate ongoing customer relationships expected life ten years amortized straightline basis period residual value anticipated patents following acquisition finetex company recognized intangible asset 29 million respect patents trade marks expected life ten years amortized straightline basis period remaining balance relates chiefly software costs amortized 3 years company adopted fas 142 goodwill intangible assets effective january 1 2002 requires intangible assets subject annual impairment review years events occur circumstances change suggest impairment may occurred company elected perform annual tests respect intangible assets december 31 year end fourth quarter 2006 company performed annual impairment review intangible assets believes impairment exists notes consolidated financial statementscontinued intangible asset amortization expense 127 million 127 million 112 million 2006 2005 2004 respectively future estimated amortization expense 127 million per annum 2007 26 million per annum 2008 2011 note 11 deferred finance costs company entered three one half year financing facility december 13 2005 see note 14 replaced previous company debt facility existed december 31 2004 net book amount deferred finance costs capitalized result refinancing january 2004 14 million beginning 2005 amortized full 2005 consequence refinancing 2006 2005 05 million 21 million refinancing costs capitalized respectively incurred relation refinancing entered december 13 2005 amortized expected life agreement using average interest method amortization expense 11 million 13 million 14 million 2006 2005 2004 respectively charge included interest payable see note 2 note 12 property plant equipment property plant equipment consists following total net book value equipment december 31 2006 01 million 2005 03 million respect assets held capital leases assets principally computer hardware 2006 2005 notes consolidated financial statementscontinued depreciation charges 136 million 147 million 119 million 2006 2005 2004 respectively estimated additional cost complete work progress 31 million 2005 26 million note 13 plant closure provisions liability estimated closure costs innospec’s octane additives manufacturing facilities includes costs personnel reductions severance decontamination environmental remediation activities remediation demand tel diminishes severance provisions also made relation fuel specialties performance chemicals businesses movements provisions summarized follows severance charges recognized income statement restructuring costs along restructuring costs remediation costs recognized cost goods sold severance charge 15 million recognized respect cost reduction programs manufacturing support activities uk octane additives manufacturing site ellesmere port 06 million recognized respect additional salary emoluments paid former ceo pursuant agreement governing terms former ceo’s resignation dated april 8 2005 “resignation agreement” expected 07 million salary emoluments paid former ceo pursuant resignation agreement paid one year addition 02 million recognized relation severance corporate staff notes consolidated financial statementscontinued restructuring costs comprise 15 million respect site clearance uk 04 million relation costs associated plan consolidate manufacturing activities one site one us businesses 03 million respect relocation european headquarters ellesmere port site remediation total costs remediation evaluated regular basis take account expenditure incurred amend scope future activities light findings projects carried detailed review expected future costs decontamination remediation ellesmere port site concluded december 2004 results summarized discounted cash flow model results reflected herein remediation expenditure provisions 2006 2005 2004 13 million 22 million 20 million respectively remediation provision represents fair value company’s liability recognized fas 143 accounting asset retirement obligations accretion expense recognized fas 143 2006 16 million company records environmental liabilities probable costs estimated reasonably company anticipate program work required associated future costs comply environmental legislation relevant countries company views costs vacating main uk site contingent liability present intention exit site company determined due uncertain product life tel particularly market aviation gas exists uncertainty timing cash flows possible estimate flows sufficiently reliably recognize provision note 14 longterm debt longterm debt consists following notes consolidated financial statementscontinued payments interest longterm debt 93 million 76 million 47 million 2006 2005 2004 respectively net cash outflow respect refinancing costs 05 million 20 million 27 million 2006 2005 2004 respectively financing package agreed january 2004 amended august 2004 comprised term loan 100 million revolving credit facility 110 million term loan repayable annual instalments three one half years revolving facility available throughout loan period july 2007 119 million outstanding terms facility december 31 2004 december 13 2005 company entered agreement syndicate banks new term loan 100 million repayable three one half years 10 million term loan repaid july 31 2006 repayments term loan due 15m january 31 2007 20 million january 31 2008 final repayment 55 million june 12 2009 additional revolving credit facility also agreed expire june 12 2009 later facility extended revolving credit facility initially 671 million increased 329 million 100 million june 12 2006 royal bank scotland plc national australia bank limited joined syndicate lending banks 1480 million outstanding terms new facility december 31 2006 january 2007 company repaid 73 million principal facility consisting scheduled 15 million term loan repayment 58 million revolving credit facility revolving credit facility drawn upon financing facility expires june 12 2009 later facility extended facility contains terms breached would result loan becoming repayable demand requires among matters compliance two financial covenant ratios 1 ratio net debt ebitda 2 ratio net interest ebita ebitda ebita non us gaap measures liquidity defined finance facility event ratio net debt ebitda exceeds 20 addition covenants facility also requires “look forward” test additional financial covenant ratio form net operating cash flow finance costs scheduled debt amortization interest costs “look forward” test applicable company 2006 due ratio exceeded management believes company breached covenants throughout 2006 facility secured number fixed floating charges certain assets company subsidiaries acquisition aroma fine chemicals limited august 26 2004 company issued £25 million 43 million loan notes vendors loan notes secured equal amount restricted cash escrow repaid two equal tranches january october 2006 notes consolidated financial statementscontinued assets held capital leases capitalized 2006 2005 nil 2004 leases capitalized primarily respect items computer hardware based uk expire 2007 02 million capital repayments made 2006 2005 following table presents projected annual maturities next four years 2006 weighted average rate interest borrowings 66 december 31 2006 61 december 31 2005 note 15 deferred income movements deferred income summarized follows deferred income 386m relates amounts received ethyl relating prepayment services provided sales marketing agreement oboadler effective january 1 2000 remaining 05m relates post acquisition government grants received leuna polymer gmbh note 16 stockholders’ equity notes consolidated financial statementscontinued note 17 fair value financial instruments following table presents carrying amount fair values company’s financial instruments december 31 2006 2005 following methods assumptions used estimate fair values financial instruments cash equivalents restricted cash carrying amount approximates fair value shortterm maturities instruments longterm debt carrying amount longterm borrowings variable interest rates approximates fair value derivatives fair value derivatives relates interest rate swaps interest rate swap options estimated based current settlement prices comparable contracts using current assumptions cumulative gains losses interest rate swaps summarized follows interest rate swaps designated cash flow hedge 500 million underlying variable rate debt obligations stood 900 million december 31 2006 200 million swaps mature december 14 2007 remaining 300 million june 12 2009 hedges determined effective consequently unrealized gain 04 million 2006 2005 01 million recorded accumulated comprehensive income ineffectiveness determined immaterial 2006 2005 notes consolidated financial statementscontinued accordingly gain loss recognized earnings either period company expect significant portion gain reclassified earnings next 12 months foreign exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying fair values contracts largely due changes exchange rates us dollar towards end 2005 us dollar strengthened major currencies however end 2006 weakened currencies note 18 financial instruments risk management company limited involvement derivative financial instruments trade company use derivatives manage certain interest rate foreign exchange exposures company uses interest rate swaps floors collars cap agreements reduce impact changes interest rates floating rate debt swap agreements contracts exchange floating rate fixed interest payments periodically life agreements without exchange underlying notional amounts notional amounts interest rate agreements used measure interest paid received represent amount exposure credit loss company determined hedge proportion outstanding variable rate debt obligation december 31 2006 company following interest rate instruments effect notional amounts millions company sells range fuel specialties performance chemicals octane additives major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required notes consolidated financial statementscontinued note 19 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 19 million 2006 24 million 2005 27 million 2004 future commitments noncancellable operating leases follows commitments respect environmental remediation obligations disclosed note 13 contingencies bycosin disposal voluntary disclosure possible violations cuban assets control regulations office foreign assets control given international scope operations company subject laws many different jurisdictions including laws relating imposition restrictions trade investment various entities persons countries laws conflicting 2004 company reviewed periodically aspects operations respect restrictions determined dispose certain noncore nonus subsidiaries bycosin ab bycosin’s nonus subsidiaries engaged transactions activities involving cuban persons entities acquisition bycosin group company june 2001 subsidiaries continuing engage transactions activities time disposal noncore fuel specialties business related assets november 2004 november 15 2004 bycosin ab whollyowned subsidiary company organized laws sweden known innospec sweden ab “seller” entered business asset purchase agreement “agreement” pesdo swedcap holdings ab “purchaser” håkan byström others purchaser’s guarantors octel petroleum specialities limited known innospec fuel specialties limited seller’s guarantor completed allcash transaction contemplated thereby together related transactions “transaction” agreement provided among things disposal certain notes consolidated financial statementscontinued noncore fuel specialties business related manufacturing assets seller ii supply distribution certain power products certain geographic regions net consideration paid purchaser approximately us29 million following completion transaction company made voluntary disclosure us office foreign assets control ofac regarding transactions activities engaged certain nonus subsidiaries company disclosures amongst items included aggregate monetary value transactions involving cuban persons entities conducted company’s nonus subsidiaries since january 1999 approximately 266 million time however management believes would speculative potentially misleading company predict specific nature amount penalties ofac might eventually assess penalties could assessed different bases ofac assessed penalties company “performance contracts basis” applicable regulations provide penalties case civil violations cuban assets control regulations 31 cfr part 515 “cacr” lesser 65000 per violation value contract since january 1999 nonus subsidiaries company entered 43 contracts cuban entities could considered separate violation cacr ofac may take position cacr interpreted applied different manner potentially even permit assessment penalties equal greater value business conducted cuban persons entities company considered range possible outcomes potential penalties payable accordance company’s accounting policies provision made management’s current best estimate potential liability including anticipated legal costs however underlying assumptions prove incorrect actual outcome could differ materially management’s current expectations management able estimate range additional loss company subsidiaries current former found complied cacr company believes could subject fines civil criminal penalties could material chief office global security risk “ogsr” securities exchange commission’s “sec” division corporation finance sent letter company dated november 22 2005 “sec comment letter” regarding form 10k fiscal year ended december 31 2004 form 10q quarter ended june 30 2005 sec comment letter focused matters arising company’s voluntary disclosure ofac response sec comment letter company submitted letter ogsr december 14 2005 continued correspondence ogsr regarding submission information concerning voluntary disclosure ofac 2006 november 13 2006 ogsr confirmed company comments company’s disclosure matter notes consolidated financial statementscontinued oil food february 7 2006 sec notified company commenced inquiry determine whether violations federal securities law occurred connection transactions conducted company including wholly owned indirect subsidiary alcor chemie vertriebs gmbh “alcor” swiss company united nations oil food program june 1 1999 december 31 2003 part inquiry sec issued subpoena requiring production certain documents including documents relating transactions company alcor company officers directors cooperating sec inquiry time management able predict whether sec seek impose fines penalties matter company subsidiaries found complied relevant laws dispute ethyl corp company currently disputing price entitled charge supply tel north america ethyl corporation “ethyl” subsidiary newmarket corporation dispute subject arbitration proceedings london court international arbitration “lcia” pursuant proceedings interim order made september 29 2006 requiring ethyl pay increased price claimed company escrow account pending final determination arbitration difference prices company claiming equivalent approximately 3 million annualized basis december 31 2006 ethyl placed approximately 17 million escrow account respect tel product supplied us nine months ended september 30 2006 company also commenced proceedings lcia ethyl regarding marketing agreements supply tel covering rest world company ethyl parties certain exclusive marketing agreements governing global marketing sale tel except north america one obligation parties refrain conducting business interests might defeat damage purpose agreements company believes ethyl breached duty actively marketing selling alternative product result company claiming damages excess 40 million well right terminate agreements company confident position matters believes prevail regardless outcome company believe disputes material adverse effect financial position results company legal matters involved time claims legal proceedings result incidental conduct business including product liability claims december 31 2006 claim potential consequence involved potential claim could total approximately 4 million indicated one customer supplied products meet specifications denied claim notes consolidated financial statementscontinued date legal proceedings issued whilst possible predict outcome matter confident position addition insurance coverage mitigate potential damages guarantees company certain consolidated subsidiaries contingently liable december 31 2006 78 million primarily relating guarantees debt affiliated companies performance contracts entered normal business practice included guarantees nonus excise taxes customs duties terms guarantee arrangements generally company would required perform affiliated company fail fulfil obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company indemnities warranties connection disposal octel waste management limited “owm” june 26 2003 company indemnified purchaser respect environmental liability arising possible historic contamination leased site ellesmere port uk maximum £20 million 39 million general environmental conditions events subject indemnity must arisen prior june 26 2003 time limit claims must asserted potential liability included company’s remediation provision addition company provided certain warranties respect disposal owm company would required perform contingent liabilities respect warranties become actual could required make maximum future payments £37 million 72 million recourse provisions enabling recovery amounts third parties assets held collateral respect indemnity warranties note 20 profitloss disposals notes consolidated financial statementscontinued profit disposal surplus uk real estate relates sale august company’s former fuel technology centre bletchley sale july company’s former sports social club prepaid disposal costs relate expenditure incurred respect one us former manufacturing sites advance marketed disposed november 2004 french subsidiary disposed former offices paris consideration 49 million offices unoccupied business’s operations moved another site vernon net book value property nil sale incurred costs 02 million november 15 2004 company disposed certain manufacturing assets held swedish subsidiary bycosin ab consideration 22 million net assets disposed 113 million comprised net loss disposal 91 million tax charge credit loss anticipated part sale swedish manufacturing assets bycosin de mexico sa de cv bycosin sa de cv noncore subsidiaries octel sweden ab also disposed entirety ongoing involvement business element transaction included within discontinued operations see note 21 company continue source product support marine power markets sweden sale swedish manufacturing assets meet criteria laid fas 144 accounting impairment disposal longlived assets inclusion within discontinued operations notes consolidated financial statementscontinued note 21 discontinued operations december 31 2005 company disposed two noncore businesses octel performance chemicals inc gamlen industries sa waste water treatment business consideration received 12 million 19 million respectively net assets disposed 31 million comprised net loss disposal octel performance chemicals inc 16 million includes net loss year 04 million net profit disposal gamlen industries sa waste water treatment business 02 million includes net loss year 03 million professional fees 02 million tax charge 05 million november 15 2004 company disposed noncore business bycosin mexico consideration 09 million net assets disposed 48 million comprised net loss disposal 39 million includes net income bycosin mexico 2004 date disposal 04 million professional fees 02 million tax charge 02 million notes consolidated financial statementscontinued note 22 balance sheet information restricted cash 2004 company acquired aroma fine chemicals limited see note 8 total consideration 48 million £25 million form loan notes half repaid january 2006 remaining half repaid october 2006 assets included within assets investments consolidated company grounds company controlling financial interest investments held cost less provision impairment principal affiliates follows unconsolidated affiliates privately held companies quoted market prices available dividends received 2006 2005 2004 2006 company sold 20 share deurex 500 share octel chemay pty limited profit loss year company made sales 13 million 16 million deurex micro technologies gmbh deurex december 31 2006 balance owed company deurex 01 million 02 million note 23 recently issued accounting pronouncements july 2006 fasb issued interpretation 48 “accounting uncertainty income taxes” fin 48 interpretation prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return fin 48 contingent tax asset recognized likely tax position ultimately sustained upon audit threshold met management’s best estimate associated benefit recorded fin 48 also provides guidance derecognition classification interest penalties accounting interim periods disclosure transition fin 48 effective fiscal years beginning december 15 2006 company currently evaluating impact fin 48 financial statements september 2006 fasb issued fas 157 “fair value measurements” defines fair value establishes framework measuring fair value expands disclosures fair value measurements company required adopt fas 157 effective first quarter 2008 currently evaluating impact financial statements notes consolidated financial statementscontinued february 2007 fasb issued fas 159 “the fair value option financial assets financial liabilities” fas 159 expands scope entities may carry fair value offering irrevocable option record many types financial assets liabilities fair value changes fair value would recorded entity’s income statement accounting standard also establishes presentation disclosure requirements intended facilitate comparisons entities choose different measurement attributes similar types assets liabilities fas 159 effective fiscal years beginning november 15 2007 though earlier application permitted certain circumstances company begin assess impact adoption fas 159 financial statements item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors stockholders innospec inc opinion accompanying consolidated balance sheets related consolidated statements income stockholders’ equity cash flows present fairly material respects financial position innospec inc subsidiaries december 31 2007 december 31 2006 results operations cash flows three years period ended december 31 2007 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included “management’s report internal control financial reporting” appearing item 9a form 10k responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 2 consolidated financial statements company changed manner accounts share based compensation adoption fas 123r sharebased payment effective january 1 2006 defined benefit pension plans adoption fas 158 employers’ accounting defined benefit pension postretirement plans effective december 31 2006 uncertain tax positions adoption fin 48 accounting uncertainty income taxes effective january 1 2007 company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp manchester united kingdom february 25 2008 consolidated statements income millions except per share data accompanying notes integral part statements consolidated balance sheets millions except per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 11 million 2006 11 million year included depreciation amortization cash flow statement interest income statement cash paymentsreceipts respect income taxes interest disclosed note 7 note 14 respectively accompanying notes integral part statements consolidated statements stockholders’ equity millions 1 june 18 2007 company announced board directors approved 2for1 stock split effected form 100 stock dividend stockholders record july 6 2007 received one additional share innospec inc common stock every share owned date shares distributed july 20 2007 stock option holders received one additional option every option held original exercise prices options halved reflect stock split table retrospectively adjusted stock split 2 changes cumulative translation adjustment 3 changes unrealized gainslosses derivative instruments net tax 4 following adoption fas 123r effective january 1 2006 stock option liability 30 million accrued apb 25 reclassified additional paidin capital 5 impact deferred taxes change associated tax rate unrecognized actuarial net losses 1385 million 970 million net deferred taxes previously recognized comprehensive loss consolidated statements comprehensive incomeloss millions accumulated comprehensive loss millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec inc develops manufactures blends markets fuel additives specialty chemicals products sold primarily oil refineries chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions specialty chemicals provide effective technologybased solutions customers’ processes products focused personal care household industrial institutional fragrance ingredients plastics polymers pulp paper markets principal product lines reportable segments fuel specialties active chemicals octane additives see note 3 financial information company’s reportable segments see note 10 accounting respect sales marketing agreements ethyl june 18 2007 company announced board directors approved 2for1 stock split effected form 100 stock dividend stockholders record july 6 2007 received one additional share innospec inc common stock every share owned date shares distributed july 20 2007 stock option holders received one additional option every option held original exercise prices options halved reflect stock split consolidated financial statements retrospectively adjusted stock split note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles united states america include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation acquisitions accounted purchases results operations acquired businesses included consolidated financial statements date acquisition results discontinued operations shown separately income statement certain revisions made prior year components cash flows financing activities consolidated statements cash flows conform current year classifications change presentation result change net cash used inprovided financing activities use estimates preparation consolidated financial statements accordance generally accepted accounting principles united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates notes consolidated financial statementscontinued cash equivalents investment securities maturities three months less purchased considered cash equivalents accounts receivable company records accounts receivable net realizable value maintains allowance customers making required payments company determines adequacy allowance periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method market price cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement provision made slowmoving obsolete inventories appropriate property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method cost additions improvements capitalized maintenance repairs charged expenses assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives longer amortized subject least annual impairment tests intangible assets continue amortized using straightline method estimated useful lives annual measurement date impairment testing fuel specialties active chemicals goodwill december 31 octane additives business goodwill reviewed impairment end quarter company regularly reviews goodwill intangible assets impairment based projected posttax cash flows discounted company’s weighted average cost capital expected decline octane additives market resulted quarterly impairment charges incurred first quarter 2004 onwards highly likely quarterly charges incurred future years market continues decline impairment reviews goodwill relating fuel specialties active chemicals businesses indicates requirement recognize impairment charge respect goodwill deferred finance costs relating debt financing capitalized separately disclosed balance sheets amortized using effective interest method expected life debt financing facility notes consolidated financial statementscontinued impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result assets compared carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative financial instruments company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes fas 133 accounting derivative instruments hedging activities establishes accounting reporting standards derivative instruments requires entity recognize derivatives either assets liabilities consolidated balance sheet measure instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting fas 133 recognized earnings derivatives tested effectiveness quarterly basis ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive loss hedged item recognized earnings company employs interest rate swaps convert floating rate debt 500 million remaining 750 million senior term loan fixed rate designated cash flow hedges underlying variable rate obligation tested effectiveness using dollar offset method end term swap arrangements cumulative gain loss reclassified income statement interest rate swaps recorded noncurrent liability balance sheet 2007 company hedged price 450 metric tonnes one key raw materials using commodity swaps maturity dates 1 12 months december 31 2007 market value swaps company loss 05 million swaps designated qualifying hedge accounting end swap arrangements cumulative gain loss reclassified income statement commodity swaps recorded noncurrent liability balance sheet environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs environmental costs accrued environmental assessments remedial efforts probable cost reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s weighted average cost capital notes consolidated financial statementscontinued revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized transfer legal title defined generally accepted standard terms conditions arises company customer provisions sales discounts rebates customers based upon terms sales contracts recorded period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time shipping company recognized total revenue octane additive sales ethyl agreements 32 compensation paid ethyl recognized cost goods sold component ethyl’s share net proceeds amount recoverable ethyl calculated annually arrears company recognized quarterly based best current estimates expected outcome see note 10 accounting respect sales marketing agreements ethyl components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item 32 compensation paid ethyl recognized cost goods sold see note 10 accounting respect sales marketing agreements ethyl components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal costs litigation company involved made reported administrative expense line item research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period notes consolidated financial statementscontinued foreign currencies company’s policy exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur entities gains losses monetary assets relating currencies us dollar taken income statement gains losses foreign currency transactions included net incomeexpense income statement 75 million net gain 76 million net gain 37 million net loss 2007 2006 2005 respectively stock option plans effective january 1 2006 company adopted provisions fas 123r sharebased payment requires employee stock options accounted fair value method accordingly sharebased compensation measured grant date based fair value options prior january 1 2006 company accounted employee stock options using intrinsic value method prescribed accounting principles board opinion 25 accounting stock issued employees “apb 25” related interpretations provided required pro forma disclosures prescribed fas 123 accounting stockbased compensation fas 148 accounting stockbased compensation transition disclosure apb 25 fixed awards exercise price employee stock options equal market price underlying stock date grant compensation expense recorded company adopted fas 123r using modified prospective transition method compensation cost recognized company beginning 2006 includes compensation cost stock options granted prior yet vested january 1 2006 based grantdate fair value estimated accordance original provisions fas 123 b compensation cost stock options granted subsequent january 1 2006 based grantdate fair value estimated accordance provisions fas 123r company uses straightline attribution method recognize sharebased compensation costs service period option pension plans postemployment benefits effective fiscal year 2006 company adopted provisions fas 158 employers’ accounting defined benefit pension postretirement plans fas 158 requires funded status definedbenefit postretirement plans recognized company’s consolidated balance sheets changes funded status reflected comprehensive income fas 158 also requires measurement date plan’s funded status company’s fiscal yearend although measurement date provision required adopted fiscal year 2008 company earlyadopted provision fiscal year 2006 pension plans accounted accordance fas 87 employers’ accounting pensions fas 158 employers’ accounting defined benefit pension postretirement plans fas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits notes consolidated financial statementscontinued income taxes company provides income taxes accordance fas 109 accounting income taxes fas 109 requires recognition deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities appropriate accordance fas 109 company evaluates need valuation allowance reduce deferred tax assets fas 109 requires recognition future tax benefits extent realization benefits likely effect deferred taxes change tax rates recognized period includes enactment date july 2006 fasb issued interpretation 48 accounting uncertainty income taxes “fin 48” fin 48 prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return income tax positions must meet likely recognition criteria adoption date recognized upon adoption fin 48 company adopted fin 48 january 1 2007 provisions applied income tax positions date adoption fin 48 company recognized increase liability unrecognized tax benefits 31 million accounted adjustment opening retained earnings reclassifications 210 million liabilities 38 million deferred income taxes 78 million accrued income taxes company recognizes accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income notes consolidated financial statementscontinued note 3 business segment geographical area data innospec divides business three distinct segments management reporting purposes fuel specialties active chemicals previously performance chemicals explained octane additives fuel specialties active chemicals businesses operate markets actively seek growth opportunities albeit end customers different octane additives business although still profitable characterized substantial declining demand october 1 2007 company announced streamlining fastgrowing performance chemicals division unified salesled global business focused rapidly meeting customers’ needs anywhere three geographical regions five core industry sectors led segment rebranded banner “active chemicals” five core industry sectors personal care household industrial institutional fragrance ingredients plastics polymers pulp paper markets 2007 company one significant customer fuel specialties business royal dutch shell plc affiliates “shell” accounted 662 million 11 net sales 2006 2005 single customer accounted 10 net sales notes consolidated financial statementscontinued following table analyzes sales financial information business segment company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources corporate secretary legal fees investor relations • running corporate offices us europe • corporate development function since relate current trading activities business segments notes consolidated financial statementscontinued • corporate share information technology accounting human resources departments sales geographic area reported source transaction originates destination final sale customers made intercompany sales priced recover cost plus appropriate markup profit eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued notes consolidated financial statementscontinued note 4 stock option plans june 18 2007 company announced board directors approved 2for1 stock split effected form 100 stock dividend stockholders record july 6 2007 received one additional share innospec inc common stock every share owned date shares distributed july 20 2007 stock option holders received one additional option every option held original exercise prices options halved reflect stock split company five active stock option plans three provide grants options key employees nonemployee directors one plan provides stock options equal basis united kingdom employees another provides stock options company employees current limit number shares common stock issued awarded plans 6086000 stock options issued vesting period three six years expire within ten years date grant grants sole discretion compensation committee board directors administers plans grants may priced market value premium discount january 1 2006 company adopted fas 123r sharebased payment fas 123r requires company estimate number forfeitures expected occur record expense based upon number awards expected vest prior adoption company accounted forfeitures occurred permitted previous accounting standards cumulative effect adopting change estimating forfeitures material company’s financial statements year ended december 31 2006 fair value options calculated using blackscholes model cases certain performance related options dependent upon external factors company’s share price fair value options calculated using monte carlo model following assumptions used determine fair value options calculated using blackscholes model notes consolidated financial statementscontinued following table summarizes transactions company’s stock option plans three years ended december 31 2007 following table summarizes information options outstanding december 31 2007 aggregate intrinsic value fully vested stock options 06 million 241020 stock options exercisable 67442 performance conditions attached total compensation cost 2007 2006 33 million 16 million respectively total compensation cost related nonvested stock options yet recognized december 31 2007 78 million cost expected recognized weightedaverage period 153 years notes consolidated financial statementscontinued modified stock option awards 2007 2006 2005 total intrinsic value options exercised 2007 2006 19 million 09 million respectively amount cash received exercise stock option awards 2007 2006 2005 41 million 30 million 14 million respectively company’s policy issue shares treasury stock holders stock options exercise options 2007 2006 new total fair value shares vested 22 million 09 million respectively company adopted fas 123r using modified prospective transition method beginning january 1 2006 company previously recorded charge stock options based intrinsic value method prescribed accounting principles board opinion 25 accounting stock issued employees “apb 25” following table summarizes effect net income earnings per share year ended december 31 2005 company adopted fas 123r january 1 2006 compensation expense recorded within consolidated financial statements calculated consistently method prescribed fas 123r note 5 earnings per share june 18 2007 company announced board directors approved 2for1 stock split effected form 100 stock dividend stockholders record july 6 2007 received one additional share innospec inc common stock every share owned date shares distributed july 20 2007 stock option holders received one additional option every option held original exercise prices options halved reflect stock split following footnote retrospectively adjusted stock split notes consolidated financial statementscontinued basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2007 2006 2005 average number antidilutive options excluded calculation diluted earnings per share 17729 4125 127718 respectively note 6 pension plans company maintains contributory defined benefit pension plan covering number united kingdom employees “plan” projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement company contributing amounts plan cover service costs date employee employer contributions january 1 2004 january 1 2007 5 226 respectively pensionable pay january 1 2007 employee employer contributions 7 29 respectively addition since march 2007 company contributing 3 million per calendar year accordance 10 year deficit recovery plan’s assets invested two investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents full actuarial valuation plan performed december 31 2005 update performed december 31 2007 2006 results reflected calculations notes consolidated financial statementscontinued effective fiscal year 2006 company adopted provisions fas 158 employers’ accounting defined benefit pension postretirement plans fas 158 requires funded status definedbenefit postretirement plans recognized company’s consolidated balance sheets certain changes funded status reflected comprehensive income fas 158 also requires measurement date plan’s funded status company’s fiscal yearend although measurement date provision required adopted fiscal year 2008 company earlyadopted provision fiscal year 2006 effect applying fas 158 record total reduction equity recognition comprehensive loss 970 million aftertax basis company previously used measurement date october 5 accordingly accounting disclosure plan 12 months ending october 5 accordance fas 158 net pension charge 15 million transition period three months december 31 2006 included total reduction equity 970 million disclosures 2005 2004 modified previously reported notes consolidated financial statementscontinued discount rate used represents annualized yield medium longer term aa rated corporate bonds united kingdom determined reference iboxx corporate bond index published international index company rate increase compensation levels assumes real salary growth innospec restricted 075 assumed level price inflation 32 025 change either discount rate assumption level price inflation assumption would change pbo approximately 30 million net pension charge 2008 approximately 02 million current investment strategy plan obtain asset allocation 70 favor debt securities 30 equity securities order achieve predictable return assets projected net pension charge year ending december 31 2008 follows estimated level company contributions plan 2008 89 million following benefit payments reflect expected future service appropriate expected made company contributions defined contribution schemes 2007 09 million 2006 17 million notes consolidated financial statementscontinued movements pbo fair value plan assets follows underlying pbo fair value plan assets denominated sterling previously translated historic exchange rates adoption fas 158 december 31 2006 underlying pbo fair value plan assets translated 2006 year end exchange rate december 31 2007 underlying pbo fair value plan assets translated 2007 year end exchange rate accumulated benefit obligation plan 8263 million 8717 million december 31 2007 2006 respectively note 7 income taxes january 1 2007 company adopted fasb interpretation 48 accounting uncertainty income taxes “fin 48” fin 48 prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return notes consolidated financial statementscontinued adoption fin 48 company recognized increase liability unrecognized tax benefits 31 million accounted adjustment opening retained earnings reclassifications 210 million liabilities 38 million deferred income taxes 78 million accrued income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 400 million unrecognized tax benefits would impact effective tax rate recognized recognize accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income december 31 2007 38 million accrued within liability unrecognized tax benefits respect accrued interest penalties company one subsidiaries files income tax returns us federal jurisdiction various state foreign jurisdictions december 31 2007 company’s subsidiaries france united kingdom subject tax authority investigations respective transfer pricing policies company anticipate adjustments arising investigations would result material change financial position december 31 2007 company us subsidiaries remain open examination irs years 1998 onwards due net operating losses period 1998 2002 although examination currently underway company’s subsidiaries major tax jurisdictions open examination including france 2004 onwards germany 2002 onwards switzerland 2005 onwards united kingdom 2002 onwards currently examination various foreign jurisdictions notes consolidated financial statementscontinued sources incomeloss income taxes follows components income tax charges summarized follows cash paymentsreceipts income taxes 227 million 07 million 214 million 2007 2006 2005 respectively effective tax rate varies us federal statutory rate factors indicated notes consolidated financial statementscontinued 121 million charge respect impairment octane additives business goodwill cash taxation impact represents significant factor variation us federal statutory rate significant factors affecting variation statutory rate deemed liquidation group subsidiary treated dividend us tax rules net foreign tax credits use tax losses deferred tax asset recognized tax credits prior years mix taxable profits generated different geographical localities group operates positive impact effective tax rate 2007 details deferred tax assets liabilities follows result company’s assessment net deferred tax assets december 31 2007 company considers likely valuation allowance required 13 million 2006 08 million net operating loss carry forwards full valuation allowance required foreign tax credits carry forwards net operating loss carry forwards arose 2007 generated switzerland result exceptional losses contract expected sufficient taxable profits generated net operating loss carry forwards relieved time limitation use losses determined future longer likely assets realized additional valuation allowance would required company’s operating results would adversely affected period determination would made company made provision unremitted earnings overseas subsidiaries grounds remitted required entities concerned continue used fund investment territories amount unremitted notes consolidated financial statementscontinued earnings december 31 2007 2006 approximately 805 million 710 million respectively determination potential amount unrecognized deferred taxes practicable due complexities associated hypothetical calculation note 8 acquisitions january 14 2005 company acquired 100 interest finetex inc “finetex” consideration 212 million company purchased 234 common shares valued 174 million balance funds used separately acquire two properties business operates pay costs acquisition finetex manufacturer supplier specialty surfactants emollients personal care cosmetics industrial markets results finetex consolidated since acquisition date reported active chemicals business segment 2005 since acquisition company finetex contributed 184 million net sales net profit 02 million consolidated net loss 001 profit per basic share third quarter 2005 inventory standard costing process finetex updated led increase 05 million fair value inventory acquired corresponding reduction goodwill following values assigned major classes assets liabilities balance sheets acquired entities acquisition date goodwill recognized respect finetex included within active chemicals business segment see note 9 following intangible assets recognized respect finetex notes consolidated financial statementscontinued effective january 1 2007 businesses finetex inc prochem chemicals inc merged innospec active chemicals llc previously known innospec performance chemicals us co note 9 goodwill comprises following company’s reporting units generally consistent operating segments underlying segments identified note 3 company adopted fas 142 goodwill intangible assets effective january 1 2002 requires goodwill deemed indefinite life longer amortized subject annual impairment review years events occur circumstances change suggest impairment may occurred due continuing decline world market octane additives goodwill respect octane additives business segment reviewed impairment quarterly basis company elected perform annual tests respect fuel specialties active chemicals goodwill december 31 year reviewing impairment charge fair value impaired reporting units underlying segments estimated using tax cash flow methodology based management’s best estimates time notes consolidated financial statementscontinued result octane additives impairment reviews performed 2007 2006 2005 impairment charges 121 million 367 million 1344 million respectively recognized charges noncash nature impact taxation 127 million goodwill remaining relates octane additives business given quantum predictability remaining future cash flows octane additives business company expects goodwill impairment charges recognized income statement approximate straightline basis three years ending december 31 2010 end fourth quarter 2007 company performed annual impairment review goodwill fuel specialties active chemicals believes impairment goodwill respect reporting segments note 10 intangible assets intangible assets comprise following ethyl october 1 1998 innospec entered sales marketing agreements “tmas” ethyl corporation “ethyl” market sell tetra ethyl lead “tel” areas world except north america european economic area period lasting december 31 2009 subject renewal thereafter relationship extended effective january 1 2000 two swiss subsidiaries entered similar tmas ethyl’s notes consolidated financial statementscontinued swiss subsidiaries april 2000 ethyl made payment innospec 386 million prepayment services provided swiss tmas effective july 1 2001 another swiss subsidiaries entered tma veritel chemicals bv “veritel” ethyl agreed participate tma scope tmas extended include european economic area separate legal entity joint venture established consequence tmas marketing sales effort made arrangements made name innospec produced tel marketed tmas also provided marketing services ethyl provided bulk distribution services marketing services addition ethyl required hold approximately one third inventories sold arrangements deposit equivalent dollar amount innospec march 31 2007 ethyl held tel inventories respect tmas accordingly deposited 120 million us net proceeds tmas paid innospec ethyl compensation services based agreedupon formula innospec receiving 68 total compensation services provided ethyl receiving 32 ethyl’s 32 share net proceeds advanced ethyl us payment received tma customers sales expenses incurred tmas included within innospec’s income statement comprised revenues costs incurred directly innospec together costs recharged ethyl bulk distribution services marketing services provided tmas ethyl’s share net proceeds services charged within cost goods sold 386 million prepayment tma services provided treated deferred income amortized income statement within cost goods sold net proceeds due ethyl held within accounts payable innospec commenced proceedings london court international arbitration “lcia” ethyl regarding alleged breach duty ethyl tmas actively marketing selling alternative product addition company dispute ethyl regarding price entitled charge supply tel ethyl us separate agreement “us supply agreement” june 15 2007 parties resolved arbitration actions arising disputes tmas us supply agreement tmas terminated effective april 1 2007 innospec became sole supplier tel outside us june 27 2007 innospec refunded ethyl’s 120 million inventory deposit advanced ethyl’s share net proceeds yet collected tma customers termination date made payment 280 million respect ethyl foregoing entitlement share future income stream tmas effective april 1 2007 addition 19 million unamortized balance march 31 2007 ethyl prepayment services provided tmas written cost goods sold income statement course settlement incurred professional fees 04 million notes consolidated financial statementscontinued intangible asset recognized respect payment ethyl represented ethyl foregoing entitlement share future income stream tmas effective april 1 2007 associated professional fees tmas covered sale tel use automotive gasoline aviation gasoline disclose within octane additives business segment fuel specialties business segment respectively allocated individual components intangible asset attributable tel use automotive gasoline aviation gasoline reference forecast future income streams associated cash flows markets ethyl would shared residual value attributed intangible asset accordingly commencing april 1 2007 amount attributed octane additives business segment amortized straightline december 31 2010 amount attributed fuel specialties business segment amortized straightline december 31 2017 veritel intangible asset recognized 2001 relation amounts payable veritel chemicals bv swiss subsidiary pursuant marketing agreement effective july 1 2001 initial signing fee 50 million paid entering agreement december 2001 notice given permanent source interruption triggered payments due veritel 700 million terms separate marketing agreement ethyl 245 million recoverable ethyl company’s share 505 million capitalized swiss subsidiary asset fully amortized december 31 2007 technology following acquisition remaining 50 innospec fuel specialties llc previously known octel starreon llc july 8 2004 company recognized intangible asset 23 million respect various technological approvals business received certain military civilian authorities approvals act barrier entry potential competitor market would wish supply products intangible asset 48 million recognized respect number specialized manufacturing processes carried innospec widnes limited previously known aroma fine chemicals limited following acquisition entity august 2004 assets expected life ten years amortized straightline basis period residual value anticipated customer relationships following acquisition finetex merged innospec active chemicals llc company recognized intangible asset totalling 71 million 42 million relation customer lists acquired asset expected life thirteen years amortized straightline basis period residual value anticipated notes consolidated financial statementscontinued intangible assets recognized 2004 respect innospec fuel specialties llc previously known octel starreon llc 90 million innospec widnes limited previously known aroma fine chemicals limited 28 million acquisitions relate ongoing customer relationships expected life ten years amortized straightline basis period residual value anticipated patents following acquisition finetex merged innospec active chemicals llc company recognized intangible asset 29 million respect patents trademarks expected life ten years amortized straightline basis period remaining balance relates chiefly software costs amortized 3 years company adopted fas 142 goodwill intangible assets effective january 1 2002 requires intangible assets subject annual impairment review years events occur circumstances change suggest impairment may occurred company elected perform annual tests respect intangible assets december 31 year end fourth quarter 2007 company performed annual impairment review intangible assets believes impairment exists intangible asset amortization expense 169 million 127 million 127 million 2007 2006 2005 respectively future amortization expense estimated 82 million per annum three years 2010 36 million per annum 2011 2012 note 11 deferred finance costs company entered three one half year financing facility december 13 2005 see note 14 replaced previous company debt facility existed december 31 2004 net book amount deferred finance costs capitalized result refinancing january 2004 14 million beginning 2005 amortized full 2005 consequence refinancing 2006 2005 05 million 21 million refinancing costs capitalized respectively incurred relation refinancing entered december 13 2005 amortized expected life agreement using effective interest method notes consolidated financial statementscontinued amortization expense 11 million 11 million 13 million 2007 2006 2005 respectively charge included interest expense see note 2 note 12 property plant equipment property plant equipment consists following total net book value equipment december 31 2007 nil million 2006 01 million respect assets held capital leases assets principally computer hardware 2006 depreciation charges 133 million 136 million 147 million 2007 2006 2005 respectively estimated additional cost complete work progress 16 million 2006 31 million note 13 plant closure provisions liability estimated closure costs innospec’s octane additives manufacturing facilities includes costs personnel reductions severance decontamination environmental remediation activities remediation demand tel diminishes severance provisions also made relation fuel specialties active chemicals businesses movements provisions summarized follows notes consolidated financial statementscontinued severance charges recognized income statement restructuring costs along restructuring costs remediation costs recognized cost goods sold severance charge 05 million recognized respect reduction active chemicals united kingdom headcount 04 million additional payments respect former ceo 01 million restructuring 25 million charge primarily relates united kingdom site clearance 12 million relocation european headquarters ellesmere port site 08 million remediation total costs remediation evaluated regular basis take account expenditure incurred amend scope future activities light findings projects carried detailed review expected future costs decontamination remediation ellesmere port site concluded december 2004 results summarized discounted cash flow model results reflected herein remediation expenditure provisions 17 million 13 million 22 million 2007 2006 2005 respectively remediation provision represents fair value company’s liability recognized fas 143 accounting asset retirement obligations accretion expense recognized fas 143 2007 23 million charge offset 2007 10 million respect reduction scope cost future activities performed light findings projects carried company records environmental liabilities probable costs estimated reasonably company anticipate program work required associated future costs comply environmental legislation relevant countries company views costs vacating main united kingdom site contingent liability present intention exit site company determined due uncertain product life tel particularly market aviation gas exists uncertainty timing cash flows possible estimate flows sufficiently reliably recognize provision notes consolidated financial statementscontinued note 14 longterm debt longterm debt consists following payments interest longterm debt 64 million 93 million 76 million 2007 2006 2005 respectively net cash outflow respect refinancing costs nil million 05 million 20 million 2007 2006 2005 respectively financing package agreed january 2004 amended august 2004 comprised term loan 100 million revolving credit facility 110 million term loan repayable annual instalments three one half years revolving facility available throughout loan period july 2007 119 million outstanding terms facility december 31 2004 december 13 2005 company entered agreement syndicate banks new term loan 100 million repayable three one half years term loan 10 million 15 million 20 million repaid july 31 2006 january 31 2007 january 31 2008 respectively final repayment 55 million due june 12 2009 additional revolving credit facility also agreed expire june 12 2009 revolving credit facility initially 671 million increased 329 million 100 million june 12 2006 royal bank scotland plc national australia bank limited joined syndicate lending banks 810 million outstanding facility december 31 2007 facility contains terms breached would result loan becoming repayable demand requires among matters compliance two financial covenant ratios 1 ratio net debt ebitda 2 ratio net interest ebita ebitda ebita non us gaap measures liquidity defined finance facility event ratio net debt ebitda exceeds 20 addition covenants facility also requires “look forward” test additional financial covenant ratio form net operating cash flow finance costs scheduled debt amortization interest costs “look forward” test applicable company 2007 due ratio exceeded notes consolidated financial statementscontinued management believes company breached covenants throughout 2007 facility secured number fixed floating charges certain assets company subsidiaries assets held capital leases capitalized 2007 2006 nil 01 million capital repayments made 2007 2006 02 million following table presents projected annual maturities next four years 2007 weighted average rate interest borrowings 65 december 31 2007 66 december 31 2006 note 15 deferred income movements deferred income summarized follows deferred income 386 million relates amounts received ethyl relating prepayment services provided sales marketing agreements “tmas” two swiss subsidiaries effective january 1 2000 following termination tmas effective april 1 2007 unamortized balance written cost goods sold income statement see note 10 remainder relates 07 million post acquisition government grants received innospec leuna gmbh 02 million government grants advance rental payments received innospec widnes limited previously known aroma fine chemicals limited notes consolidated financial statementscontinued note 16 stockholders’ equity june 18 2007 company announced board directors approved 2for1 stock split effected form 100 stock dividend stockholders record july 6 2007 received one additional share innospec inc common stock every share owned date shares distributed july 20 2007 stock option holders received one additional option every option held original exercise prices options halved reflect stock split following table retrospectively adjusted stock split december 31 2007 company authorized common stock 40000000 shares december 31 2006 40000000 issued shares december 31 2007 29554500 december 31 2006 29554500 including treasury stock 5777417 shares december 31 2006 5749494 note 17 fair value financial instruments following table presents carrying amount fair values company’s financial instruments december 31 2007 2006 following methods assumptions used estimate fair values financial instruments cash equivalents carrying amount approximates fair value shortterm maturities instruments notes consolidated financial statementscontinued longterm debt carrying amount longterm borrowings variable interest rates approximates fair value derivatives fair value derivatives relates interest rate swaps interest rate swap options foreign exchange contracts commodity swaps estimated based current settlement prices comparable contracts using current assumptions cumulative gains losses interest rate swaps commodity swaps summarized follows interest rate swaps designated cash flow hedge 500 million underlying floating rate debt obligations stood 810 million december 31 2007 swaps mature june 12 2009 commodity swaps used manage company’s cash flow exposure raw material price volatility designated cash flow hedges commodity swaps qualify hedge accounting december 31 2007 interest rate commodity hedges determined effective consequently unrealized loss 10 million 2007 2006 04 million gain recorded comprehensive income ineffectiveness determined immaterial 2007 2006 accordingly gain loss recognized earnings either period company expect significant portion loss reclassified earnings next 12 months foreign exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying fair values contracts largely due changes exchange rates us dollar us dollar weakened major currencies across 2007 note 18 financial instruments risk management company limited involvement derivative financial instruments trade company use derivatives manage certain interest rate foreign exchange exposures raw material pricing exposures company uses interest rate swaps floors collar cap agreements reduce impact changes interest rates floating rate debt swap agreements contracts exchange floating rate fixed interest payments periodically life agreements without exchange underlying notional amounts notional amounts interest rate agreements used measure interest paid received represent amount exposure credit loss notes consolidated financial statementscontinued company determined hedge proportion outstanding floating rate debt obligation december 31 2007 company following interest rate instruments effect notional amounts millions company hedged price certain raw materials commodity swaps december 31 2007 company following summarized commodity swaps company sells range fuel specialties active chemicals octane additives major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required note 19 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 21 million 2007 19 million 2006 24 million 2005 future commitments noncancellable operating leases follows commitments respect environmental remediation obligations disclosed note 13 notes consolidated financial statementscontinued contingencies bycosin disposal voluntary disclosure possible violations cuban assets control regulations office foreign assets control given international scope operations company subject laws many different jurisdictions including laws relating imposition restrictions trade investment various entities persons countries laws conflicting 2004 company reviewed periodically aspects operations respect restrictions determined dispose certain noncore nonus subsidiaries bycosin ab bycosin’s nonus subsidiaries engaged transactions activities involving cuban persons entities acquisition bycosin group company june 2001 subsidiaries continuing engage transactions activities time disposal noncore fuel specialties business related assets november 2004 november 15 2004 bycosin ab whollyowned subsidiary company organized laws sweden known innospec sweden ab “seller” entered business asset purchase agreement “agreement” pesdo swedcap holdings ab “purchaser” håkan byström others purchaser’s guarantors octel petroleum specialties limited known innospec fuel specialties limited seller’s guarantor completed allcash transaction contemplated thereby together related transactions “transaction” agreement provided among things disposal certain noncore fuel specialties business related manufacturing assets seller ii supply distribution certain power products certain geographic regions net consideration paid purchaser approximately us29 million following completion transaction company made voluntary disclosure us office foreign assets control “ofac” regarding transactions activities engaged certain nonus subsidiaries company disclosures amongst items included aggregate monetary value transactions involving cuban persons entities conducted company’s nonus subsidiaries since january 1999 approximately 266 million time however management believes would speculative potentially misleading company predict specific nature amount penalties ofac might eventually assess penalties could assessed different bases ofac assessed penalties company “performance contracts basis” applicable regulations provide penalties case civil violations cuban assets control regulations 31 cfr part 515 “cacr” lesser 65000 per violation value contract since january 1999 nonus subsidiaries company entered 43 contracts cuban entities could considered separate violation cacr ofac may take position cacr interpreted applied different manner potentially even permit assessment penalties equal greater value business conducted cuban persons entities notes consolidated financial statementscontinued company considered range possible outcomes potential penalties payable accordance company’s accounting policies provision made management’s current best estimate potential liability including anticipated legal costs however underlying assumptions prove incorrect actual outcome could differ materially management’s current expectations management able estimate amount additional loss company subsidiaries current former found complied cacr company believes could subject fines civil criminal penalties could material oil food february 7 2006 securities exchange commission “sec” notified company commenced investigation determine whether violations law occurred connection transactions conducted company including wholly owned indirect subsidiary alcor chemie vertriebs gmbh “alcor” swiss company united nations oil food program “offp” june 1 1999 december 31 2003 part investigation sec issued subpoena requiring production certain documents including documents relating transactions company alcor upon receipt sec’s notification initial subpoena company undertook review participation offp october 10 2007 november 1 2007 sec served two additional subpoenas company additional subpoenas required production documents relating notably offp also relating transactions conducted company subsidiaries state owned controlled entities june 1 1999 date subpoenas relating use foreign agents possibility extracontractual payments made secure business foreign governmental entities coordinated investigation company also contacted us department justice “doj” regarding possibility violations relevant laws areas contained sec subpoenas well additional preliminary inquiries regarding compliance antitrust laws relating us international tetra ethyl lead markets subjects sec doj inquired include areas involve certain former current executives company including current ceo company officers directors cooperating sec doj investigations february 19 2008 board directors company formed committee comprised chairmen board audit committee nominating governance committee respectively independent directors counsel company providing assistance committee behalf committee conducted continue conduct investigation circumstances giving rise sec doj investigations counsel report directly committee assist connection interactions sec doj outcome investigations uncertain number companies involved offp investigations required disgorge profits pay civil fines penalties 30 million result information discovered course notes consolidated financial statementscontinued investigation expect required disgorge profits pay fines penalties could similar magnitude settlement sec doj inquiries relating matters beyond offp could require company make significant additional disgorgements penalty fine payments however time management able predict certainty level fines penalties uncertainties associated ultimate outcome investigations costs company responding participating ongoing investigations assurance given ultimate costs sanctions may imposed upon us material adverse effect results operations financial position cash flows operating activities december 31 2007 accrued 37 million respect probable future legal expenses respect matter provided additional accruals matter legal matters involved time claims legal proceedings result incidental conduct business including product liability claims material pending legal proceedings company subsidiaries party property subject ordinary routine litigation incidental respective businesses guarantees company certain consolidated subsidiaries contingently liable december 31 2007 87 million primarily relating guarantees debt affiliated companies performance contracts entered normal business practice included guarantees nonus excise taxes customs duties terms guarantee arrangements generally company would required perform affiliated company fail fulfil obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company indemnities warranties connection disposal octel waste management limited june 26 2003 company provided certain warranties company would required perform contingent liabilities respect warranties become actual could required make maximum future payments £359 million 71 million recourse provisions enabling recovery amounts third parties assets held collateral respect warranties notes consolidated financial statementscontinued note 20 profit disposals profit disposal surplus united kingdom real estate relates sale august 2006 company’s former fuel technology centre bletchley sale july 2006 company’s former sports social club prepaid disposal costs 2006 relate expenditure incurred respect one us former manufacturing sites advance marketed disposed november 15 2004 company disposed certain manufacturing assets held swedish subsidiary bycosin ab part sale swedish manufacturing assets bycosin de mexico sa de cv bycosin sa de cv noncore subsidiaries innospec sweden ab also disposed entirety ongoing involvement business element transaction included within discontinued operations see note 21 company continue source product support marine power markets sweden sale swedish manufacturing assets meet criteria laid fas 144 accounting impairment disposal longlived assets inclusion within discontinued operations note 21 discontinued operations december 31 2005 company disposed two noncore businesses octel performance chemicals inc gamlen industries sa waste water treatment business consideration received 12 million 19 million respectively net assets disposed 31 million comprised notes consolidated financial statementscontinued net loss disposal octel performance chemicals inc 16 million includes net loss year 04 million net profit disposal gamlen industries sa waste water treatment business 02 million includes net loss year 03 million professional fees 02 million tax charge 05 million november 15 2004 company disposed noncore business bycosin mexico consideration 09 million net assets disposed 48 million comprised net loss disposal 39 million includes net income bycosin mexico 2004 date disposal 04 million professional fees 02 million tax charge 02 million note 22 balance sheet information company holds investments consolidated equity accounted since controlling financial interest material respectively investments held cost less provision impairment principal affiliate follows 2007 company sold 275 share potatopak limited 01 million generating profit 01 million 2006 company sold 20 share deurex 500 share octel chemay pty limited profit loss unconsolidated affiliates privately held companies quoted market prices available dividends received 2007 2006 2005 note 23 recently issued accounting pronouncements september 2006 fasb issued fas 157 fair value measurements defines fair value establishes framework measuring fair value expands disclosures fair notes consolidated financial statementscontinued value measurements company required adopt fas 157 effective first quarter 2008 company believe adoption standard material impact results operations financial position cash flows february 2007 fasb issued fas 159 fair value option financial assets financial liabilities fas 159 expands scope entities may carry fair value offering irrevocable option record many types financial assets liabilities fair value changes fair value would recorded entity’s income statement accounting standard also establishes presentation disclosure requirements intended facilitate comparisons entities choose different measurement attributes similar types assets liabilities fas 159 effective fiscal years beginning november 15 2007 though earlier application permitted certain circumstances company adopt fas 159 effective first quarter 2008 company believe adoption standard material impact results operations financial position cash flows december 2007 fasb issued fas 160 noncontrolling interests consolidated financial statements amendment arb 51 statement establishes accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary statement effective prospectively except certain retrospective disclosure requirements fiscal years beginning december 15 2008 company currently evaluating impact adoption fas 160 financial statements december 2007 fasb issued fas 141r business combinations replacement fasb statement 141 significantly changes principles requirements acquirer business recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree statement also provides guidance recognizing measuring goodwill acquired business combination determines information disclose enable users financial statements evaluate nature financial effects business combination statement effective prospectively except certain retrospective adjustments deferred tax balances fiscal years beginning december 15 2008 company currently evaluating impact adoption fas 141r financial statements item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors stockholders innospec inc opinion accompanying consolidated balance sheets related consolidated statements income stockholders’ equity cash flows present fairly material respects financial position innospec inc subsidiaries december 31 2008 december 31 2007 results operations cash flows three years period ended december 31 2008 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included “management’s report internal control financial reporting” appearing item 9a form 10k responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 2 consolidated financial statements company changed manner accounts defined benefit pension plans adoption fas 158 employers’ accounting defined benefit pension postretirement plans effective december 31 2006 uncertain tax positions adoption fin 48 accounting uncertainty income taxes effective january 1 2007 company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp manchester united kingdom february 20 2009 consolidated statements income millions except per share data accompanying notes integral part statements consolidated balance sheets millions except per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 05 million 2007 11 million 2006 11 million year included depreciation amortization cash flow statement interest income statement cash paymentsreceipts respect income taxes interest disclosed note 7 note 13 respectively accompanying notes integral part statements consolidated statements stockholders’ equity millions 1 june 18 2007 company announced board directors approved 2for1 stock split effected form 100 stock dividend stockholders record july 6 2007 received one additional share innospec inc common stock every share owned date shares distributed july 20 2007 stock option holders received one additional option every option held original exercise prices options halved reflect stock split table retrospectively adjusted stock split 2 changes cumulative translation adjustment 3 changes unrealized gains losses derivative instruments net tax 4 following adoption fas 123r effective january 1 2006 stock option liability 30 million accrued apb 25 reclassified additional paidin capital 5 impact deferred taxes change associated tax rate unrecognized actuarial net losses 1385 million 970 million net deferred taxes previously recognized comprehensive loss consolidated statements comprehensive lossincome millions accumulated comprehensive loss millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets fuel additives specialty chemicals products sold primarily oil refineries chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions specialty chemicals provide effective technologybased solutions customers’ processes products focused personal care household industrial institutional fragrance ingredients markets principal product lines reportable segments fuel specialties active chemicals octane additives see note 3 financial information company’s reportable segments see note 9 accounting respect sales marketing agreements ethyl june 18 2007 company announced board directors approved 2for1 stock split effected form 100 stock dividend stockholders record july 6 2007 received one additional share innospec inc common stock every share owned date shares distributed july 20 2007 stock option holders received one additional option every option held original exercise prices options halved reflect stock split consolidated financial statements retrospectively adjusted stock split note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles united states america include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation acquisitions accounted purchases results operations acquired businesses included consolidated financial statements date acquisition results discontinued operations shown separately income statement use estimates preparation consolidated financial statements accordance generally accepted accounting principles united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents accounts receivable company records accounts receivable net realizable value maintains allowance customers making required payments company notes consolidated financial statementscontinued determines adequacy allowance periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method market price cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement provision made slowmoving obsolete inventories appropriate property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method cost additions improvements capitalized maintenance repairs charged expenses assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives longer amortized subject least annual impairment tests based projected posttax cash flows discounted company’s weighted average cost capital annual measurement date impairment testing goodwill relating fuel specialties active chemicals businesses december 31 octane additives business goodwill tested impairment end quarter expected decline octane additives market resulted quarterly impairment charges incurred first quarter 2004 onwards highly likely quarterly charges incurred future years market continues decline impairment tests goodwill relating fuel specialties active chemicals businesses indicated requirement recognize impairment charge respect goodwill intangible assets deemed finite lives continue amortized using straightline method estimated useful lives tested potential impairment events occur circumstances change suggest impairment may occurred deferred finance costs relating debt financing capitalized separately disclosed balance sheets amortized using effective interest method expected life debt financing facility impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available notes consolidated financial statementscontinued undiscounted future cash flows expected result assets compared carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative instruments company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes fas 133 accounting derivative instruments hedging activities establishes accounting reporting standards derivative instruments requires entity recognize derivatives either assets liabilities consolidated balance sheet measure instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting fas 133 recognized earnings derivatives tested effectiveness quarterly basis ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive loss hedged item recognized earnings company employs interest rate swaps convert floating rate debt 500 million senior term loan fixed rate designated cash flow hedges underlying variable rate obligation tested effectiveness using dollar offset method end term swap arrangements cumulative gain loss reclassified income statement interest rate swaps recorded noncurrent liability balance sheet december 31 2008 company hedged price 3101 metric tonnes one key raw materials using commodity swaps maturity dates 1 12 months december 31 2008 market value swaps company loss 13 million swaps designated qualifying hedge accounting end swap arrangements cumulative gain loss reclassified income statement commodity swaps recorded noncurrent liability balance sheet environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs environmental costs accrued environmental assessments remedial efforts probable cost reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s weighted average cost capital revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized transfer legal title defined generally accepted standard terms conditions arises company customer provisions sales discounts rebates customers based upon terms sales contracts recorded notes consolidated financial statementscontinued period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time shipping company recognized total revenue octane additive sales ethyl agreements 32 compensation paid ethyl recognized cost goods sold component ethyl’s share net proceeds amount recoverable ethyl calculated annually arrears company recognized quarterly based best current estimates expected outcome see note 9 accounting respect sales marketing agreements ethyl components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item 32 compensation paid ethyl recognized cost goods sold see note 9 accounting respect sales marketing agreements ethyl components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal costs litigation company involved made reported administrative expense line item research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur entities gains losses monetary assets relating currencies notes consolidated financial statementscontinued us dollar taken income statement gains losses foreign currency transactions included net expenseincome income statement 63 million net loss 82 million net gain 65 million net gain 2008 2007 2006 respectively share based compensation plans effective january 1 2006 company adopted provisions fas 123r sharebased payment requires employee stock options accounted fair value method accordingly sharebased compensation measured grant date based fair value options prior january 1 2006 company accounted employee stock options using intrinsic value method prescribed accounting principles board opinion 25 accounting stock issued employees “apb 25” related interpretations provided required pro forma disclosures prescribed fas 123 accounting stockbased compensation fas 148 accounting stockbased compensation transition disclosure apb 25 fixed awards exercise price employee stock options equal market price underlying stock date grant compensation expense recorded company adopted fas 123r using modified prospective transition method compensation cost recognized company beginning 2006 includes compensation cost stock options granted prior yet vested january 1 2006 based grantdate fair value estimated accordance original provisions fas 123 b compensation cost stock options granted subsequent january 1 2006 based grantdate fair value estimated accordance provisions fas 123r company uses straightline attribution method recognize sharebased compensation costs service period option pension plans postemployment benefits effective fiscal year 2006 company adopted provisions fas 158 employers’ accounting defined benefit pension postretirement plans fas 158 requires funded status definedbenefit postretirement plans recognized company’s consolidated balance sheets changes funded status reflected comprehensive income fas 158 also requires measurement date plan’s funded status company’s fiscal yearend although measurement date provision required adopted fiscal year 2008 company earlyadopted provision fiscal year 2006 pension plans accounted accordance fas 87 employers’ accounting pensions fas 158 employers’ accounting defined benefit pension postretirement plans fas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits income taxes company provides income taxes accordance fas 109 accounting income taxes fas 109 requires recognition deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities appropriate accordance fas 109 company evaluates need valuation allowance reduce deferred tax assets fas 109 requires recognition future notes consolidated financial statementscontinued tax benefits extent realization benefits likely effect deferred taxes change tax rates recognized period includes enactment date july 2006 fasb issued interpretation 48 accounting uncertainty income taxes “fin 48” fin 48 prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return income tax positions must meet likely recognition criteria adoption date recognized upon adoption fin 48 company adopted fin 48 january 1 2007 provisions applied income tax positions date adoption fin 48 company recognized increase liability unrecognized tax benefits 31 million accounted adjustment opening retained earnings reclassifications 210 million liabilities 38 million deferred income taxes 78 million accrued income taxes company recognizes accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income note 3 business segment geographical area data innospec divides business three distinct segments management reporting purposes fuel specialties active chemicals octane additives fuel specialties active chemicals businesses operate markets actively seek growth opportunities albeit end customers different octane additives business although still profitable characterized substantial declining demand june 23 2008 company announced streamlining business unified salesled global business focused rapidly meeting customers’ needs anywhere world company moving integrated regional model running growth businesses one streamlined business operating across three geographical regions americas emea ie europe middle east africa aspac ie asiapacific company report financial performance based segments contained within integrated regional model chief operating decision maker reviews company’s operating results primarily basis 2008 company one significant customer fuel specialties business royal dutch shell plc affiliates “shell” accounted 846 million 13 net group sales 2007 shell accounted 11 net group sales 2006 single customer accounted 10 net group sales notes consolidated financial statementscontinued company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources corporate secretary legal fees investor relations • running corporate offices us europe notes consolidated financial statementscontinued • corporate development function since relate current trading activities business segments • corporate share information technology accounting human resources departments sales geographic area reported source transaction originates destination final sale customers made intercompany sales priced recover cost plus appropriate markup profit eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued note 4 share based compensation plans company five stock option plans four expired respective terms may 2008 end 10 year life company submitted new plans stockholder approval replace expired requested approval reserve common stock issuance plans two plans provide grant stock options notes consolidated financial statementscontinued key employees one provides grant stock options nonemployee directors fourth plan savings plan provides grant stock options company employees provided commit make regular savings predefined period used purchase common stock upon vesting options new plans vesting periods range 27 months 6 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount fifth plan provides grant stock options key executives matching basis provided use proportion annual bonus purchase common stock company open market four plans submitted stockholder approval approved company’s annual meeting stockholders may 6 2008 aggregate number shares common stock reserved issuance granted five plans 1790000 rules plans expired may 2008 stock options granted unawarded shares common stock previously allocated plans cannot used grants stock options granted plans prior expiration date plan expire within 10 years date grant january 1 2006 company adopted fas 123r sharebased payment fas 123r requires company estimate number forfeitures expected occur record expense based upon number awards expected vest prior adoption company accounted forfeitures occurred permitted previous accounting standards cumulative effect adopting change estimating forfeitures material company’s financial statements year ended december 31 2006 fair value options calculated using blackscholes model cases certain performance related options dependent upon external factors company’s share price fair value options calculated using monte carlo model following assumptions used determine fair value options calculated using blackscholes model notes consolidated financial statementscontinued following table summarizes transactions company’s stock option plans year ended december 31 2008 following table summarizes information options outstanding december 31 2008 aggregate intrinsic value fully vested stock options 04 million 156936 stock options exercisable 30460 performance conditions attached total compensation cost 2008 2007 41 million 33 million respectively total compensation cost related nonvested stock options yet recognized december 31 2008 62 million cost expected recognized weightedaverage period 246 years modified stock option awards 2008 2007 2006 total intrinsic value options exercised 2008 2007 13 million 19 million respectively amount cash received exercise stock option awards 2008 2007 2006 18 million 41 million 30 million respectively company’s policy issue shares treasury stock holders stock options exercise options 2008 2007 new total fair value shares vested 12 million 22 million respectively total options vested 2008 264588 2007 328660 2006 276584 notes consolidated financial statementscontinued additional long term incentive plan designed reward selected executives delivering exceptional performance recommended compensation committee working advisors approved board directors plan discretionary bonus payable eligible executives innospec share performance outperforms competitors measured russell 2000 index minimum 10 three years january 2008 december 2010 amount bonus earned set cash amount one percentage point outperformance maximum bonus plan 12 million respect current participants payable outperformance versus russell 2000 index 30 bonus payable plan innospec share price outperform russell 2000 index 10 three year period fair value liability cashsettled stock appreciation rights calculated quarterly basis using monte carlo model corresponding compensation charge liability 01 million recognized 2008 following assumptions used monte carlo model note 5 earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2008 2007 2006 average number antidilutive options excluded calculation diluted earnings per share 98880 17729 4125 respectively notes consolidated financial statementscontinued note 6 pension plans company’s principal pension arrangement contributory defined benefit pension plan “the plan” covering number current former employees united kingdom though also much smaller pension arrangements united kingdom overseas plan closed new entrants without trustee discretion projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested two investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents company contributing amounts plan cover service costs date employee employer contributions january 1 2004 january 1 2007 5 226 respectively pensionable pay january 1 2007 employee employer contributions 7 29 respectively addition since march 2007 company contributing £15 million per calendar year accordance 10 year deficit recovery plan january 1 2008 employee employer contributions remained 7 29 though employee contributions paid employer salary sacrifice arrangement estimated level company contributions plan 2009 58 million full triannual actuarial valuation plan performed december 31 2005 update performed december 31 2008 2007 2006 results reflected consolidated financial statements december 31 2008 underlying plan asset value pbo 5574 million 5712 million respectively resulting deficit 138 million full triannual actuarial valuation plan december 31 2008 performed 2009 results valuation reflected consolidated financial statements december 31 2009 effective fiscal year 2006 company adopted provisions fas 158 employers’ accounting defined benefit pension postretirement plans fas 158 requires funded status definedbenefit postretirement plans recognized company’s consolidated balance sheets certain changes funded status reflected comprehensive income fas 158 also requires measurement date plan’s funded status company’s fiscal yearend although measurement date provision required adopted fiscal year 2008 company earlyadopted provision fiscal year 2006 effect applying fas 158 record total reduction equity recognition comprehensive loss 970 million aftertax basis company previously used measurement date october 5 accordingly accounting disclosure plan 12 months ending october 5 notes consolidated financial statementscontinued accordance fas 158 net pension charge 15 million transition period three months december 31 2006 included total reduction equity 970 million discount rate used represents annualized yield medium longer term aa rated corporate bonds united kingdom determined reference iboxx corporate bond index published international index company rate increase compensation levels assumes real salary growth innospec restricted 075 assumed level price inflation 30 025 change either discount rate assumption level price inflation assumption would change pbo approximately 19 million net pension charge 2009 approximately 14 million current investment strategy plan obtain asset allocation 70 favor debt securities 30 equity securities order achieve predictable return assets notes consolidated financial statementscontinued projected net pension charge year ending december 31 2009 follows following benefit payments reflect expected future service appropriate expected made company contributions defined contribution schemes 2008 28 million 2007 30 million notes consolidated financial statementscontinued movements pbo fair value plan assets follows accumulated benefit obligation plan 5559 million 8263 million december 31 2008 2007 respectively note 7 income taxes january 1 2007 company adopted fasb interpretation 48 accounting uncertainty income taxes “fin 48” fin 48 prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return notes consolidated financial statementscontinued adoption fin 48 company recognized increase liability unrecognized tax benefits 31 million accounted adjustment opening retained earnings reclassifications 210 million liabilities 38 million deferred income taxes 78 million accrued income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 348 million unrecognized tax benefits would impact effective tax rate recognized recognize accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income company one subsidiaries files income tax returns us federal jurisdiction various state foreign jurisdictions december 31 2008 company’s subsidiaries france germany united kingdom subject tax authority investigations respective transfer pricing policies company anticipate adjustments arising investigations would result material change financial position december 31 2008 notes consolidated financial statementscontinued company us subsidiaries remain open examination irs years 1998 onwards due net operating losses period 1998 2002 although examination currently underway company’s subsidiaries major tax jurisdictions open examination including france 2005 onwards germany 2002 onwards switzerland 2007 onwards united kingdom 2002 onwards currently examination various foreign jurisdictions sources income taxes follows components income tax charges summarized follows cash paymentsreceipts income taxes 246 million 227 million 07 million 2008 2007 2006 respectively notes consolidated financial statementscontinued effective tax rate varies us federal statutory rate factors indicated significant factors affecting variation statutory rate include use tax losses deferred tax asset recognized foreign income inclusion net foreign tax credits 37 million charge respect impairment octane additives business goodwill cash taxation impact represents factor variation us federal statutory rate mix taxable profits generated different geographical localities group operates positive impact effective tax rate 2008 partially offset foreign income inclusions notes consolidated financial statementscontinued details deferred tax assets liabilities follows details deferred tax asset valuation allowance follows result company’s assessment net deferred tax assets december 31 2008 company considers likely valuation allowance required 07 million 2007 13 million net operating loss carry forwards full valuation allowance required foreign tax credits carry forwards net operating loss carry forwards arose 2008 generated germany result losses year expected sufficient taxable profits generated net operating loss carry forwards relieved time limitation use losses determined future longer likely assets realized additional valuation allowance would required company’s operating results would adversely affected period determination would made notes consolidated financial statementscontinued company made provision deferred tax unremitted earnings overseas subsidiaries grounds remitted required entities concerned continue used fund investment territories amount unremitted earnings december 31 2008 2007 approximately 691 million 805 million respectively determination potential amount unrecognized deferred taxes practicable due complexities associated hypothetical calculation note 8 goodwill comprises following company’s reporting units generally consistent operating segments underlying segments identified note 3 company adopted fas 142 goodwill intangible assets effective january 1 2002 requires goodwill deemed indefinite life longer amortized subject annual impairment review years events occur circumstances change suggest impairment may occurred company elected perform annual tests respect fuel specialties active chemicals goodwill december 31 year reviewing impairment charge fair value reporting units underlying segments estimated using tax cash flow methodology based management’s best estimates time december 31 2008 1392 million goodwill relating fuel specialties active chemicals notes consolidated financial statementscontinued businesses date performed annual impairment reviews concluded impairment goodwill respect reporting segments light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash flows derived octane additives business reduced accordingly fair value octane additives reporting unit reduced result company determined quarterly impairment reviews performed january 1 2004 impairment charge arising recognized relevant quarter result octane additives impairment reviews performed 2008 2007 2006 impairment charges 37 million 121 million 367 million respectively recognized charges noncash nature impact taxation 90 million goodwill remaining december 31 2008 relates octane additives business given quantum predictability remaining future cash flows octane additives business company expects goodwill impairment charges recognized income statement approximate straightline basis december 31 2012 effective october 1 2008 company extended estimate future life octane additives business december 31 2010 december 31 2012 believe assumptions used annual quarterly impairment reviews reasonable judgmental variations assumptions may result materially different calculations impairment charges december 31 2008 sum fair values reporting units excess company’s market capitalization based upon stock price date due primarily estimated control premium control premium reflects fact management access information future projections power make investment financing resource allocation decisions management believe goodwill impairment charges required recognized addition already recognized respect octane additives reporting unit notes consolidated financial statementscontinued note 9 intangible assets intangible assets comprise following ethyl intangible asset 284 million recognized second quarter 2007 respect ethyl foregoing entitlement effective april 1 2007 share future income stream sales marketing agreements “tmas” market sell tetra ethyl lead “tel” 2008 contract provisions longer deemed necessary 63 million offset intangible asset tmas covered sale tel use automotive gasoline aviation gasoline disclose within octane additives business segment fuel specialties business segment respectively allocated individual components intangible asset attributable tel use automotive gasoline aviation gasoline reference forecast future income streams associated cash flows markets ethyl would shared residual value attributed intangible asset accordingly commencing april 1 2007 amount attributed octane additives business segment amortized straightline december 31 2010 amount attributed fuel specialties business segment amortized straightline december 31 2017 effective october 1 2008 company extended estimate future life octane additives business december 31 2010 december 31 2012 therefore prospectively adjusted amortization period amount attributed octane additives business segment amortization charge 47 million recognized 2008 2007 42 million notes consolidated financial statementscontinued veritel intangible asset 606 million recognized 2001 amortized straightline december 31 2007 relation amounts payable veritel chemicals bv swiss subsidiary pursuant marketing agreement effective july 1 2001 asset fully amortized december 31 2007 december 31 2008 amortization recognized 2008 2007 100 million technology following acquisition remaining 50 innospec fuel specialties llc previously known octel starreon llc july 8 2004 company recognized intangible asset 23 million respect various technological approvals business received certain military civilian authorities approvals act barrier entry potential competitor market would wish supply products intangible asset 48 million recognized respect number specialized manufacturing processes carried innospec widnes limited previously known aroma fine chemicals limited following acquisition entity august 2004 assets expected life ten years amortized straightline basis period residual value anticipated customer relationships following acquisition finetex merged innospec active chemicals llc company recognized intangible asset totaling 71 million 42 million relation customer lists acquired asset expected life thirteen years amortized straightline basis period residual value anticipated intangible assets recognized 2004 respect innospec fuel specialties llc previously known octel starreon llc 90 million innospec widnes limited previously known aroma fine chemicals limited 28 million acquisitions relate ongoing customer relationships expected life ten years amortized straightline basis period residual value anticipated patents following acquisition finetex merged innospec active chemicals llc company recognized intangible asset 29 million respect patents trademarks expected life ten years amortized straightline basis period remaining balance relates chiefly software costs amortized 3 years notes consolidated financial statementscontinued intangible asset amortization expense 74 million 169 million 127 million 2008 2007 2006 respectively future amortization expense estimated 47 million per annum four years 2012 note 10 deferred finance costs company entered three one half year finance facility december 13 2005 february 6 2009 entered new threeyear finance facility new finance facility replaced previous finance facility place december 31 2008 see note 13 2008 2006 06 million 05 million refinancing costs capitalized respectively amortized expected life relevant finance facility using effective interest method amortization expense 05 million 11 million 11 million 2008 2007 2006 respectively charge included interest expense see note 2 note 11 property plant equipment property plant equipment consists following total net book value equipment december 31 2008 2007 amounts respect assets held capital leases depreciation charges 151 million 133 million 136 million 2008 2007 2006 respectively estimated additional cost complete work progress 14 million 2007 16 million notes consolidated financial statementscontinued note 12 plant closure provisions principal sites giving rise environmental remediation liabilities former octane additives manufacturing sites paimboeuf france doberitz biebesheim germany together ellesmere port site united kingdom last ongoing manufacturer tel liability estimated closure costs innospec’s octane additives manufacturing facilities includes costs personnel reductions severance decontamination environmental remediation activities remediation demand tel diminishes severance provisions also made relation fuel specialties active chemicals businesses movements provisions summarized follows amounts due within one year refer provisions expenditure expected arise within one year balance sheet date severance charges recognized income statement restructuring costs along restructuring costs remediation costs recognized cost goods sold severance charge 09 million recognized respect reduction emea 07 million americas 02 million headcount notes consolidated financial statementscontinued restructuring 12 million charge relates united kingdom site clearance 06 million us site clearance 03 million relocation european headquarters ellesmere port site 03 million remediation total costs remediation evaluated regular basis take account expenditure incurred amend scope future activities light findings projects carried detailed review expected future costs decontamination remediation ellesmere port site concluded december 2004 results summarized discounted cash flow model results reflected herein remediation expenditure provisions 16 million 17 million 13 million 2008 2007 2006 respectively remediation provision represents fair value company’s liability recognized fas 143 accounting asset retirement obligations accretion expense recognized fas 143 2008 23 million charge increased 2008 05 million respect increase scope cost future activities performed light findings projects carried company records environmental liabilities probable costs estimated reasonably company anticipate program work required associated future costs comply environmental legislation relevant countries company views costs vacating main united kingdom site contingent liability present intention exit site company determined due uncertain product life tel particularly market aviation gas exists uncertainty timing cash flows possible estimate flows sufficiently reliably recognize provision note 13 longterm debt longterm debt consists following december 13 2005 company entered finance facility syndicate banks term loan 100 million repayable three one half years revolving credit notes consolidated financial statementscontinued facility 100 million term loan 10 million 15 million 20 million repaid july 31 2006 january 31 2007 january 31 2008 respectively final repayment 55 million due june 12 2009 revolving credit facility due expire june 12 2009 finance facility due expire december 31 2008 company 730 million debt outstanding finance facility compliance financial covenants therein facility secured number fixed floating charges certain assets company subsidiaries weighted average rate interest borrowings 52 december 31 2008 56 december 31 2007 february 6 2009 entered new threeyear finance facility provides borrowings us 150 million including term loan 50 million revolving credit facility 100 million revolving credit facility drawn finance facility expires february 6 2012 term loan repayable follows 10 million due february 5 2010 15 million february 7 2011 25 million february 6 2012 new finance facility replaced previous finance facility place december 31 2008 company’s new finance facility contains restrictive clauses may constrain activities limit operational financial flexibility new facility obliges lenders comply request utilization finance unless event default outstanding events default defined finance facility include material adverse change business properties assets financial condition results operations new facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition new facility also contains terms breached would result loan becoming repayable demand requires among matters compliance two financial covenant ratios 1 ratio net debt ebitda 2 ratio net interest ebitda non us gaap measure liquidity defined finance facility payments interest longterm debt 38 million 64 million 93 million 2008 2007 2006 respectively net cash outflow respect refinancing costs 04 million 05 million 2008 2006 respectively assets held capital leases capitalized 2008 2007 nil capital repayments made 2008 2007 01 million notes consolidated financial statementscontinued note 14 deferred income movements deferred income summarized follows deferred income relates 08 million post acquisition government grants received innospec leuna gmbh 01 million government grants advance rental payments received innospec widnes limited previously known aroma fine chemicals limited note 15 stockholders’ equity december 31 2008 company authorized common stock 40000000 shares december 31 2007 40000000 issued shares december 31 2008 29554500 december 31 2007 29554500 including treasury stock 5956384 shares december 31 2006 5777417 note 16 fair value financial instruments effective january 1 2008 company partially adopted fas 157 fair value measurements respect pension plan assets derivative instruments material impact company’s financial statements fair values pension plan assets derivative instruments valued based quoted prices available active markets identical assets liabilities level 1 measurement changed adoption fas 157 fas 157 defines fair value establishes framework measuring fair value expands disclosures fair value measurements fas 157 permits companies already issued either interim annual financial statements reflecting adoption delay effective adoption date respect nonfinancial assets nonfinancial liabilities except items recognized disclosed fair value financial statements recurring basis least annually fiscal years beginning november 15 2008 interim periods within fiscal years items within scope fas 157 nonfinancial assets nonfinancial liabilities would include assets liabilities meeting definition financial asset financial liability defined fas 159 notes consolidated financial statementscontinued nonrecurring nonfinancial assets liabilities fas 157 deferred adoption company property plant equipment goodwill intangible assets plant closure provisions company believe adoption fas 157 nonrecurring nonfinancial assets liabilities material impact financial statements defined fas 157 fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price permitted fas 157 company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs fas 157 establishes fair value hierarchy prioritizes inputs used measure fair value hierarchy gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement required fas 157 financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels effective january 1 2008 company adopted fas 159 fair value option financial assets financial liabilities fas 159 expands scope entities may carry fair value offering irrevocable option record many types financial assets liabilities fair value company chose implement option accordingly adoption fas 159 material impact company’s financial statements notes consolidated financial statementscontinued following table presents carrying amount fair values company’s financial instruments december 31 2008 2007 following methods assumptions used estimate fair values financial instruments cash equivalents carrying amount approximates fair value shortterm maturities instruments longterm debt carrying amount longterm borrowings variable interest rates approximates fair value derivatives fair value derivatives relates interest rate swaps foreign exchange contracts commodity swaps estimated based current settlement prices comparable contracts using current assumptions cumulative gains losses interest rate swaps commodity swaps summarized follows interest rate swaps designated cash flow hedge 500 million underlying floating rate debt obligations stood 730 million december 31 2008 swaps mature june 12 2009 commodity swaps used manage company’s cash flow exposure raw material price volatility designated cash flow hedges commodity swaps qualify hedge accounting december 31 2008 notes consolidated financial statementscontinued interest rate commodity hedges determined effective consequently unrealized loss 20 million 2008 2007 10 million loss recorded comprehensive income ineffectiveness determined immaterial 2008 2007 accordingly gain loss recognized earnings either period company expect significant portion loss reclassified earnings next 12 months foreign exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying fair values contracts largely due changes exchange rates us dollar us dollar strengthened significantly major currencies latter part 2008 note 17 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign exchange exposures raw material pricing exposures company uses interest rate swaps floors collar cap agreements reduce impact changes interest rates floating rate debt swap agreements contracts exchange floating rate fixed interest payments periodically life agreements without exchange underlying notional amounts notional amounts used calculate interest paid received represent amount exposure credit loss company determined hedge proportion outstanding floating rate debt obligation december 31 2008 2007 company following interest rate instruments effect notional amounts millions company hedged price certain raw materials commodity swaps december 31 2008 2007 company following summarized commodity swaps notes consolidated financial statementscontinued enter various foreign currency forward exchange contracts minimize currency exposure expected future cash flows contracts maturity dates 12 months date inception december 31 2008 fair value outstanding foreign currency forward exchange contracts amounted 123 million loss 2007 04 million loss company sells range fuel specialties active chemicals octane additives major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required note 18 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 22 million 2008 21 million 2007 19 million 2006 future commitments noncancellable operating leases follows commitments respect environmental remediation obligations disclosed note 12 contingencies oil food program related investigations february 7 2006 securities exchange commission “sec” notified company commenced investigation determine whether violations law occurred connection certain transactions conducted involving company including conducted wholly owned indirect swiss subsidiary alcor chemie vertriebs gmbh “alcor” united nations oil food program “offp” june 1 1999 december 31 2003 part investigation sec issued subpoena requiring production certain documents including documents relating transactions company alcor upon receipt sec’s notification initial subpoena company undertook review participation offp notes consolidated financial statementscontinued october 10 2007 november 1 2007 sec served two additional subpoenas company additional subpoenas required production documents relating primarily offp also relating transactions conducted company subsidiaries state owned state controlled entities june 1 1999 date subpoenas concerning use foreign agents possibility extracontractual payments secure business foreign governmental entities context us foreign corrupt practices act “fcpa” laws coordinated investigation company also notified us department justice “doj” regarding possibility violations company subsidiaries arising laws stemming matters covered sec investigation well certain preliminary inquiries regarding compliance antitrust laws applicable us international tetraethyl lead markets subjects sec doj inquired include areas concern certain former current executives company including current ceo company officers directors cooperating sec doj investigations february 19 2008 board directors company formed committee comprised chairmen board audit committee nominating governance committee independent directors chairman nominating governance committee retired director company effective may 6 2008 services retained independent capacity member committee external counsel company reporting committee behalf committee conducted continue conduct investigation circumstances giving rise sec doj investigations external counsel reports directly committee assists connection communications interactions sec doj march 5 2008 letter received company doj request wider detailed range documents made company officers directors intend continue cooperate sec doj separately may 21 2008 united kingdom’s serious fraud office “sfo” notified innospec limited wholly owned subsidiary company commenced investigation certain contracts involving british companies offp part investigation sfo asked company produce documents respect company’s participation offp january 1 1996 december 31 2003 following receipt sfo’s notice company instructed external legal counsel advise assist relation investigation company directors officers intend cooperate sfo october 16 2008 company notified scope sfo’s investigation would extend matters relating potential bribery involving overseas commercial agents already large part subject ongoing doj sec investigations outcome investigations remains uncertain company facts available us yet possible form reasonable estimate potential disgorgement notes consolidated financial statementscontinued penalties fine payments either reference range possible outcomes reference lower end range outcomes amount disgorgements penalties fines company could face would depend number eventual factors currently known company including findings relevant authorities regarding amount nature scope improper payments amount pecuniary gain involved company’s ability pay level cooperation provided government authorities investigations uncertainties associated ultimate outcome investigations costs company responding participating assurance given ultimate costs incurred sanctions may imposed material adverse effect company’s results operations financial position andor cash flows operating activities december 31 2007 accrued 37 million respect estimated probable future legal professional expenses provided additional accruals respect investigations part continuing commitment cooperate comply sec doj investigations including request documents set doj letter dated march 5 2008 accrued 68 million quarter ended march 31 2008 respect estimated probable future legal professional expenses quarter ended june 30 2008 company provided additional accruals respect matters quarter ended september 30 2008 company accrued additional 87 million respect estimated probable legal professional fees expenses provision probable future legal professional fees expenses amounted 34 million december 31 2008 accruals made basis company’s current best estimate working consultation committee board directors external legal counsel company professional advisors underlying assumptions prove incorrect doj sec andor sfo alter scope investigations actual costs incurred company could differ materially current estimates company continues keep amount accrual provisions review including working committee board external legal counsel professional advisors bycosin disposal voluntary disclosure possible violations cuban assets control regulations office foreign assets control given international scope operations company subject laws many different jurisdictions including laws relating imposition restrictions trade investment various entities persons countries laws conflicting 2004 company reviewed periodically aspects operations respect restrictions determined dispose certain noncore notes consolidated financial statementscontinued nonus subsidiaries bycosin ab bycosin’s nonus subsidiaries engaged transactions activities involving cuban persons entities acquisition bycosin group company june 2001 subsidiaries continuing engage transactions activities time disposal noncore fuel specialties business related assets november 2004 november 15 2004 bycosin ab whollyowned subsidiary company organized laws sweden known innospec sweden ab “seller” entered business asset purchase agreement “agreement” pesdo swedcap holdings ab “purchaser” håkan byström others purchaser’s guarantors octel petroleum specialties limited known innospec fuel specialties limited seller’s guarantor completed allcash transaction contemplated thereby together related transactions “transaction” agreement provided amongst things disposal certain noncore fuel specialties business related manufacturing assets seller ii supply distribution certain power products certain geographic regions net consideration paid purchaser approximately 29 million following completion transaction company made voluntary disclosure us office foreign assets control “ofac” regarding transactions activities engaged certain nonus subsidiaries company disclosures amongst items included aggregate monetary value transactions involving cuban persons entities conducted company’s nonus subsidiaries since january 1999 approximately 266 million time however management believes would speculative potentially misleading company predict specific nature amount penalties ofac might eventually assess penalties could assessed different bases ofac assessed penalties company “performance contracts basis” applicable regulations provide penalties case civil violations cuban assets control regulations 31 cfr part 515 “cacr” lesser 65000 per violation value contract since january 1999 nonus subsidiaries company entered 43 contracts cuban entities could considered separate violation cacr ofac may take position cacr interpreted applied different manner potentially even permit assessment penalties equal greater value business conducted cuban persons entities company considered range possible outcomes potential penalties payable accordance company’s accounting policies provision made management’s current best estimate potential liability including anticipated legal costs however underlying assumptions prove incorrect actual outcome could differ materially management’s current expectations management able estimate amount additional loss notes consolidated financial statementscontinued company subsidiaries current former found complied cacr company believes could subject fines civil criminal penalties could material legal matters involved time claims legal proceedings result incidental conduct business including product liability claims material pending legal proceedings company subsidiaries party property subject ordinary routine litigation incidental respective businesses guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice included guarantees nonus excise taxes customs duties december 31 2008 contingent liabilities amounted 69 million terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company indemnities warranties connection disposal octel waste management limited june 26 2003 company provided certain warranties company would required perform contingent liabilities respect warranties become actual could required make maximum future payments £359 million 52 million recourse provisions enabling recovery amounts third parties assets held collateral respect warranties notes consolidated financial statementscontinued note 19 profit disposals net profit disposal surplus us real estate relates sale may 2008 company’s former manufacturing site elmwood park nj prepaid disposal costs 2006 relate expenditure incurred advance real estate marketed disposed profit disposal surplus united kingdom real estate relates sale august 2006 company’s former fuel technology centre bletchley sale july 2006 company’s former sports social club note 20 balance sheet information company holds investments consolidated equity accounted since controlling financial interest material respectively investments held cost less provision impairment principal affiliate follows 2007 company sold 275 share potatopak limited 01 million generating profit 01 million 2006 company sold 20 share deurex 500 share octel chemay pty limited profit loss unconsolidated affiliates privately held companies quoted market prices available dividends received 2008 2007 2006 note 21 recently issued accounting pronouncements april 2008 fasb issued fasb staff position fas 1423 determination useful life intangible assets “fsp fas 1423” fsp fas 1423 amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset fas 142 goodwill intangible assets fsp fas 1423 also requires expanded disclosure related determination intangible asset useful lives fsp fas 1423 effective company january 1 2009 company believe adoption fsp fas 1423 material impact financial statements notes consolidated financial statementscontinued march 2008 fasb issued fas 161 disclosures derivative instruments hedging activities fas 161 requires enhanced disclosures surrounding use financial reporting derivative instruments hedging activities statement effective company january 1 2009 company believe adoption fas 161 material impact financial statements december 2007 fasb issued fas 160 noncontrolling interests consolidated financial statements amendment arb 51 statement establishes accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary statement effective company january 1 2009 company believe adoption fas 160 material impact financial statements december 2007 fasb issued fas 141r business combinations replacement fasb statement 141 significantly changes principles requirements acquirer business recognizes measures financial statements identifiable assets acquired liabilities assumed noncontrolling interest acquiree statement also provides guidance recognizing measuring goodwill acquired business combination determines information disclose enable users financial statements evaluate nature financial effects business combination fas 141r effective company beginning january 1 2009 change accounting business combinations prospective basis item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors stockholders innospec inc opinion accompanying consolidated balance sheets related consolidated statements income stockholders’ equity cash flows present fairly material respects financial position innospec inc subsidiaries december 31 2009 december 31 2008 results operations cash flows three years period ended december 31 2009 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included “management’s report internal control financial reporting” appearing item 9a form 10k responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 2 consolidated financial statements 2009 company retrospectively applied accounting noncontrolling interests effective january 1 2007 changed manner accounts income tax uncertainties company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp manchester united kingdom february 19 2010 consolidated statements income millions except share per share data accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 20 million 2008 05 million 2007 11 million year included depreciation amortization cash flow statement interest income statement cash paymentsreceipts respect income taxes interest disclosed note 7 note 13 respectively accompanying notes integral part statements consolidated statements stockholders’ equity millions 1 june 18 2007 company announced board directors approved 2for1 stock split effected form 100 stock dividend stockholders record july 6 2007 received one additional share innospec inc common stock every share owned date shares distributed july 20 2007 stock option holders received one additional option every option held original exercise prices options halved reflect stock split table retrospectively adjusted stock split 2 changes unrealized gainslosses derivative instruments net tax 3 impact deferred taxes change associated tax rate unrecognized actuarial net losses 1385 million 970 million net deferred taxes previously recognized comprehensive loss 4 changes cumulative translation adjustment consolidated statements comprehensive lossincome millions accumulated comprehensive loss millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets fuel additives specialty chemicals products sold primarily oil refineries chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions specialty chemicals provide effective technologybased solutions customers’ processes products focused personal care household industrial institutional fragrance ingredients markets principal product lines reportable segments fuel specialties active chemicals octane additives see note 3 financial information company’s reportable segments note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles united states america include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation acquisitions accounted purchases results operations acquired businesses included consolidated financial statements date acquisition results discontinued operations shown separately income statement certain revisions made prior year comparatives conform current year classifications respect net income attributable noncontrolling interest use estimates preparation consolidated financial statements accordance generally accepted accounting principles united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents accounts receivable company records accounts receivable net realizable value maintains allowance customers making required payments company determines adequacy allowance periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method market price cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement provision made slowmoving obsolete inventories appropriate notes consolidated financial statementscontinued property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method cost additions improvements capitalized maintenance repairs charged expenses assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives longer amortized subject least annual impairment tests based projected posttax cash flows discounted company’s weighted average cost capital annual measurement date impairment testing goodwill relating fuel specialties active chemicals businesses december 31 octane additives business goodwill tested impairment end quarter expected decline octane additives market resulted quarterly impairment charges incurred first quarter 2004 onwards highly likely quarterly charges incurred future years market continues decline impairment tests goodwill relating fuel specialties active chemicals businesses indicated requirement recognize impairment charge respect goodwill intangible assets deemed finite lives continue amortized using straightline method estimated useful lives tested potential impairment events occur circumstances change suggest impairment may occurred deferred finance costs relating debt financing capitalized separately disclosed balance sheets amortized using effective interest method expected life debt financing facility impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result assets compared carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative instruments company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes notes consolidated financial statementscontinued company recognizes derivatives either assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive loss hedged item recognized earnings company employs interest rate swaps convert floating rate debt senior term loan fixed rate designated cash flow hedges underlying variable rate obligation end term swap arrangements cumulative gain loss reclassified income statement interest rate swaps recorded noncurrent liability balance sheet company also hedges cost one key raw materials using commodity swaps designated qualifying hedge accounting end swap arrangements cumulative gain loss reclassified income statement commodity swaps recorded noncurrent asset balance sheet environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs environmental costs accrued environmental assessments remedial efforts probable cost reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s weighted average cost capital revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized transfer legal title defined generally accepted standard terms conditions arises company customer provisions sales discounts rebates customers based upon terms sales contracts recorded period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time shipping company recognized total revenue octane additive sales ethyl agreements april 2007 32 compensation paid ethyl recognized cost goods sold see note 9 accounting respect sales marketing agreements ethyl components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor notes consolidated financial statementscontinued costs maintenance utility costs plant engineering overheads warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item april 2007 cost goods sold also included recognition 32 compensation paid ethyl see note 9 accounting respect sales marketing agreements ethyl components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal costs litigation company involved made reported administrative expense line item research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur entities gains losses monetary assets relating currencies us dollar taken income statement gains losses foreign currency translations included net incomeexpense income statement share based compensation plans company accounts employee stock options fair value method accordingly sharebased compensation measured grant date based fair value options company uses straightline attribution method recognize sharebased compensation costs service period option pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities notes consolidated financial statementscontinued appropriate company evaluates need valuation allowance reduce deferred tax assets company recognizes future tax benefits extent realization benefits likely effect deferred taxes change tax rates recognized period includes enactment date income tax positions must meet likely recognition criteria recognized company recognizes accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income june 2006 financial accounting standards board “fasb” issued guidance accounting uncertainty income taxes upon adoption january 1 2007 increased existing reserves uncertain tax positions 31 million note 3 business segment geographical area data innospec divides business three distinct segments management reporting purposes fuel specialties active chemicals octane additives fuel specialties active chemicals businesses operate markets actively seek growth opportunities albeit end customers different octane additives business characterized substantial declining demand 2009 company one significant customer fuel specialties business royal dutch shell plc affiliates “shell” accounted 761 million 13 net group sales 2008 2007 shell accounted 846 million 13 662 million 11 net group sales respectively notes consolidated financial statementscontinued company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources group legal counsel legal fees investor relations • running corporate offices us europe • corporate development function since relate current trading activities business segments • corporate share information technology accounting human resources departments notes consolidated financial statementscontinued sales geographic area reported source transaction originates destination final sale customers made intercompany sales priced recover cost plus appropriate markup profit eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued note 4 share based compensation plans company five stock option plans four expired respective terms may 2008 end 10 year life company submitted new plans stockholder approval replace expired requested approval reserve common stock issuance plans two plans provide grant stock options key employees one provides grant stock options nonemployee directors fourth plan savings plan provides grant stock options company employees provided commit make regular savings predefined period used purchase common stock upon vesting options new plans vesting periods range 27 months 6 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount fifth plan provides grant stock options key executives matching basis provided use proportion annual bonus purchase common stock company open market four plans submitted stockholder approval approved company’s annual meeting stockholders may 6 2008 aggregate number shares common stock reserved issuance granted five plans 1790000 rules plans expired may 2008 stock options granted unawarded shares common stock previously allocated plans cannot used grants stock options granted plans prior expiration date plan expire within 10 years date grant fair value options calculated using blackscholes model cases certain performance related options dependent upon external factors company’s share price fair value options calculated using monte carlo model following assumptions used determine fair value options calculated using blackscholes model notes consolidated financial statementscontinued following table summarizes transactions company’s stock option plans year ended december 31 2009 following table summarizes information options outstanding december 31 2009 aggregate intrinsic value fully vested stock options 03 million 118320 stock options exercisable 20780 performance conditions attached total compensation cost 2009 2008 2007 15 million 41 million 33 million respectively 2009 charge includes gain 24 million related gain stock options forfeited upon resignation company’s former ceo total compensation cost related nonvested stock options yet recognized december 31 2009 37 million cost expected recognized weightedaverage period 214 years february 13 2009 extended vesting period 132470 grants made key employee performance related stock option plan february 13 2009 february 13 2011 modified performance criteria reflect longer vesting period additional compensation cost 02 million required recognized modified stock options period february 13 2009 february 13 2011 stock options awards modified 2008 2007 notes consolidated financial statementscontinued total intrinsic value options exercised 2009 2008 2007 04 million 13 million 19 million respectively amount cash received exercise stock option awards 2009 2008 2007 02 million 19 million 41 million respectively company’s policy issue shares treasury stock holders stock options exercise options 2009 2008 2007 new total fair value shares vested 11 million 12 million 22 million respectively total options vested 2009 176848 2008 264588 2007 328660 additional long term incentive plan place reward selected executives delivering exceptional performance plan discretionary bonus payable eligible executives innospec share performance outperforms competitors measured russell 2000 index minimum 10 five years january 2008 december 2012 amount bonus earned set cash amount one percentage point outperformance maximum bonus plan payable outperformance versus russell 2000 index 30 maximum bonus plan respect current participants 8 million 2008 12 million bonus payable plan innospec share price outperform russell 2000 index 10 five year period russell 2000 index falls value period fair value liability cashsettled stock appreciation rights calculated quarterly basis using monte carlo model compensation charge 01 million liability 02 million recognized 2009 2008 01 million compensation charge 01 million liability following assumptions used monte carlo model notes consolidated financial statementscontinued note 5 earnings per share attributable innospec inc basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2009 2008 2007 average number antidilutive options excluded calculation diluted earnings per share 146325 98880 17729 respectively note 6 pension plans company’s principal pension arrangement contributory defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed new entrants without trustee discretion projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested two investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater long term monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company notes consolidated financial statementscontinued full triennial actuarial valuation plan performed december 31 2008 update performed december 31 2009 results reflected consolidated financial statements company contributing amounts plan cover service costs date employee employer contributions january 1 2007 7 29 respectively pensionable pay addition since march 2007 company contributing £15 million 24 million per calendar year accordance 10 year deficit recovery plan january 1 2008 employee employer contributions remained 7 29 although employee contributions paid employer salary sacrifice arrangement company announced closure plan future service accrual effect march 31 2010 accordingly anticipate curtailment charge approximately 10 million recognized 2010 company negotiations trustees fund plan deficit number years currently expects annual cash contribution 2010 increase approximately 20 million discount rate used represents annualized yield medium longer term aa rated corporate bonds united kingdom determined reference iboxx corporate bond index published international index company rate increase compensation levels assumes real salary growth innospec assumed level price inflation 36 025 change either discount rate notes consolidated financial statementscontinued assumption level price inflation assumption would change pbo approximately 26 million net pension charge 2010 approximately 18 million current investment strategy plan obtain asset allocation 70 favor debt securities 30 equity securities order achieve predictable return assets projected net pension charge year ending december 31 2010 follows following benefit payments reflect expected future service appropriate expected made company contributions defined contribution schemes 2009 25 million 2008 28 million notes consolidated financial statementscontinued movements pbo fair value plan assets follows accumulated benefit obligation plan 7712 million 5559 million december 31 2009 2008 respectively notes consolidated financial statementscontinued vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund assets ready market indicative dealer prices available fund assets independently evaluated use agreed upon procedures conducted audit firm provide independent confirmation proper valuation procedures followed december 31 2009 fair values pension assets level input follows notes consolidated financial statementscontinued december 31 2009 reconciliation fair value pension plan assets using significant unobservable inputs level 3 follows approximately 70 plan’s assets held indextracking funds one investment management company approximately 35 plan’s assets invested united kingdom government gilts 5 plan’s assets invested one individual company’s investment funds note 7 income taxes company adopted recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return notes consolidated financial statementscontinued rollforward unrecognized tax benefits associated accrued interest penalties follows 194 million unrecognized tax benefits would impact effective tax rate recognized previously disclosed company detailed discussions united kingdom tax authorities “hmrc” view resolving number historic united kingdom tax issues indicative agreement reached hmrc late december notes consolidated financial statementscontinued 2009 january 11 2010 innospec limited united kingdom subsidiary company hmrc entered agreement settling certain tax positions “agreement” agreement provided payment £39 million 63 million paid january 21 2010 accounts settlement large proportion company’s unrecognized tax benefit position agreement finalizes one outstanding united kingdom issue company hmrc subject ongoing discussions company continuing assess possible tax implications arising anticipated settlement united nations oil food program “offp” us foreign corrupt practices act “fcpa” investigations discussion hmrc united kingdom tax implications eventual outcome matters relevant tax implications along outstanding united kingdom issue mentioned inherently uncertain outcome may favorable adverse material impact company’s results operations financial position cash flows company one subsidiaries files income tax returns us federal jurisdiction various state foreign jurisdictions december 31 2009 company’s subsidiaries france germany concluded respective tax authority investigations respective transfer pricing policies prior accounting periods without material adjustment company us subsidiaries remain open examination irs years 1998 onwards due net operating losses period 1998 2002 although examination currently underway company’s subsidiaries major tax jurisdictions open examination including france 2007 onwards germany 2005 onwards switzerland 2007 onwards united kingdom 2002 onwards sources income taxes follows notes consolidated financial statementscontinued components income tax charges summarized follows cash payments income taxes 86 million 246 million 227 million 2009 2008 2007 respectively effective tax rate varies us federal statutory rate factors indicated significant factors affecting variation statutory rate set include use tax losses deferred tax asset previously recognized foreign income inclusions net foreign tax credits favorable impact arising reduction company’s unrecognized tax benefits position partially offset tax charges notes consolidated financial statementscontinued prior years following settlement various historic united kingdom tax issues 402 million accrual anticipated settlement offp fcpa investigations 37 million charge respect impairment octane additives business goodwill cash taxation impact hence represent significant factors variation us federal statutory rate mix taxable profits generated different geographical localities group operates positive impact effective tax rate 2009 details deferred tax assets liabilities follows details deferred tax asset valuation allowance follows result company’s assessment net deferred tax assets december 31 2009 company considers likely valuation allowance required 20 million 2008 07 million net operating loss carry forwards full valuation allowance required foreign tax credit carry forwards net operating loss carry forwards arose germany prior periods result trading losses expected sufficient taxable profits generated net operating loss carry forwards relieved time limitation use losses notes consolidated financial statementscontinued determined future longer likely assets realized additional valuation allowance would required company’s operating results would adversely affected period determination would made company made provision deferred tax unremitted earnings overseas subsidiaries grounds remitted required entities concerned continue used fund investment territories amount unremitted earnings december 31 2009 2008 approximately 616 million 691 million respectively determination potential amount unrecognized deferred taxes practicable due complexities associated hypothetical calculation notes consolidated financial statementscontinued note 8 goodwill comprises following notes consolidated financial statementscontinued company’s reporting units generally consistent operating segments underlying segments identified note 3 company reviews goodwill annually impairment years events occur circumstances change suggest impairment may occurred innospec divides business three distinct segments management reporting purposes fuel specialties active chemicals octane additives components segment including products markets competitors similar economic characteristics management makes key operating decisions based performance segment therefore believe business segment level appropriate reporting unit level testing impairment goodwill determine fair value reporting units utilize discounted cash flow methodology based forecasted future aftertax cash flows operations since believe provides best approximation fair value methodology requires us make assumptions estimates including respect future revenue growth gross margins based upon long range plans company’s weighted average cost capital long range plans regularly updated part planning processes reviewed approved management board directors assume terminal values fuel specialties active chemicals reporting units added present value relevant forecasted future cash flows assume terminal value octane additives reporting unit beyond estimated future life discounted cash flow methodology assume control premium use discount rate equivalent company’s weighted average cost capital estimated reference overall aftertax rate return required equity debt market participants company assign assets liabilities including deferred income taxes goodwill reporting units asset liability relates operations reporting unit included determining fair value reporting unit cash debt obligations excluded carrying value reporting units 2009 assumptions estimates underpinning discounted cash flows revised part planning processes significant revision company’s weighted average cost capital increased reflect changing proportion debt equity funding within business company elected perform annual tests respect fuel specialties active chemicals goodwill december 31 year december 31 2009 1091 million 301 million goodwill relating fuel specialties active chemicals businesses respectively date performed annual impairment reviews concluded impairment goodwill respect reporting segments light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash notes consolidated financial statementscontinued flows derived octane additives business reduced accordingly fair value octane additives business segment reduced result company determined quarterly impairment reviews performed january 1 2004 impairment charge arising recognized relevant quarter result octane additives impairment reviews performed 2009 2008 2007 impairment charges 22 million 37 million 121 million respectively recognized charges noncash nature impact taxation 68 million goodwill remaining december 31 2009 relates octane additives business given quantum predictability remaining future cash flows octane additives business company expects goodwill impairment charges recognized income statement approximate straightline basis december 31 2012 table presents impact change following significant assumptions would impairment charge recognized december 31 2009 assuming assumptions factors remained constant believe assumptions used annual quarterly impairment reviews reasonable judgmental variations assumptions may result materially different calculations impairment charges notes consolidated financial statementscontinued note 9 intangible assets intangible assets comprise following ethyl intangible asset 284 million recognized second quarter 2007 respect ethyl foregoing entitlement effective april 1 2007 share future income stream sales marketing agreements “tmas” market sell tetra ethyl lead “tel” 2008 contract provisions longer deemed necessary 63 million offset intangible asset tmas covered sale tel use automotive gasoline aviation gasoline disclose within octane additives business segment fuel specialties business segment respectively allocated individual components intangible asset attributable tel use automotive gasoline aviation gasoline reference forecast future income streams associated cash flows markets ethyl would shared residual value attributed intangible asset accordingly commencing april 1 2007 amount attributed octane additives business segment amortized straightline december 31 2010 amount attributed fuel specialties business segment amortized straightline december 31 2017 effective october 1 2008 company extended estimate future life octane additives business december 31 2010 december 31 2012 therefore prospectively adjusted amortization period amount attributed octane additives business segment amortization charge 21 million recognized 2009 2008 47 million notes consolidated financial statementscontinued veritel intangible asset 606 million recognized 2001 amortized straightline december 31 2007 relation amounts payable veritel chemicals bv swiss subsidiary pursuant marketing agreement effective july 1 2001 asset fully amortized december 31 2009 december 31 2008 amortization charge recognized 2009 2008 technology following acquisition remaining 50 innospec fuel specialties llc previously known octel starreon llc july 8 2004 company recognized intangible asset 23 million respect various technological approvals business received certain military civilian authorities approvals act barrier entry potential competitor market would wish supply products intangible asset 48 million recognized respect number specialized manufacturing processes carried innospec widnes limited previously known aroma fine chemicals limited following acquisition entity august 2004 assets expected life ten years amortized straightline basis period residual value anticipated customer relationships following acquisition finetex merged innospec active chemicals llc company recognized intangible asset totaling 71 million 42 million relation customer lists acquired asset expected life thirteen years amortized straightline basis period residual value anticipated intangible assets recognized 2004 respect innospec fuel specialties llc previously known octel starreon llc 90 million innospec widnes limited previously known aroma fine chemicals limited 28 million acquisitions relate ongoing customer relationships expected life ten years amortized straightline basis period residual value anticipated patents following acquisition finetex merged innospec active chemicals llc company recognized intangible asset 29 million respect patents trademarks expected life ten years amortized straightline basis period notes consolidated financial statementscontinued remaining balance relates chiefly software costs amortized 3 years intangible asset amortization expense 47 million 74 million 169 million 2009 2008 2007 respectively future amortization expense estimated 47 million per annum three years 2012 note 10 deferred finance costs february 6 2009 entered new threeyear finance facility finance facility replaced previous finance facility place december 31 2008 refinancing treated extinguishment previous debt facility result 05 million deferred finance costs relating previous facility written 2009 2008 2007 34 million 07 million nil million refinancing costs capitalized respectively amortized expected life relevant finance facility using effective interest method amortization expense 20 million 05 million 11 million 2009 2008 2007 respectively charge included interest expense see note 2 note 11 property plant equipment property plant equipment consists following total net book value equipment december 31 2009 2008 amounts respect assets held capital leases notes consolidated financial statementscontinued depreciation charges 117 million 151 million 133 million 2009 2008 2007 respectively estimated additional cost complete work progress 17 million 2008 14 million note 12 plant closure provisions principal sites giving rise environmental remediation liabilities former octane additives manufacturing sites paimboeuf france doberitz biebesheim germany together ellesmere port site united kingdom last ongoing manufacturer tel liability estimated closure costs innospec’s octane additives manufacturing facilities includes costs personnel reductions severance decontamination environmental remediation activities remediation demand tel diminishes severance provisions also made relation corporate personnel three business segments movements provisions summarized follows notes consolidated financial statementscontinued amounts due within one year refer provisions expenditure expected arise within one year balance sheet date severance charges recognized income statement restructuring costs along restructuring costs remediation costs recognized cost goods sold severance charge 18 million recognized respect separation agreement former ceo 13 million reduction emea 03 million americas 02 million headcount restructuring 10 million charge relates relocation sales administration laboratory facility edison new jersey manufacturing base spencer north carolina 05 million dissolution nontrading foreign subsidiary 04 million united kingdom site clearance 01 million remediation total costs remediation evaluated regular basis take account expenditure incurred amend scope future activities light findings projects carried detailed review expected future costs decontamination remediation ellesmere port united kingdom site concluded december 2004 results summarized discounted cash flow model results reflected herein remediation expenditure provisions 15 million 16 million 17 million 2009 2008 2007 respectively remediation provision represents fair value company’s liability accretion expense 2009 12 million charge decreased 2009 11 million respect change company’s weighted average cost capital 10 million changes scope future remediation activities 01 million company records environmental liabilities probable costs estimated reasonably company anticipate program work required associated future costs comply environmental legislation relevant countries company views costs vacating main united kingdom site contingent liability present intention exit site company determined due uncertain product life tel particularly market aviation gas exists uncertainty timing cash flows possible estimate flows sufficiently reliably recognize provision notes consolidated financial statementscontinued note 13 longterm debt longterm debt consists following february 6 2009 entered new threeyear finance facility provides borrowings us 150 million including term loan 50 million revolving credit facility 100 million revolving credit facility drawn finance facility expires february 6 2012 term loan repayable follows 10 million due february 5 2010 15 million february 7 2011 25 million february 6 2012 finance facility replaced previous finance facility place december 31 2008 company’s finance facility contains restrictive clauses may constrain activities limit operational financial flexibility new facility obliges lenders comply request utilization finance unless event default outstanding events default defined finance facility include material adverse change business properties assets financial condition results operations new facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition new facility also contains terms breached would result loan becoming repayable demand requires among matters compliance two financial covenant ratios requirements 1 ratio net debt ebitda shall greater 251 2 ratio ebitda net interest shall less 401 ebitda non us gaap measure liquidity defined finance facility management believes company breached covenants throughout period december 31 2009 expects breach covenants next 12 months finance facility secured number fixed floating charges certain assets company subsidiaries weighted average rate interest borrowings 44 december 31 2009 52 december 31 2008 payments interest longterm debt 20 million 38 million 64 million 2009 2008 2007 respectively notes consolidated financial statementscontinued net cash outflow respect refinancing costs 37 million 04 million nil million 2009 2008 2007 respectively assets held capital leases capitalized 2009 2008 capital repayments made 2009 2008 note 14 deferred income deferred income consists deferred income relates 08 million post acquisition government grants received innospec leuna gmbh 01 million government grants advance rental payments received innospec widnes limited previously known aroma fine chemicals limited note 15 stockholders’ equity december 31 2009 company authorized common stock 40000000 shares december 31 2008 40000000 issued shares december 31 2009 29554500 december 31 2008 29554500 including treasury stock 5890447 shares december 31 2008 5956384 note 16 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements notes consolidated financial statementscontinued endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels following table presents carrying amount fair values company’s financial instruments december 31 2009 2008 following methods assumptions used estimate fair values financial instruments cash equivalents carrying amount approximates fair value shortterm maturities instruments longterm debt carrying amount longterm debt drawn threeyear finance facility approximates fair value based period time maturity derivatives fair value derivatives relating interest rate swaps foreign exchange contracts commodity swaps derived current settlement prices comparable contracts using current assumptions notes consolidated financial statementscontinued assets liabilities measured fair value recurring basis using level 3 inputs following reconciles opening closing positions cumulative gains losses interest rate swaps commodity swaps summarized follows june 12 2009 company settled interest rate swaps entered 500 million underlying floating rate debt obligations entered 500 million new interest rate swaps amortize mature february 2010 february 2012 new interest rate swaps designated cash flow hedge 500 million underlying floating rate debt obligations stood 510 million december 31 2009 qualify hedge accounting december 31 2009 commodity swaps used manage company’s cash flow exposure raw material cost volatility designated cash flow hedges commodity swaps qualify hedge accounting december 31 2009 interest rate commodity hedges determined effective consequently unrealized gain 12 million 2009 2008 20 million loss recorded comprehensive income ineffectiveness determined immaterial 2009 2008 2007 accordingly gain loss recognized earnings periods company expects net unrealized gain 11 million december 31 2009 reclassified earnings next 12 months remaining 01 million classified earnings following 12 months foreign exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying fair values contracts largely due changes exchange rates us dollar notes consolidated financial statementscontinued note 17 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign exchange exposures raw material cost exposures company uses interest rate swaps floors collar cap agreements reduce impact changes interest rates floating rate debt swap agreements contracts exchange floating rate fixed interest payments periodically life agreements without exchange underlying notional amounts notional amounts used calculate interest paid received represent amount exposure credit loss company determined hedge proportion outstanding floating rate debt obligation december 31 2009 company following interest rate instruments effect notional amounts millions notional amount first two swaps reduces 125 million 75 million february 5 2010 company hedged cost certain raw materials commodity swaps december 31 2009 2008 company following summarized commodity swaps notes consolidated financial statementscontinued derivative instruments classified cash flow hedging relationships effectiveness tested determined effective december 31 2009 december 31 2008 impact income statement last twelve months summarized enter various foreign currency forward exchange contracts minimize currency exposure expected future cash flows contracts maturity dates 12 months date inception foreign currency contracts designated hedging instruments impact income statement 2009 2008 summarized company sells range fuel specialties active chemicals octane additives major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required notes consolidated financial statementscontinued note 18 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 26 million 2009 22 million 2008 21 million 2007 future commitments noncancelable operating leases follows commitments respect environmental remediation obligations disclosed note 12 contingencies united nations oil food program “offp” us foreign corrupt practices act “fcpa” investigations february 7 2006 securities exchange commission “sec” notified company commenced investigation determine whether violations law occurred connection certain transactions conducted involving company including conducted wholly owned indirect swiss subsidiary alcor chemie vertriebs gmbh “alcor” offp june 1 1999 december 31 2003 part investigation sec issued subpoena requiring production certain documents including documents relating transactions company alcor upon receipt sec’s notification initial subpoena company undertook review participation offp october 10 2007 november 1 2007 sec served two additional subpoenas company additional subpoenas required production documents relating offp also transactions conducted company subsidiaries state owned state controlled entities june 1 1999 date subpoenas concerning use foreign agents possibility extracontractual payments secure business foreign governmental entities context fcpa laws coordinated investigation company also notified us department notes consolidated financial statementscontinued justice “doj” regarding possibility violations company subsidiaries arising laws stemming matters covered sec investigation well certain preliminary inquiries regarding compliance antitrust laws applicable us international tetra ethyl lead markets subjects sec doj inquired include areas concern certain former current executives company including former ceo resigned march 20 2009 company officers directors cooperating sec doj investigations february 19 2008 board directors company formed committee comprised chairmen board audit committee nominating governance committee independent directors chairman nominating governance committee retired director company effective may 6 2008 services retained independent capacity member committee october 1 2009 resigned mr haubold resign result dispute disagreement company committee external counsel company reporting committee behalf committee conducted continue conduct investigation circumstances giving rise sec doj investigations external counsel reports directly committee assists connection communications interactions sec doj march 5 2008 letter received company doj request wider detailed range documents made letter received doj june 13 2009 contained requests information made us office foreign assets control “ofac” addition voluntary disclosure made relation bycosin disposal ofac inquiring business company may conducted countries respect us laws regulations restrict trade july 31 2009 doj issued press release disclosed arrest individual unsealing august 7 2008 indictment us district court district columbia individual certain fcpa violations relating alleged participation eightyear conspiracy defraud offp bribe iraqi government officials behalf publicly traded us chemical company connection sale chemical additive used refining leaded fuel individual company’s former agent iraq certain markets company understands indictment relate matters subject offp fcpa investigations company separately may 21 2008 united kingdom’s serious fraud office “sfo” notified innospec limited wholly owned subsidiary company commenced investigation certain contracts involving british companies offp part investigation sfo asked company produce documents respect company’s participation offp january 1 1996 december 31 2003 following receipt sfo’s notice company instructed external legal counsel advise assist relation investigation company directors officers notes consolidated financial statementscontinued intend cooperate sfo october 16 2008 company notified scope sfo’s investigation would extend matters relating potential bribery involving overseas commercial agents already large part subject ongoing doj sec investigations investigation sfo similarly includes areas concern certain former current executives company officers directors intend continue cooperate sec doj sfo outcome investigations remains uncertain company discussions sec doj sfo ongoing effort resolve investigations including discussions view settlement amount final settlement including final amount probable disgorgement penalties andor fines may subject yet conclusively determined amount disgorgements penalties andor fines company could face depends number eventual factors yet finally resolved relevant government authorities including findings relevant authorities regarding amount nature scope improper payments amount pecuniary gain involved company’s ability pay level cooperation provided government authorities investigations previously disclosed accounting purposes based potential settlement range 183 million 634 million connection ongoing discussions government authorities recorded third quarter 2009 183 million accrual potential global settlement investigations required us gaap fourth quarter 2009 similarly recorded additional accrual 219 million anticipated global settlement matter bringing total accruals 402 million based assessment accounting purposes best estimate within anticipated settlement range 288 million 402 million accruals estimates assurance final settlement amount correspond accrued amounts uncertainties associated ultimate outcome investigations costs company responding participating assurance given ultimate costs incurred sanctions may imposed material adverse impact company’s results operations financial position cash flows notes consolidated financial statementscontinued part company’s commitment cooperate comply offp fcpa investigations company accrued spent following amounts respect estimated probable future legal professional expenses accruals made basis company’s current best estimate working consultation committee board directors external legal counsel company professional advisors underlying assumptions prove incorrect doj sec andor sfo alter scope investigations actual costs incurred company could differ materially current estimates company continues keep amount accrual provisions review voluntary disclosure possible violations cuban assets control regulations office foreign assets control matters given international scope operations company subject laws many different jurisdictions including laws relating imposition restrictions trade investment various entities persons countries laws conflicting 2004 company reviewed periodically aspects operations respect restrictions determined dispose certain noncore nonus subsidiaries bycosin ab bycosin’s nonus subsidiaries engaged transactions activities involving cuban persons entities acquisition bycosin group company june 2001 subsidiaries continuing engage transactions activities time disposal noncore fuel specialties business related assets november 2004 november 15 2004 bycosin ab whollyowned subsidiary company organized laws sweden known innospec sweden ab “seller” entered business asset purchase agreement “agreement” pesdo swedcap holdings ab “purchaser” håkan byström others purchaser’s guarantors octel petroleum specialties limited known innospec fuel specialties limited seller’s guarantor completed allcash transaction contemplated thereby together related transactions “transaction” agreement provided amongst things disposal certain noncore fuel specialties business related manufacturing assets seller ii supply distribution certain power products certain geographic regions net consideration paid purchaser approximately 29 million notes consolidated financial statementscontinued following completion transaction company made voluntary disclosure us office foreign assets control “ofac” regarding transactions activities engaged certain nonus subsidiaries company disclosures amongst items included aggregate monetary value transactions involving cuban persons entities conducted company’s nonus subsidiaries since january 1999 approximately 266 million time however management believes would speculative potentially misleading company predict specific nature amount penalties ofac might eventually assess penalties could assessed different bases ofac assessed penalties company “performance contracts basis” applicable regulations provide penalties case civil violations cuban assets control regulations 31 cfr part 515 “cacr” lesser 65000 per violation value contract since january 1999 nonus subsidiaries company entered 43 contracts cuban entities could considered separate violation cacr ofac may take position cacr interpreted applied different manner potentially even permit assessment penalties equal greater value business conducted cuban persons entities company considered range possible outcomes potential penalties payable accordance company’s accounting policies provision made management’s current best estimate potential liability including anticipated legal costs however underlying assumptions prove incorrect actual outcome could differ materially management’s current expectations management able estimate amount additional loss addition voluntary disclosure made relation bycosin disposal referred company’s disclosure relating investigations involvement offp fcpa matters ofac inquiring business company may conducted countries respect us laws regulations restrict trade company officers directors intend continue cooperate ofac company subsidiaries current former found complied cacr us laws regulations restrict trade certain countries company believes could subject fines civil criminal penalties could material legal matters except disclosed elsewhere form 10k involved administrative judicial proceedings arising provisions enacted regulate discharge materials environment enacted purpose protecting notes consolidated financial statementscontinued environment involving governmental authority party involves potential monetary sanctions company reasonably believes result monetary sanctions 100000 involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims material pending legal proceedings company subsidiaries party property subject ordinary routine litigation incidental respective businesses whilst possible predict certainty outcome legal proceedings opinion based current knowledge suffer material adverse effect results operations financial position cash flows result actual threatened litigation guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice included guarantees nonus excise taxes customs duties december 31 2009 contingent liabilities amounted 79 million terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company indemnities warranties connection disposal octel waste management limited june 26 2003 company provided certain warranties company would required perform contingent liabilities respect warranties become actual could required make maximum future payments £359 million 58 million recourse provisions enabling recovery amounts third parties assets held collateral respect warranties notes consolidated financial statementscontinued note 19 profit disposal profit disposal surplus us real estate relates sale may 2008 company’s former manufacturing site elmwood park new jersey note 20 balance sheet information company holds unconsolidated investments 2007 company sold 275 share potatopak limited 01 million generating profit 01 million previously held unconsolidated affiliates privately held companies quoted market prices available dividends received 2009 2008 2007 note 21 recently issued accounting pronouncements august 2009 fasb issued accounting standards update asu 200905 measuring liabilities fair value “asu 200905” asu 200905 provides additional guidance clarifying measurement liabilities fair value company adopted asu 200905 quarter ended december 31 2009 adoption material impact consolidated financial statements june 2009 fasb issued fas 168 fasb accounting standards codification “codification” launched july 1 2009 effective financial statements interim annual reporting periods ending september 15 2009 codification combines authoritative standards comprehensive topically organized online database codification launch one level authoritative gaap exists guidance issued sec accounting literature excluded codification considered nonauthoritative codification change alter existing gaap accordingly impact consolidated financial position results operations may 2009 fasb issued asc 855 subsequent events asc 855 establishes general standards accounting disclosure events occur balance sheet date financial statements issued statement effective interim annual periods ending june 15 2009 company adopted asc 855 quarter ended june 30 2009 adoption material impact consolidated financial statements notes consolidated financial statementscontinued december 2008 fasb issued additional guidance resides asc 715 compensation retirement benefits employer’s disclosures plan assets defined benefit pension postretirement plan guidance requires disclosure investment allocation methodologies information enables users financial statements assess inputs valuation techniques used develop fair value measurements plan assets order provide users understanding significant concentrations risk plan assets company adopted asc 715 quarter ended december 31 2009 adoption material impact consolidated financial statements since requires additional disclosure note 22 subsequent events company evaluated subsequent events including february 19 2010 date financial statements issued concluded additional disclosures required relation events subsequent balance sheet date item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors stockholders innospec inc opinion accompanying consolidated balance sheets related consolidated statements income stockholders’ equity cash flows present fairly material respects financial position innospec inc subsidiaries december 31 2010 2009 results operations cash flows three years period ended december 31 2010 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included “management’s report internal control financial reporting” appearing item 9a form 10k responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp manchester united kingdom february 18 consolidated statements income millions except share per share data accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 14 million 2009 20 million 2008 05 million year included depreciation amortization cash flow statement interest expense income statement cash paymentsreceipts respect income taxes interest disclosed note 7 note 13 respectively accompanying notes integral part statements consolidated statements stockholders’ equity millions 1 changes cumulative translation adjustment 2 changes unrealized gainslosses derivative instruments net tax 3 impact deferred income taxes change associated tax rate unrecognized actuarial net losses 2287 million 1646 million net deferred taxes previously recognized comprehensive loss consolidated statements comprehensive incomeloss millions accumulated comprehensive loss millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets fuel additives personal care fragrance products specialty chemicals products sold primarily oil refineries personal care fragrance companies chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions specialty chemicals provide effective technologybased solutions customers’ processes products focused personal care household industrial institutional fragrance ingredients markets principal product lines reportable segments fuel specialties active chemicals octane additives see note 3 financial information company’s reportable segments note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles united states america include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation acquisitions accounted purchases results operations acquired businesses included consolidated financial statements date acquisition results discontinued operations shown separately income statement use estimates preparation consolidated financial statements accordance generally accepted accounting principles united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents shortterm investments investment securities maturities three months purchased considered shortterm investments accounts receivable company records accounts receivable net realizable value maintains allowance customers making required payments company determines adequacy allowance periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method market price cost includes materials labor appropriate proportion plant overheads company notes consolidated financial statementscontinued accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement provision made slowmoving obsolete inventories appropriate property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method cost additions improvements capitalized maintenance repairs charged expenses assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives amortized subject least annual impairment tests based projected posttax cash flows discounted company’s weighted average cost capital annual measurement date impairment testing goodwill relating fuel specialties active chemicals businesses december 31 date performed annual impairment tests concluded impairment goodwill respect reporting segments octane additives business goodwill tested impairment end quarter expected decline octane additives market resulted quarterly impairment charges incurred first quarter 2004 onwards highly likely quarterly charges incurred future years market continues decline intangible assets deemed finite lives amortized using straightline method estimated useful lives tested potential impairment events occur circumstances change suggest impairment may occurred deferred finance costs relating debt financing capitalized separately disclosed consolidated balance sheets amortized using effective interest method expected life debt financing facility impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result assets compared carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital notes consolidated financial statementscontinued derivative instruments company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes company recognizes derivatives either noncurrent assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives designated hedges tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings company employs interest rate swaps convert floating rate debt senior term loan fixed rate designated cash flow hedges underlying variable rate obligation end term swap arrangements cumulative gain loss reclassified income statement interest rate swaps recorded noncurrent liabilities consolidated balance sheet company also hedges cost raw materials using commodity swaps respect one key raw materials designated qualifying hedge accounting end swap arrangements cumulative gain loss reclassified income statement commodity swaps recorded noncurrent assets liabilities consolidated balance sheet environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs environmental costs accrued environmental assessments remedial efforts probable cost reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s weighted average cost capital revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized transfer legal title defined generally accepted standard terms conditions arises company customer provisions sales discounts rebates customers based upon terms sales contracts recorded period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time shipping components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold notes consolidated financial statementscontinued components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal settlement costs litigation company involved made reported administrative expense line item research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur entities gains losses monetary assets relating currencies us dollar taken income statement gains losses foreign currency translations included net incomeexpense income statement share based compensation plans company accounts employee stock options fair value method accordingly share based compensation measured grant date based fair value options company uses straightline attribution method recognize share based compensation costs service period option pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend notes consolidated financial statementscontinued income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities appropriate company evaluates need valuation allowance reduce deferred tax assets company recognizes future tax benefits extent realization benefits likely effect deferred taxes change tax rates recognized period includes enactment date income tax positions must meet likely recognition criteria recognized company recognizes accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income note 3 business segment geographical area data innospec divides business three distinct segments management reporting purposes fuel specialties active chemicals octane additives fuel specialties active chemicals businesses operate markets actively seek growth opportunities end customers different octane additives business characterized declining demand 2010 company one significant customer fuel specialties business royal dutch shell plc affiliates “shell” accounted 678 million 10 net group sales 2009 2008 shell accounted 761 million 13 846 million 13 net group sales respectively notes consolidated financial statementscontinued company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources group legal counsel investor relations • running corporate offices us europe • corporate development function since relate current trading activities business segments • corporate share information technology accounting human resources departments notes consolidated financial statementscontinued sales geographic area reported source transactions originate destination final sales customers made intercompany sales priced recover cost plus appropriate markup profit eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued note 4 share based compensation plans company five active stock option plans two provide grant stock options key employees one provides grant stock options nonemployee directors another provides grant stock options key executives matching basis provided use proportion annual bonus purchase common stock company open market fifth plan savings plan provides grant stock options company employees provided commit make regular savings predefined period used purchase common stock upon vesting options stock options vesting periods ranging 24 months 6 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount aggregate number shares common stock reserved issuance granted five plans 1790000 fair value options calculated using blackscholes model cases certain performance related options dependent upon external factors company’s share price fair value options calculated using monte carlo model following assumptions used determine fair value options calculated using blackscholes model following table summarizes transactions company’s stock option plans year ended december 31 2010 notes consolidated financial statementscontinued following table summarizes information options outstanding december 31 2010 aggregate intrinsic value fully vested stock options 08 million 113434 stock options exercisable 11240 performance conditions attached total compensation cost 2010 2009 2008 31 million 15 million 41 million respectively 2009 charge included gain 24 million related gain stock options forfeited upon resignation company’s former ceo total compensation cost related nonvested stock options yet recognized december 31 2010 55 million cost expected recognized weightedaverage period 221 years stock options awards modified 2010 2008 february 13 2009 extended vesting period 132470 grants made key employee performance related stock option plan february 13 2009 february 13 2011 modified performance criteria reflect longer vesting period additional compensation cost 02 million required recognized modified stock options period february 13 2009 february 13 2011 total intrinsic value options exercised 2010 2009 2008 37 million 04 million 13 million respectively amount cash received exercise stock option awards 2010 2009 2008 02 million 02 million 19 million respectively company’s policy issue shares treasury stock holders stock options exercise options 2010 2009 2008 new total fair value shares vested 44 million 11 million 12 million respectively total options vested 2010 174298 2009 176848 2008 264588 additional long term incentive plan place reward selected executives delivering exceptional performance plan discretionary bonus payable eligible executives innospec share performance outperforms competitors measured russell 2000 index minimum 10 five years january 2008 december 2012 amount bonus earned set cash amount notes consolidated financial statementscontinued one percentage point outperformance maximum bonus plan payable outperformance versus russell 2000 index 30 maximum bonus plan respect current participants 8 million 2009 8 million 2008 12 million bonus payable plan innospec share price outperform russell 2000 index 10 five year period russell 2000 index falls value period fair value liability cashsettled stock appreciation rights calculated quarterly basis using monte carlo model summarized follows following assumptions used monte carlo model note 5 earnings per share attributable innospec inc basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2010 2009 2008 average number antidilutive options excluded calculation diluted earnings per share 61808 146325 98880 respectively notes consolidated financial statementscontinued note 6 pension plans company maintains contributory defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested two investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater long term monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company closed plan future service accrual effect march 31 2010 accordingly recorded noncash curtailment loss 82 million first quarter 2010 second quarter 2010 company implemented pension increase exchange “pie” program current pensioners effective april 1 2010 reduced pbo 171 million reduction pbo resulted prior service credit amortized using straightline method remaining life expectancy plan pensioners 15 years commencing april 1 2010 pie program provided pensioners option receiving oneoff immediate increase pension lieu future nonstatutory increases fourth quarter 2010 company implemented enhanced transfer value “etv” program deferred pensioners reduced pbo 157 million resulted settlement loss 11 million etv program provided deferred pensioners option transferring existing pension entitlement plan another vehicle exchange enhancement standard terms available transfer full triennial actuarial valuation plan performed december 31 2008 update performed december 31 2010 results reflected consolidated financial statements since april 2010 company contributing £58 million 91 million per calendar year plan accordance 10year actuarial deficit recovery plan agreed trustees accordingly company expects annual cash contribution 2011 approximately 9 million notes consolidated financial statementscontinued discount rate used represents annualized yield medium longer term aa rated corporate bonds united kingdom determined reference iboxx corporate bond index published international index company inflation rate derived difference yields fixed interest index linked united kingdom government gilts rate increase compensation levels longer relevant since company closed plan future service accrual effect march 31 2010 025 change either discount rate assumption level price inflation assumption would change pbo approximately 25 million net pension charge 2011 approximately 11 million following guidance issued united kingdom government 2010 agreement plan trustees company changed inflation rate measure retail prices index consumers prices index resulting reduction actuarial net losses accounting basis approximately 47 million current investment strategy plan obtain asset allocation 70 favor debt securities 30 equity securities order achieve predictable return assets december 31 2010 2009 approximately 70 plan’s assets held indextracking funds one investment management company approximately 35 plan’s assets invested united kingdom government gilts 5 plan’s assets invested one individual company’s investment funds notes consolidated financial statementscontinued movements pbo fair value plan assets follows accumulated benefit obligation plan 6840 million 7712 million december 31 2010 2009 respectively notes consolidated financial statementscontinued vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund assets ready market indicative dealer prices available fund assets independently evaluated use agreed upon procedures conducted audit firm provide independent confirmation proper valuation procedures followed fair values pension assets level input follows notes consolidated financial statementscontinued reconciliation fair value plan assets using significant unobservable inputs level 3 follows projected net pension charge year ending december 31 2011 follows following benefit payments expected made company contributions defined contribution schemes 2010 55 million 2009 25 million notes consolidated financial statementscontinued note 7 income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 86 million unrecognized tax benefits interest penalties would impact effective tax rate recognized recognize accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income notes consolidated financial statementscontinued january 11 2010 innospec limited united kingdom subsidiary company united kingdom tax authorities “hmrc” entered agreement settling certain tax positions “the agreement” agreement provided payment £39 million 63 million paid january 21 2010 agreement finalized one outstanding united kingdom issue company hmrc july 16 2010 innospec limited hmrc reached agreement outstanding united kingdom issue excluded agreement resulted reduction 50 million unrecognized tax benefits second quarter 2010 additional tax cost previously disclosed company assessing possible tax implications arising settlement united nations oil food program “offp” us foreign corrupt practices act “fcpa” investigations company determined first quarter 2010 element 427 million settlement accruals would tax deductible accordingly recorded 20 million addition unrecognized tax benefits september 30 2010 innospec limited hmrc reached agreement relation investigations provided additional payment 07 million resulted reduction 49 million unrecognized tax benefits third quarter 2010 company assessed tax implications us filed us tax returns relevant years january 2011 additional tax cost nominal resulted reduction 30 million unrecognized tax benefits fourth quarter 2010 company one subsidiaries files income tax returns us federal jurisdiction various state foreign jurisdictions company us subsidiaries remain open examination irs years 1998 onwards due net operating losses period 1998 2002 although examination currently underway company’s subsidiaries foreign tax jurisdictions open examination including france 2007 onwards germany 2005 onwards switzerland 2007 onwards united kingdom 2007 onwards sources income taxes follows notes consolidated financial statementscontinued components income tax charges summarized follows cash payments income taxes 229 million 86 million 246 million 2010 2009 2008 respectively effective tax rate varies us federal statutory rate factors indicated significant factors affecting variation statutory rate set include foreign income inclusions net foreign tax credits favorable impact arising reduction company’s unrecognized tax benefits position following settlement historic united kingdom tax issue concluding assessment tax implications offp fcpa investigations company’s determination element settlement accrual tax deductible also favorable impact mix notes consolidated financial statementscontinued taxable profits generated different geographical localities group operates significant positive impact effective tax rate 2010 details deferred tax assets liabilities follows details deferred tax asset valuation allowance follows result company’s assessment net deferred tax assets december 31 2010 company considers likely valuation allowance required 06 million 2009 20 million net operating loss carry forwards partial valuation allowance required foreign tax credit carry forwards net operating loss carry forwards arose germany us prior periods result trading state tax losses expected sufficient taxable profits generated net operating loss carry forwards relieved time limitation use losses foreign tax credits carry forwards arose us notes consolidated financial statementscontinued prior periods company determined future foreign income inclusions sufficient utilize approximately 27 million 2009 nil foreign tax credit carry forwards therefore partial valuation allowance required determined future longer likely assets realized additional valuation allowance would required company’s operating results would adversely affected period determination would made company made provision deferred tax unremitted earnings overseas subsidiaries grounds remitted required entities concerned continue used fund investment territories amount unremitted earnings december 31 2010 2009 approximately 637 million 616 million respectively determination potential amount unrecognized deferred taxes practicable due complexities associated hypothetical calculation notes consolidated financial statementscontinued note 8 goodwill comprises following notes consolidated financial statementscontinued company’s reporting units generally consistent operating segments underlying segments identified note 3 company tests goodwill annually impairment years events occur circumstances change suggest impairment may occurred innospec divides business three distinct segments management reporting purposes fuel specialties active chemicals octane additives components segment including products markets competitors similar economic characteristics management makes key operating decisions based performance segment therefore believe business segment level appropriate reporting unit level testing impairment goodwill determine fair value reporting units utilize discounted cash flow methodology based forecasted future aftertax cash flows operations since believe provides best approximation fair value methodology requires us make assumptions estimates including respect future revenue growth gross margins based upon long range plans company’s weighted average cost capital long range plans regularly updated part planning processes reviewed approved management board directors assume terminal values fuel specialties active chemicals reporting units added present value relevant forecasted future cash flows assume terminal value octane additives reporting unit beyond estimated future life discounted cash flow methodology assume control premium use discount rate equivalent company’s weighted average cost capital estimated reference overall aftertax rate return required equity debt market participants company assign assets liabilities including deferred income taxes goodwill reporting units asset liability relates operations reporting unit included determining fair value reporting unit cash debt obligations excluded carrying value reporting units 2010 assumptions estimates underpinning discounted cash flows revised part planning processes although methodology unchanged significant revision company’s weighted average cost capital increased reflect changing proportion debt equity funding within business company elected perform annual tests respect fuel specialties active chemicals goodwill december 31 year december 31 2010 1089 million 301 million goodwill relating fuel specialties active chemicals businesses respectively date performed annual impairment tests concluded impairment goodwill respect reporting segments notes consolidated financial statementscontinued light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash flows derived octane additives business reduced accordingly fair value octane additives reporting unit reduced result company determined quarterly impairment tests performed january 1 2004 impairment charge arising recognized relevant quarter result octane additives impairment tests performed 2010 2009 2008 impairment charges 22 million 22 million 37 million respectively recognized charges noncash nature impact taxation 46 million goodwill remaining december 31 2010 relates octane additives business given quantum predictability remaining future cash flows octane additives business company expects goodwill impairment charges recognized income statement approximate straightline basis december 31 2012 table presents impact change following significant assumptions would impairment charge recognized december 31 2010 assuming assumptions factors remained constant believe assumptions used annual quarterly impairment tests reasonable judgmental variations assumptions may result materially different calculations impairment charges notes consolidated financial statementscontinued note 9 intangible assets intangible assets comprise following ethyl intangible asset 284 million recognized second quarter 2007 respect ethyl foregoing entitlement effective april 1 2007 share future income stream sales marketing agreements market sell tetra ethyl lead “tel” 2008 contract provisions longer deemed necessary 63 million offset intangible asset amount attributed octane additives business segment amortized straightline december 31 2012 amount attributed fuel specialties business segment amortized straightline december 31 2017 amortization charge 21 million recognized 2010 2009 21 million technology following acquisition remaining 50 innospec fuel specialties llc july 8 2004 company recognized intangible asset 23 million respect various technological approvals business received certain military civilian authorities approvals act barrier entry potential competitor market would wish supply products intangible asset 48 million recognized respect number specialized manufacturing processes carried innospec widnes limited following acquisition entity august 2004 assets expected life 10 years amortized straightline basis period residual value anticipated notes consolidated financial statementscontinued customer relationships following acquisition finetex merged innospec active chemicals llc january 2005 company recognized intangible asset totaling 71 million 42 million relation customer lists acquired asset expected life 13 years amortized straightline basis period residual value anticipated intangible assets recognized 2004 respect innospec fuel specialties llc 90 million innospec widnes limited 28 million acquisitions relate ongoing customer relationships expected life 10 years amortized straightline basis period residual value anticipated patents following acquisition finetex company recognized intangible asset 29 million respect patents trademarks expected life 10 years amortized straightline basis period intangible asset amortization expense 47 million 47 million 74 million 2010 2009 2008 respectively future amortization expense estimated 47 million per annum 2011 2012 35 million per annum 2013 note 10 deferred finance costs february 6 2009 entered threeyear finance facility refinancing treated extinguishment previous debt facility result 05 million deferred finance costs relating previous facility written 2009 2008 34 million 07 million refinancing costs capitalized respectively amortized expected life relevant finance facility using effective interest method amortization expense 14 million 20 million 05 million 2010 2009 2008 respectively charge included interest expense see note 2 notes consolidated financial statementscontinued note 11 property plant equipment property plant equipment consists following total net book value equipment december 31 2010 2009 amounts respect assets held capital leases depreciation charges 93 million 117 million 151 million 2010 2009 2008 respectively estimated additional cost complete work progress 14 million 200917 million note 12 plant closure provisions principal site giving rise environmental remediation liabilities octane additives manufacturing site ellesmere port last ongoing manufacturer tel also environmental remediation liabilities much smaller scale respect manufacturing sites us europe liability estimated closure costs innospec’s octane additives manufacturing facilities includes costs personnel reductions severance decontamination environmental remediation activities remediation demand tel diminishes severance provisions also made relation corporate personnel three business segments notes consolidated financial statementscontinued movements provisions summarized follows amounts due within one year refer provisions expenditure expected arise within one year balance sheet date severance charges recognized income statement restructuring costs along restructuring costs remediation costs recognized cost goods sold severance charge 05 million recognized respect reduction emea headcount remediation provision represents fair value company’s liability asset retirement obligations accretion expense recognized 2010 21 million remediation charge increased 05 million 2010 2009 respect changes scope future remediation activities offset increase company’s weighted average cost capital notes consolidated financial statementscontinued company records environmental liabilities probable costs estimated reasonably company anticipate program work required associated future expected costs comply environmental legislation relevant countries company views costs vacating ellesmere port site contingent liability present intention exit site company determined due uncertain product life tel particularly market aviation gasoline exists uncertainty timing cash flows possible estimate sufficiently reliably recognize provision remediation expenditure provisions 27 million 15 million 16 million 2010 2009 2008 respectively note 13 longterm debt longterm debt consists following february 6 2009 entered threeyear finance facility provides borrowings us 150 million including term loan 50 million revolving credit facility 100 million revolving credit facility drawn finance facility expires february 6 2012 term loan repayments follows 10 million paid february 5 2010 15 million paid february 7 2011 25 million due february 6 2012 company’s finance facility contains restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined finance facility include material adverse change business properties assets financial condition results operations facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition facility also contains terms breached would result loan becoming repayable demand requires among matters compliance two financial covenant ratios measured quarterly basis requirements 1 ratio notes consolidated financial statementscontinued net debt ebitda shall greater 251 2 ratio ebitda net interest shall less 401 ebitda nongaap measure liquidity defined finance facility management believes company breached covenants throughout period december 31 2010 expects breach covenants next 12 months finance facility secured number fixed floating charges certain assets company subsidiaries weighted average rate interest borrowings 41 december 31 2010 44 december 31 2009 payments interest longterm debt 20 million 29 million 47 million 2010 2009 2008 respectively net cash outflows respect refinancing costs nil 37 million 04 million 2010 2009 2008 respectively note 14 deferred income deferred income consists deferred income relates 10 million post acquisition government grants received innospec leuna gmbh note 15 stockholders’ equity december 31 2010 company authorized common stock 40000000 shares 2009 40000000 issued shares december 31 2010 29554500 2009 29554500 treasury stock amounted 5851298 shares 2009 5890447 notes consolidated financial statementscontinued note 16 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels 2010 company evaluated fair value hierarchy levels assigned assets liabilities concluded transfers level 1 2 3 following table presents carrying amount fair values company’s assets liabilities measured recurring basis december 31 2010 2009 notes consolidated financial statementscontinued following methods assumptions used estimate fair values financial instruments cash equivalents shortterm investments carrying amount approximates fair value shortterm maturities instruments longterm debt carrying amount longterm debt drawn threeyear finance facility approximates fair value based period time maturity derivatives fair value derivatives relating interest rate swaps foreign currency forward exchange contracts commodity swaps derived current settlement prices comparable contracts using current assumptions cumulative gains losses interest rate swaps commodity swaps summarized follows june 12 2009 company entered 500 million interest rate swaps amortize mature february 2010 february 2012 line longterm debt maturity profile december 31 2010 interest rate swaps designated cash flow hedge 400 million underlying floating rate debt obligations stood 470 million december 31 2010 qualify hedge accounting throughout years ended december 31 2010 2009 commodity swaps used manage company’s cash flow exposure raw material cost volatility designated cash flow hedges commodity swaps qualify hedge accounting throughout years ended december 31 2010 2009 interest rate commodity hedges determined effective consequently net unrealized gain 12 million december 31 2010 2009 net unrealized gain 12 million recorded comprehensive income ineffectiveness determined immaterial 2010 2009 2008 accordingly gain loss recognized earnings periods based valuations december 31 2010 company expects net unrealized gain 09 million reclassified earnings next 12 months remaining 03 million reclassified earnings following 12 months foreign currency forward exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying amounts fair values contracts largely due changes exchange rates us dollar notes consolidated financial statementscontinued note 17 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign currency exchange rate raw material cost exposures company uses interest rate swaps floors collar cap agreements reduce impact changes interest rates floating rate debt swap agreements contracts exchange floating rate fixed interest payments periodically life agreements without exchange underlying notional amounts notional amounts used calculate interest paid received represent amount exposure credit loss company decided hedge proportion outstanding floating rate debt obligation december 31 2010 company following interest rate instruments effect notional amounts millions notional amount first two swaps reduced 125 million 75 million february 5 2010 company hedged cost certain raw materials commodity swaps december 31 2010 2009 company following summarized commodity swaps notes consolidated financial statementscontinued derivative instruments classified cash flow hedging relationships effectiveness tested determined effective years ended december 31 2010 2009 impact income statement last 12 months summarized enter various foreign currency forward exchange contracts minimize currency exposure expected future cash flows contracts maturity dates 4 years date inception foreign currency forward exchange contracts designated hedging instruments impact income statement 2010 2009 2008 summarized company sells range fuel specialties active chemicals octane additives major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required notes consolidated financial statementscontinued note 18 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 28 million 2010 26 million 2009 22 million 2008 future commitments noncancelable operating leases follows commitments respect environmental remediation obligations disclosed note 12 contingencies resolution united nations oil food program “offp” us foreign corrupt practices act “fcpa” investigations us cuban assets control regulations “cacr” matters previously disclosed company subject investigations us united kingdom government authorities certain legacy transactions conducted company subsidiaries offp fcpa cacr united kingdom antibribery laws company officers directors fully cooperated investigations us securities exchange commission “sec” us department justice “doj” us office foreign assets control “ofac” united kingdom serious fraud office “sfo” collectively “government authorities” first quarter 2010 company entered 402 million settlement government authorities resolve matters relating investigations part settlement company pled guilty us district court district columbia twelve count indictment alleging wire fraud offp violations fcpa relation illegal payments made government officials iraq indonesia ii agreed pay doj criminal fine 77 million 141 million contingent future trading retain independent corporate compliance monitor least three 3 years subject conditions would allow reduction extension term iii agreed disgorge 112 million settle civil action brought sec alleging notes consolidated financial statementscontinued securities exchange act 1934 fcpa violations failing maintain proper internal controls books records violations iv agreed civil penalty 22 million settle ofac allegations violations cacr v pled guilty southwark crown court england criminal charges conspiracy corrupt relating sfo investigation crown court penalty 127 million fines penalties disgorgements expected payable period four years first payments aggregating 100 million made doj sec ofac southwark crown court april 2010 september 2010 payment 25 million made doj comprises portion fine contingent future trading december 2010 payments 67 million made government authorities december 31 2010 expected schedule payments follows accounting purposes required gaap discount elements fines penalties disgorgements net present value december 31 2009 company recorded total accruals settlement matters 427 million company accrued spent excess 35 million associated legal professional expenses provision 09 million remaining december 31 2010 company accrued 39 million first quarter 2010 respect probable future compliance monitor expenses newmarket corporation complaint july 23 2010 newmarket corporation subsidiary afton chemical corporation collectively “newmarket” filed civil complaint company subsidiary alcor chemie vertriebs gmbh “alcor” us district court eastern district virginia complaint makes certain claims company alcor respect alleged violations provisions robinsonpatman act virginia antitrust act virginia business conspiracy act result alleged actions involving officials iraq indonesia pertaining securing sales company’s tetra ethyl lead fuel additive notes consolidated financial statementscontinued apparent detriment plaintiffs sales competing nonlead based fuel additive complaint seeks treble damages unspecified amount plus attorneys’ fees costs expenses company believes complaint without merit intends defend vigorously uncertainties associated ultimate outcome complaint costs company responding cannot assure ultimate costs damages may imposed upon us material adverse effect results operations financial position cash flows december 31 2010 accrued 28 million respect probable future legal expenses provided additional accruals respect matter legal matters material pending legal proceedings company subsidiaries party property subject ordinary routine litigation incidental respective businesses although adverse resolution unexpectedly large number individual items could aggregate material adverse effect results operations particular year quarter involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties december 31 2010 contingent liabilities amounted 53 million terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company notes consolidated financial statementscontinued note 19 profit disposal net april 2010 company recognized 02 million following disposal surplus real estate lossprofit disposal surplus us real estate relates sale may 2008 company’s former manufacturing site elmwood park new jersey note 20 recently issued accounting pronouncements january 2010 fasb issued accounting standards update asu 201006 improving disclosures fair value measurements “asu 201006” asu amends asc subtopic 82010 require new disclosures regarding transfers level 1 level 2 well activity level 3 fair value measurements asu 201006 requires additional disclosures valuation techniques inputs used measure fair value recurring nonrecurring fair value measurements asu 201006 effective financial statements issued company interim annual periods beginning december 15 2009 except disclosures purchases sales issuances settlements rollforward activity level 3 fair value measurements effective fiscal years beginning december 15 2010 company adopted asu 201006 quarter ended march 31 2010 subsequent periods adoption material impact consolidated financial statements note 21 subsequent events company evaluated subsequent events including february 18 2011 date consolidated financial statements issued concluded additional disclosures required relation events subsequent balance sheet date except fact january 2011 company repurchased 116820 shares cost 23 million item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors stockholders innospec inc audited accompanying consolidated balance sheet innospec inc subsidiaries “innospec” december 31 2011 related consolidated statements income comprehensive incomeloss accumulated comprehensive loss cash flows stockholders’ equity year ended also audited innospec’s internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso innospec’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included “management’s report internal control financial reporting” appearing item 9a form 10k responsibility express opinion consolidated financial statements opinion company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audit consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position innospec december 31 2011 results operations cash flows year ended conformity us generally accepted accounting principles also opinion innospec maintained material respects effective internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission kpmg audit plc manchester united kingdom february 17 2012 report independent registered public accounting firm board directors stockholders innospec inc opinion accompanying consolidated balance sheet december 31 2010 related consolidated statements income stockholders’ equity comprehensive incomeloss accumulated comprehensive loss cash flows two years period ended december 31 2010 present fairly material respects financial position innospec inc subsidiaries december 31 2010 results operations cash flows two years period ended december 31 2010 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp manchester united kingdom february 18 consolidated statements income millions except share per share data accompanying notes integral part statements consolidated statements comprehensive incomeloss millions 1 impact deferred taxes change associated tax rate unrecognized actuarial net losses 1646 million net deferred taxes 641 million previously recognized comprehensive loss 2 impact deferred taxes change associated tax rate unrecognized actuarial net losses 948 million net deferred taxes 351 million previously recognized comprehensive loss accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 05 million 2010 14 million 2009 20 million year included depreciation amortization cash flow statement interest expense income statement cash paymentsreceipts respect income taxes interest disclosed note 7 note 13 respectively accompanying notes integral part statements consolidated statements stockholders’ equity millions 1 impact deferred taxes change associated tax rate unrecognized actuarial net losses 1646 million net deferred taxes 641 million previously recognized comprehensive loss 2 impact deferred taxes change associated tax rate unrecognized actuarial net losses 948 million net deferred taxes 351 million previously recognized comprehensive loss accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets fuel additives personal care fragrance products specialty chemicals products sold primarily oil refineries personal care fragrance companies chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions specialty chemicals provide effective technologybased solutions customers’ processes products focused personal care household industrial institutional fragrance ingredients markets principal product lines reportable segments fuel specialties active chemicals octane additives see note 3 financial information company’s reportable segments certain revisions made year ended december 31 2011 accounting disclosure defined benefit pension plan covering number german employees revisions resulted 04 million benefit net tax 02 million income statement year ended december 31 2011 respect actuarial net losses two years ended december 31 2010 previously recognized income statement prior year comparatives conformed current year classifications note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles united states america include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation acquisitions accounted purchases results operations acquired businesses included consolidated financial statements date acquisition use estimates preparation consolidated financial statements accordance generally accepted accounting principles united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents shortterm investments investment securities maturities 3 months less 12 months purchased considered shortterm investments trade accounts receivable company records trade accounts receivable net realizable value maintains allowances customers making required notes consolidated financial statementscontinued payments company determines adequacy allowances periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method net realizable value cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement inventories adjusted estimated obsolescence written net realizable value based estimates future demand market conditions property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method allocated cost goods sold operating expenses cost additions improvements capitalized maintenance repairs charged expenses assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives amortized subject least annual impairment tests based projected posttax cash flows discounted company’s weighted average cost capital annual measurement date impairment testing goodwill relating fuel specialties active chemicals segments december 31 date performed annual impairment tests concluded impairment goodwill respect reporting segments octane additives segment goodwill tested impairment end quarter expected decline octane additives market resulted quarterly impairment charges incurred first quarter 2004 onwards highly likely quarterly charges incurred future years market continues decline company capitalizes software development costs including licenses subsequent establishment technological feasibility intangible assets deemed finite lives including software development costs licenses amortized using straightline method estimated useful lives tested potential impairment events occur circumstances change suggest impairment may occurred deferred finance costs relating debt financing capitalized separately disclosed consolidated balance sheets amortized using effective interest method expected life debt financing facility notes consolidated financial statementscontinued impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result assets compared carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative instruments company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes company recognizes derivatives either noncurrent assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives designated hedges tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs recognize fair value environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s creditadjusted riskfree rate revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized transfer legal title defined generally accepted standard terms conditions arises company customer provisions sales discounts rebates customers based upon terms sales contracts recorded period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time shipping components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold notes consolidated financial statementscontinued components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads amortization expense certain intangible assets warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions amortization expense certain intangible assets cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal settlement costs litigation company involved made reported administrative expense line item research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur entities gains losses monetary assets relating currencies us dollar taken income statement gains losses foreign currency translations included net incomeexpense income statement share based compensation plans company accounts employee stock options fair value method accordingly share based compensation measured grant date based fair value options company uses straightline attribution method recognize share based compensation costs service period option pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend notes consolidated financial statementscontinued income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities appropriate company evaluates need valuation allowance reduce deferred tax assets company recognizes future tax benefits extent realization benefits likely effect deferred taxes change tax rates recognized period includes enactment date income tax positions must meet likely recognition criteria recognized company recognizes accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income note 3 segmental reporting geographical area data innospec divides business three segments management reporting purposes fuel specialties active chemicals octane additives fuel specialties active chemicals segments operate markets actively seek growth opportunities end customers different octane additives segment generally characterized volatile declining demand 2011 company significant customer fuel specialties segment royal dutch shell plc affiliates “shell” accounted 787 million 10 net group sales 2010 2009 shell accounted 678 million 10 761 million 13 net group sales respectively notes consolidated financial statementscontinued company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments pension charge relates united kingdom defined benefit pension plan closed future service accrual charges related much smaller pension arrangements us overseas included segment income statement captions consistent related employees’ costs company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec notes consolidated financial statementscontinued • presidentceo’s office group finance group human resources group legal compliance counsel investor relations • running corporate offices us europe • corporate development function since relate current trading activities reporting segments • corporate share information technology accounting human resources departments sales geographic area reported source transactions originate destination final sales customers made intercompany sales priced recover cost plus appropriate markup profit eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued note 4 share based compensation plans company five active stock option plans two provide grant stock options employees one provides grant stock options nonemployee directors another provides grant stock options key executives matching basis provided use proportion annual bonus purchase common stock company open market company fifth plan savings plan provides grant stock options company employees provided commit make regular savings predefined period used purchase common stock upon vesting options stock options vesting periods ranging 24 months 6 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount aggregate number shares common stock reserved issuance granted plans 2640000 fair value options calculated using blackscholes model cases certain performance related options dependent upon external factors company’s stock price fair value options calculated using monte carlo model following assumptions used determine fair value options calculated using blackscholes model notes consolidated financial statementscontinued following table summarizes transactions company’s stock option plans year ended december 31 2011 following table summarizes information options outstanding december 31 2011 aggregate intrinsic value fully vested stock options 06 million 109430 stock options exercisable 25084 performance conditions attached total compensation cost 2011 2010 2009 31 million 31 million 15 million respectively 2009 charge included gain 24 million related gain stock options forfeited upon resignation company’s former ceo total compensation cost related nonvested stock options yet recognized december 31 2011 36 million cost expected recognized weightedaverage period 145 years stock options awards modified 2011 2010 february 13 2009 extended vesting period 132470 grants made key employee performance related stock option plan february 13 2009 february 13 2011 modified performance criteria reflect longer vesting period additional compensation cost 02 million required recognized modified stock options period february 13 2009 february 13 2011 notes consolidated financial statementscontinued total intrinsic value options exercised 2011 2010 2009 22 million 37 million 04 million respectively amount cash received exercise stock option awards 2011 2010 2009 07 million 02 million 02 million respectively company’s policy issue shares treasury stock holders stock options exercise options 2011 2010 2009 new total fair value shares vested 29 million 44 million 11 million respectively total options vested 2011 290363 2010 174298 2009 176848 additional longterm incentive plan place reward selected executives delivering exceptional performance plan discretionary bonus payable eligible executives innospec share performance outperforms competitors measured russell 2000 index minimum 10 five years january 2008 december 2012 amount bonus earned set cash amount one percentage point outperformance maximum bonus plan payable outperformance versus russell 2000 index 30 maximum bonus plan respect current participants 8 million 2010 8 million 2009 8 million bonus payable plan innospec stock price outperform russell 2000 index 10 five year period russell 2000 index falls value period fair value liability cashsettled stock appreciation rights calculated quarterly basis using monte carlo model summarized follows following assumptions used monte carlo model notes consolidated financial statementscontinued note 5 earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2011 2010 2009 average number antidilutive options excluded calculation diluted earnings per share 690 61808 146325 respectively note 6 pension plans company maintains defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested two investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater longterm monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company closed plan future service accrual effect march 31 2010 accordingly recorded noncash curtailment loss 82 million first quarter 2010 second quarter 2010 company implemented pension increase exchange “pie” program current pensioners effective april 1 2010 reduced notes consolidated financial statementscontinued pbo 171 million reduction pbo resulted prior service credit amortized using straightline method remaining life expectancy plan pensioners 15 years commencing april 1 2010 pie program provided pensioners option receiving oneoff immediate increase pension lieu future nonstatutory increases fourth quarter 2010 company implemented enhanced transfer value “etv” program deferred pensioners reduced pbo 157 million resulted settlement loss 11 million etv program provided deferred pensioners option transferring existing pension entitlement plan another vehicle exchange enhancement standard terms available transfer full triennial actuarial valuation plan performed december 31 2008 update performed december 31 2011 results reflected consolidated financial statements since april 2010 company contributing £58 million approximately 9 million per calendar year plan accordance 10year actuarial deficit recovery plan agreed trustees accordingly company expects annual cash contribution 2012 approximately 9 million discount rate used represents annualized yield based cash flow matched methodology reference aa corporate bond spot curve regard duration plan’s liabilities inflation rate derived using similar cash flow matched methodology used discount rate regard difference yields fixed interest index linked united kingdom government gilts rate notes consolidated financial statementscontinued increase compensation levels longer relevant since company closed plan future service accrual effect march 31 2010 025 change discount rate assumption would change pbo approximately 20 million net pension charge 2012 approximately 05 million 025 change level price inflation assumption would change pbo approximately 16 million net pension charge 2012 approximately 19 million following guidance issued united kingdom government 2010 agreement plan trustees company changed inflation rate measure retail prices index consumers prices index resulting reduction actuarial net losses accounting basis approximately 47 million current investment strategy plan obtain asset allocation 69 debt securities 31 equity securities order achieve predictable return assets december 31 2011 2010 approximately 70 plan’s assets held indextracking funds one investment management company approximately 35 plan’s assets invested united kingdom government gilts 5 plan’s assets invested one individual company’s investment funds movements pbo fair value plan assets follows notes consolidated financial statementscontinued accumulated benefit obligation plan 6874 million 6840 million december 31 2011 2010 respectively vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund assets ready market indicative dealer prices available fund assets independently evaluated use agreed upon procedures conducted audit firm provide independent confirmation proper valuation procedures followed fair values pension assets level input follows notes consolidated financial statementscontinued reconciliation fair value plan assets using significant unobservable inputs level 3 follows projected net pension credit year ending december 31 2012 follows following benefit payments expected made notes consolidated financial statementscontinued company also maintains unfunded defined benefit pension plan covering number current former employees germany “german plan” german plan closed new entrants assets movements pbo german plan follows company contributions defined contribution schemes 2011 66 million 2010 55 million notes consolidated financial statementscontinued note 7 income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 126 million unrecognized tax benefits interest penalties would impact effective tax rate recognized recognize accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income company determined portion newmarket corporation civil complaint settlement see note 18 associated legal professional expenses would tax notes consolidated financial statementscontinued deductible accordingly recorded 50 million addition unrecognized tax benefits third quarter 2011 additional 02 million recorded respect acquisitionrelated costs 18 million reduction unrecognized tax benefits 01 million associated interest penalties due expiration applicable statutes limitations certain tax years fourth quarter 2011 company recorded 06 million addition tax positions prior periods relation us state taxes accrued interest company one subsidiaries files income tax returns us federal jurisdiction various state foreign jurisdictions december 31 2011 company’s subsidiaries us subject state tax audits various states company’s german subsidiaries subject tax audits germany company currently anticipate adjustments arising tax audits would result material change financial position december 31 2011 company us subsidiaries remain open examination irs years 1998 2004 2007 onwards due net operating losses period 1998 2002 although examination currently underway company’s subsidiaries foreign tax jurisdictions open examination including france 2009 onwards germany 2006 onwards switzerland 2010 onwards united kingdom 2008 onwards sources income taxes follows components income tax charges summarized follows cash payments income taxes 181 million 229 million 86 million 2011 2010 2009 respectively notes consolidated financial statementscontinued effective tax rate varies us federal statutory rate factors indicated significant factors affecting variation statutory rate set include foreign income inclusions net foreign tax credits unfavorable impact increase company’s unrecognized tax benefits position primarily respect newmarket corporation civil complaint settlement favorable impact 2 reduction united kingdom’s corporate tax rate primarily respect unrecognized actuarial net losses associated united kingdom defined benefit pension plan mix taxable profits generated different geographical localities group operates significant positive impact effective tax rate 2011 notes consolidated financial statementscontinued details deferred tax assets liabilities follows details deferred tax asset valuation allowance follows result company’s assessment net deferred tax assets december 31 2011 company considers likely valuation allowance required 08 million 2010 06 million net operating loss carry forwards partial valuation allowance required foreign tax credit carry forwards notes consolidated financial statementscontinued net operating loss carry forwards arose us current period prior periods result trading state tax losses expected sufficient taxable profits generated net operating loss carry forwards relieved foreign tax credit carry forwards arose us current period prior periods company determined future foreign income inclusions sufficient utilize approximately 121 million 2010 27 million foreign tax credit carry forwards prior expiration therefore partial valuation allowance required determined future longer likely assets realized additional valuation allowance would required company’s operating results would adversely affected period determination would made 2011 dividend 405 million remitted company’s overseas subsidiaries us dividend oneoff nature future remittances expected made company position control whether repatriate foreign earnings taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered permanent duration amount unremitted earnings december 31 2011 2010 approximately 665 million 637 million respectively notes consolidated financial statementscontinued note 8 goodwill comprises following notes consolidated financial statementscontinued company’s reporting units level goodwill tested impairment consistent reportable segments identified note 3 fuel specialties active chemicals octane additives components segment including products markets competitors similar economic characteristics therefore segments reflect lowest level operations cash flows clearly distinguished operationally financial reporting purposes rest company tests goodwill annually impairment years events occur circumstances change suggest impairment may occurred determine fair value segments utilize discounted cash flow methodology based forecasted future aftertax cash flows operations since believe provides best approximation fair value methodology requires us make assumptions estimates including respect future revenue growth gross margins based upon long range plans company’s weighted average cost capital long range plans regularly updated part planning processes reviewed approved management board directors assume terminal values fuel specialties active chemicals reporting units added present value relevant forecasted future cash flows assume terminal value octane additives reporting unit beyond estimated future life discounted cash flow methodology assume control premium use discount rate equivalent company’s weighted average cost capital estimated reference overall aftertax rate return required equity debt market participants company assign assets liabilities including deferred taxes goodwill reporting units asset liability relates operations reporting unit included determining fair value reporting unit cash debt obligations excluded carrying value reporting units 2011 assumptions estimates underpinning discounted cash flows revised part planning processes although methodology unchanged significant revisions company’s weighted average cost capital changed reflect changing proportion debt equity funding company effective october 1 2011 company extended estimate future life octane additives segment december 31 2012 december 31 2013 company elected perform annual tests respect fuel specialties active chemicals goodwill december 31 year december 31 2011 1088 million 301 million goodwill relating fuel specialties active chemicals segments respectively date performed annual impairment tests concluded impairment goodwill respect reporting segments light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash flows derived octane additives segment reduced accordingly fair value octane additives reporting unit reduced result company determined quarterly notes consolidated financial statementscontinued impairment tests performed january 1 2004 impairment charge arising recognized relevant quarter result octane additives impairment tests performed 2011 2010 2009 impairment charges 20 million 22 million 22 million respectively recognized charges noncash nature impact taxation 26 million goodwill remaining december 31 2011 relates octane additives segment given quantum predictability remaining future cash flows octane additives segment company expects goodwill impairment charges recognized income statement approximate straightline basis december 31 2013 table presents impact change following significant assumptions would impairment charge recognized december 31 2011 respect goodwill intangibles property plant equipment assuming assumptions factors remained constant believe assumptions used annual quarterly impairment tests reasonable judgmental variations assumptions may result materially different calculations impairment charges note 9 intangible assets intangible assets comprise following notes consolidated financial statementscontinued ethyl intangible asset 284 million recognized second quarter 2007 respect ethyl foregoing entitlement effective april 1 2007 share future income stream sales marketing agreements market sell tel 2008 contract provisions longer deemed necessary 63 million offset intangible asset amount attributed octane additives reporting segment amortized straightline december 31 2012 amount attributed fuel specialties reporting segment amortized straightline december 31 2017 effective october 1 2011 company extended estimate future life octane additives segment december 31 2012 december 31 2013 therefore prospectively adjusted amortization period amount attributed octane additives segment amortization expense 19 million recognized 2011 2010 21 million cost goods sold technology following acquisition remaining 50 innospec fuel specialties llc july 8 2004 company recognized intangible asset 23 million respect various technological approvals business received certain military civilian authorities approvals act barrier entry potential competitor market would wish supply products intangible asset 48 million recognized respect number specialized manufacturing processes carried innospec widnes limited following acquisition entity august 2004 assets expected life 10 years amortized straightline basis period residual value anticipated amortization expense 07 million recognized 2011 2010 07 million cost goods sold customer relationships following acquisition finetex merged innospec active chemicals llc january 2005 company recognized intangible asset totaling 71 million 42 million relation customer lists acquired asset expected life 13 years amortized straightline basis period residual value anticipated intangible assets recognized 2004 respect innospec fuel specialties llc 90 million innospec widnes limited 28 million acquisitions relate ongoing customer relationships expected life 10 years amortized straightline basis period residual value anticipated amortization expense 15 million recognized 2011 2010 16 million selling general administrative expenses notes consolidated financial statementscontinued patents following acquisition finetex company recognized intangible asset 29 million respect patents trademarks expected life 10 years amortized straightline basis period amortization expense 03 million recognized 2011 2010 03 million cost goods sold aggregate intangible asset amortization expense 44 million 47 million 47 million 2011 2010 2009 respectively 29 million 31 million 31 million respectively recognized cost goods sold remainder recognized selling general administrative expenses future amortization expense estimated 41 million per annum 2012 2013 30 million per annum 2014 internally developed software costs continuing implementation new companywide information system platform provider well established market implementation phased riskmanaged site deployment follow multistage user acceptance program existing platform providing fallback position internally developed software costs capitalized december 31 2011 31 million 2010 00 million amortization recognized 2011 2010 00 million note 10 deferred finance costs december 14 2011 entered new fiveyear revolving credit facility 17 million refinancing costs capitalized amortized expected life revolving credit facility using effective interest method deferred finance costs associated previous finance facility became fully amortized third quarter 2011 amortization expense 05 million 14 million 20 million 2011 2010 2009 respectively charge included interest expense see note 2 notes consolidated financial statementscontinued note 11 property plant equipment property plant equipment consists following total net book value equipment december 31 2011 2010 amounts respect assets held capital leases depreciation charges 92 million 93 million 117 million 2011 2010 2009 respectively estimated additional cost complete work progress 09 million 2010 14 million notes consolidated financial statementscontinued note 12 plant closure provisions principal site giving rise environmental remediation liabilities octane additives manufacturing site ellesmere port united kingdom management believes last ongoing manufacturer tel also environmental remediation liabilities much smaller scale respect manufacturing sites us europe liability estimated closure costs innospec’s octane additives manufacturing facilities includes costs decontamination environmental remediation activities remediation demand tel diminishes severance provisions made relation corporate personnel three reporting segments movements provisions summarized follows amounts due within one year refer provisions expenditure expected arise within one year balance sheet date severance charges recognized income statement restructuring costs along restructuring costs remediation costs recognized cost goods sold notes consolidated financial statementscontinued severance charge 07 million recognized respect reduction emea headcount restructuring residual accrual 01 million respect relocation us sales administration facility released 2011 remediation provision represents fair value company’s liability environmental liabilities asset retirement obligations accretion expense recognized 2011 24 million remediation charge also included 21 million primarily respect changes scope future remediation activities recognize fair value environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation relevant countries operates operated company views costs vacating ellesmere port site contingent liability present intention exit site company determined due uncertain product life tel particularly market aviation gasoline exists uncertainty probability timing cash flows possible estimate sufficiently reliably recognize provision remediation expenditure provisions 31 million 27 million 15 million 2011 2010 2009 respectively note 13 longterm debt longterm debt consists following december 14 2011 entered fiveyear revolving credit facility provides borrowings us 1000 million facility carries interest rate based notes consolidated financial statementscontinued us libor plus margin 150 225 dependant company’s ratio net debt ebitda nongaap measure liquidity defined finance facility drawn expires december 14 2016 repaid previous finance facility due expire february 6 2012 upon entering new facility company’s finance facility contains restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined finance facility include material adverse change assets operations financial condition facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition facility also contains terms breached would result becoming repayable demand requires among matters compliance two financial covenant ratios measured quarterly basis requirements 1 ratio net debt ebitda shall greater 251 2 ratio ebitda net interest shall less 401 management determined company breached covenants throughout period december 31 2011 expects breach covenants next 12 months finance facility secured number fixed floating charges certain assets include key operating sites company subsidiaries september 13 2011 company settled newmarket corporation civil complaint settlement agreement included company issuing 150 million promissory note newmarket corporation payable three equal annual installments carrying simple interest 1 per annum first installment due september 10 2012 weighted average rate interest borrowings 34 december 31 2011 41 december 31 2010 payments interest longterm debt 18 million 20 million 29 million 2011 2010 2009 respectively net cash outflows respect refinancing costs 17 million 00 million 37 million 2011 2010 2009 respectively note 14 deferred income deferred income consists notes consolidated financial statementscontinued april 2011 company received purchase order iraqi ministry oil “moo” 2000 tonnes tetra ethyl lead “tel” upon completion order 1605 tonnes free issue tel supplied moo full final settlement claims republic iraq may company concerning claims certain payments totaling approximately 20 million claimed moo connection two contracts dating back 2003 signed acceptance terms received moo june 13 2011 free issue tel contingent delivery payment full 2000 tonnes income 13 million relating initial shipment 1000 tonnes deferred moo take delivery free product deferred income 10 million relates post acquisition government grants received innospec leuna gmbh note 15 stockholders’ equity december 31 2011 company authorized common stock 40000000 shares 2010 40000000 issued shares december 31 2011 29554500 2010 29554500 treasury stock amounted 6507081 shares 2010 5851298 note 16 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest notes consolidated financial statementscontinued priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels 2011 company evaluated fair value hierarchy levels assigned assets liabilities concluded transfers levels 1 2 3 following table presents carrying amount fair values company’s assets liabilities measured recurring basis following methods assumptions used estimate fair values financial instruments cash equivalents shortterm investments carrying amount approximates fair value shortterm maturities instruments longterm debt longterm debt comprises new revolving credit facility promissory note entered december 2011 september 2011 respectively carrying amount longterm debt approximates fair value notes consolidated financial statementscontinued plant closure provisions remediation provision represents fair value company’s liability environmental liabilities asset retirement obligations derivatives fair value derivatives relating interest rate swaps foreign currency forward exchange contracts commodity swaps derived current settlement prices comparable contracts using current assumptions cumulative gains losses interest rate swaps commodity swaps summarized follows june 12 2009 company entered 500 million interest rate swaps amortize mature february 2010 february 2012 line longterm debt maturity profile previous finance facility repaid previous finance facility upon entering new facility december 2011 point remaining interest rate swaps rendered ineffective associated fair value recognized earnings interest rate swaps qualified hedge accounting point throughout year ended december 31 2010 commodity swaps used manage company’s cash flow exposure raw material cost volatility designated cash flow hedges commodity swaps qualify hedge accounting throughout years ended december 31 2011 2010 december 31 2011 commodity hedges determined effective consequently unrealized gain 02 million recorded comprehensive income interest rate swaps ineffective previous finance facility carried corresponding floating rate debt obligations repaid accordingly loss 01 million recognized earnings december 31 2010 interest rate commodity hedges determined effective consequently net unrealized gain 12 million recorded comprehensive income ineffectiveness determined immaterial 2010 2009 accordingly gain loss recognized earnings periods based valuations december 31 2011 company expects unrealized gain 02 million reclassified earnings next 12 months foreign currency forward exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying amounts fair values contracts largely due changes exchange rates us dollar notes consolidated financial statementscontinued note 17 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign currency exchange rate raw material cost exposures company uses interest rate swaps floors collar cap agreements reduce impact changes interest rates floating rate debt swap agreements contracts exchange floating rate fixed interest payments periodically life agreements without exchange underlying notional amounts notional amounts used calculate interest paid received represent amount exposure credit loss december 31 2011 company interest rate instruments designated effective hedges december 31 2010 following effect interest rate swaps expiry dates february 6 2012 ineffective december 31 2011 company’s previous finance facility carried corresponding floating rate debt obligations repaid accordingly loss 01 million recognized earnings 2011 company hedged cost certain raw materials commodity swaps summarized follows impact income statement last 12 months summarized notes consolidated financial statementscontinued enter various foreign currency forward exchange contracts minimize currency exposure expected future cash flows contracts maturity dates four years date inception foreign currency forward exchange contracts designated hedging instruments impact income statement 2011 2010 2009 summarized company sells range fuel specialties active chemicals octane additives major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required note 18 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 26 million 2011 28 million 2010 26 million 2009 future commitments noncancelable operating leases follows commitments respect environmental remediation obligations disclosed note 12 contingencies resolution certain government investigations matters previously disclosed company reached 402 million settlement resolve matters respect investigations us united kingdom government authorities notes consolidated financial statementscontinued certain legacy transactions conducted company subsidiaries united nations oil food program “offp” us foreign corrupt practices act “fcpa” us cuban assets control regulations “cacr” united kingdom antibribery laws settlement consists fines penalties disgorgements payable period four years commencing 2010 december 31 2011 expected schedule payments follows accounting purposes required gaap accordance accounting policy discount elements fines penalties disgorgements net present value settlement newmarket corporation civil complaint previously disclosed company subsidiaries alcor chemie vertriebs gmbh innospec limited subject two civil actions brought newmarket corporation subsidiary afton chemical corporation collectively “newmarket” newmarket company agreed settle actions pursuant terms settlement agreement signed september 13 2011 provided mutual releases parties dismissal actions prejudice settlement agreement company pay newmarket aggregate amount approximately 450 million payable combination cash promissory note stock 250 million paid cash september 2011 150 million payable three equal annual installments promissory note carrying simple interest 1 per annum first installment due september 10 2012 approximately 50 million paid form 195313 shares company’s common stock transferred newmarket september 2011 notes consolidated financial statementscontinued legal matters involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims material pending legal proceedings company subsidiaries party property subject although adverse resolution unexpectedly large number individual items could aggregate material adverse effect results operations particular year quarter guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties december 31 2011 contingent liabilities amounted 54 million terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company note 19 profit disposal net april 2010 company recognized 02 million profit following disposal surplus real estate loss disposal surplus us real estate relates sale company’s former manufacturing site elmwood park new jersey note 20 recently issued accounting pronouncements december 2011 fasb issued asu 201112 comprehensive income topic 220 deferral effective date amendments presentation reclassifications notes consolidated financial statementscontinued items accumulated comprehensive income asu 201105 fasb’s response concerns new presentation requirements reclassifications items accumulated comprehensive income would difficult preparers may add unnecessary complexity financial statements amendments update effective time amendments update 201105 fiscal years interim periods within years beginning december 15 2011 company adopted guidance material effect consolidated financial statements december 2011 fasb issued asu 201111 balance sheet topic 210 disclosures offsetting assets liabilities objective asu 201111 facilitate convergence us gaap international financial reporting standards improve comparability statements financial position entities required disclose gross information net information instruments transactions eligible offset statement financial position instruments transactions subject agreement similar master netting arrangement scope would include derivatives sale repurchase agreements securities borrowing securities lending arrangements guidance effective annual reporting periods beginning january 1 2013 interim periods within annual periods entities provide disclosures required amendments retrospectively comparative periods presented company currently evaluating potential impact adoption statement consolidated financial statements september 2011 fasb issued asu 201108 intangibles goodwill topic 350 testing goodwill impairment amended guidance testing goodwill impairment allow entity option first assess qualitative factors determine whether performing current twostep process necessary new option calculation reporting unit’s fair value required unless result qualitative assessment likely fair value reporting unit less unit’s carrying amount guidance effective fiscal years interim periods beginning december 15 2011 early adoption permitted company adopted guidance material effect consolidated financial statements june 2011 fasb issued asu 201105 comprehensive income topic 220 presentation comprehensive income objective asu 201105 improve comparability consistency transparency financial reporting increase prominence items reported comprehensive income facilitate convergence us gaap international financial reporting standards achieve fasb decided eliminate option present components comprehensive income part statement changes stockholders’ equity amendments asu 201105 require nonowner changes stockholders’ equity presented either single continuous statement comprehensive income two separate consecutive statements twostatement approach first statement present total net income notes consolidated financial statementscontinued components followed consecutively second statement present total comprehensive income components comprehensive income total comprehensive income finally current gaap require entity present reclassification adjustments face financial statements comprehensive income net income required guidance asu 201105 public entities amendments effective fiscal years interim periods within years beginning december 15 2011 early adoption permitted compliance amendments already permitted amendments require transition disclosures company compliance provisions update exception reclassification adjustments per guidance asu 201112 may 2011 fasb issued asu 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrss asu 201104 results common fair value measurement well disclosure requirements us gaap international financial reporting standards amendments clarify guidance measuring fair value require additional fair value measurements guidance effective fiscal years interim periods beginning december 15 2011 early adoption permitted company adopted guidance material effect consolidated financial statements note 21 related party transactions mr robert paller nonexecutive director company since november 1 2009 company retained continues retain smith gambrell russell llp “sgr” law firm mr paller holds position 2011 2010 2009 company incurred fees payable sgr 65 million 11 million 01 million respectively december 31 2011 amount due sgr company 01 million note 22 subsequent events company evaluated subsequent events date consolidated financial statements issued concluded additional disclosures required relation events subsequent balance sheet date item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors stockholders innospec inc audited accompanying consolidated balance sheets innospec inc subsidiaries “innospec” december 31 2012 2011 related consolidated statements income comprehensive income accumulated comprehensive loss cash flows stockholders’ equity years ended also audited innospec’s internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso innospec’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying “management’s report internal control financial reporting” appearing item 9a form 10k responsibility express opinion consolidated financial statements opinion innospec’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position innospec december 31 2012 2011 results operations cash flows years ended conformity us generally accepted accounting principles also opinion innospec maintained material respects effective internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission innospec acquired strata control services inc “strata” december 24 2012 management excluded assessment effectiveness innospec’s internal control financial reporting december 31 2012 strata’s internal control financial reporting associated total assets 594 million included consolidated financial statements innospec year ended december 31 2012 audit internal control financial reporting innospec also excluded evaluation internal control financial reporting strata kpmg audit plc manchester united kingdom february 13 report independent registered public accounting firm board directors stockholders innospec inc opinion accompanying consolidated statements income stockholders’ equity comprehensive income accumulated comprehensive loss cash flows period ended december 31 2010 present fairly material respects results innospec inc subsidiaries operations cash flows period ended december 31 2010 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audit provides reasonable basis opinion pricewaterhousecoopers llp manchester united kingdom february 18 consolidated statements income millions except share per share data accompanying notes integral part statements consolidated statements comprehensive income millions 1 impact deferred taxes year ended december 31 2010 change associated tax rate unrecognized actuarial net losses 1646 million net deferred taxes 641 million previously recognized comprehensive loss 2 impact deferred taxes year ended december 31 2011 change associated tax rate unrecognized actuarial net losses 948 million net deferred taxes 351 million previously recognized comprehensive loss accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 04 million 2011 05 million 2010 14 million year included depreciation amortization cash flow statement interest expense income statement cash paymentsreceipts respect income taxes interest disclosed note 10 note 11 respectively accompanying notes integral part statements consolidated statements stockholders’ equity millions 1 impact deferred taxes change associated tax rate unrecognized actuarial net losses 1646 million net deferred taxes 641 million previously recognized comprehensive loss 2 impact deferred taxes change associated tax rate unrecognized actuarial net losses 948 million net deferred taxes 351 million previously recognized comprehensive loss accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets supplies fuel additives personal care fragrance products specialty chemicals products sold primarily oil refineries personal care fragrance companies chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions specialty chemicals provide effective technologybased solutions customers’ processes products focused personal care polymers fragrance ingredients markets principal product lines reportable segments fuel specialties performance chemicals octane additives see note 3 financial information company’s reportable segments following review internally developed software costs capitalized 2011 reclassification 16 million made fourth quarter 2012 internally developed software costs property plant equipment costs related development new information technology infrastructure prior year comparatives conformed current year classifications note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles united states america include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation acquisitions accounted purchases results operations acquired businesses included consolidated financial statements date acquisition use estimates preparation consolidated financial statements accordance generally accepted accounting principles united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents shortterm investments investment securities maturities 3 months less 12 months purchased considered shortterm investments trade accounts receivable company records trade accounts receivable net realizable value maintains allowances customers making required payments company determines adequacy allowances periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions notes consolidated financial statementscontinued inventories stated lower cost fifo method market value cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement inventories adjusted estimated obsolescence written market value based estimates future demand market conditions property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method allocated cost goods sold operating expenses cost additions improvements capitalized maintenance repairs charged expenses assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives amortized subject least annual impairment tests based projected posttax cash flows discounted company’s weighted average cost capital annual measurement date impairment testing goodwill relating fuel specialties performance chemicals segments december 31 date performed annual impairment tests concluded impairment goodwill respect reporting segments octane additives segment goodwill tested impairment end quarter expected decline octane additives market resulted quarterly impairment charges incurred first quarter 2004 onwards highly likely quarterly charges incurred future years market continues decline company capitalizes software development costs including licenses subsequent establishment technological feasibility intangible assets deemed finite lives including software development costs licenses amortized using straightline method estimated useful lives tested potential impairment events occur circumstances change suggest impairment may occurred deferred finance costs relating debt financing capitalized separately disclosed consolidated balance sheets amortized using effective interest method expected life debt financing facility impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups notes consolidated financial statementscontinued together assets lowest possible level cash flow information available undiscounted future cash flows expected result assets compared carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative instruments company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes company recognizes derivatives either noncurrent assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives designated hedges tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s creditadjusted riskfree rate acquisitionrelated contingent deferred consideration deferred consideration payable cash discounted fair value deferred consideration contingent upon predetermined financial targets estimate fair value likely consideration payable made contingent deferred consideration reassessed annually corresponding adjustment recognized operating income associated liability reflect passage time accretion expense revisions amount timing initial measurement revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized legal title defined generally accepted standard terms conditions risk loss transfers company customer provisions sales discounts rebates customers based upon terms sales contracts recorded period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time shipping notes consolidated financial statementscontinued components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads amortization expense certain intangible assets warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions amortization expense certain intangible assets cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal settlement costs litigation company involved made reported administrative expense line item research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur gains losses monetary assets relating currencies us dollar taken income statement gains losses foreign currency translations included net incomeexpense income statement share based compensation plans company accounts employee stock options fair value method accordingly share based compensation measured grant date based fair value options company uses straightline attribution method recognize share based compensation costs service period option notes consolidated financial statementscontinued pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities appropriate company evaluates need valuation allowance reduce deferred tax assets company recognizes future tax benefits extent realization benefits likely effect deferred taxes change tax rates recognized period includes enactment date income tax positions must meet likely recognition criteria recognized company recognizes accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income note 3 segmental reporting geographical area data innospec divides business three segments management reporting purposes fuel specialties performance chemicals octane additives september 20 2012 company announced active chemicals segment would renamed performance chemicals effective october 1 2012 make purpose products clearer customers serves fuel specialties performance chemicals segments operate markets actively seek growth opportunities although ultimate customers different octane additives segment generally characterized volatile declining demand 2012 company significant customer fuel specialties segment royal dutch shell plc affiliates “shell” accounted 829 million 11 net group sales 2011 2010 shell accounted 787 million 10 678 million 10 net group sales respectively notes consolidated financial statementscontinued company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments pension charge relates united kingdom defined benefit pension plan closed future service accrual charges related much smaller pension arrangements us overseas included segment income statement captions consistent related employees’ costs company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec notes consolidated financial statementscontinued • presidentceo’s office group finance group human resources group legal compliance counsel investor relations • running corporate offices us europe • corporate development function since relate current trading activities reporting segments • corporate share information technology accounting human resources departments sales geographical area reported source transactions originate destination final sales customers made intercompany sales priced recover cost plus appropriate markup profit eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued note 4 earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2012 2011 2010 average number antidilutive options excluded calculation diluted earnings per share 1380 690 61808 respectively notes consolidated financial statementscontinued note 5 property plant equipment property plant equipment consists following total net book value equipment december 31 2012 2011 amounts respect assets held capital leases depreciation charges 70 million 92 million 93 million 2012 2011 2010 respectively estimated additional cost complete work progress 27 million 2011 09 million notes consolidated financial statementscontinued note 6 goodwill following table analyzes goodwill 2012 2011 change gross cost 2011 2012 due foreign currency exchange rate fluctuations gross cost net 87 million 03 million 2895 million historical accumulated amortization respect fuel specialties performance chemicals octane additives reporting segments respectively company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties performance chemicals octane additives components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows clearly distinguished operationally financial reporting purposes rest company tests goodwill annually impairment years events occur circumstances change suggest impairment may occurred determine fair value segments utilize discounted cash flow methodology based forecasted future aftertax cash flows operations notes consolidated financial statementscontinued since believe provides best approximation fair value methodology requires us make assumptions estimates including respect future revenue growth gross margins based upon long range plans company’s weighted average cost capital long range plans regularly updated part planning processes reviewed approved management board directors assume terminal values fuel specialties performance chemicals reporting units added present value relevant forecasted future cash flows assume terminal value octane additives reporting unit beyond estimated future life discounted cash flow methodology assume control premium use discount rate equivalent company’s weighted average cost capital estimated reference overall aftertax rate return required equity debt market participants company assign assets liabilities including deferred taxes goodwill reporting units asset liability relates operations reporting unit included determining fair value reporting unit cash debt obligations excluded carrying value reporting units 2012 assumptions estimates underpinning discounted cash flows revised part planning processes although methodology unchanged significant revisions company’s weighted average cost capital changed reflect changing proportion debt equity funding company elected perform annual tests respect fuel specialties performance chemicals goodwill december 31 year december 31 2012 1176 million 301 million goodwill relating fuel specialties performance chemicals segments respectively date performed annual impairment tests concluded impairment goodwill respect reporting segments light continuing decline octane additives market globally company makes sales octane additives quarter remaining sales corresponding cash flows derived octane additives segment reduced accordingly fair value octane additives reporting unit reduced result company determined quarterly impairment tests performed january 1 2004 impairment charge arising recognized relevant quarter result octane additives impairment tests performed 2012 2011 2010 impairment charges 12 million 20 million 22 million respectively recognized charges noncash nature impact taxation 13 million goodwill remaining december 31 2012 relates octane additives segment given quantum predictability remaining future cash flows octane additives segment company expects goodwill impairment charges recognized income statement approximate straightline basis december 31 2013 notes consolidated financial statementscontinued table presents impact change following significant assumptions would impairment charge recognized december 31 2012 respect goodwill intangible assets property plant equipment assuming assumptions factors remained constant believe assumptions used annual quarterly impairment tests reasonable judgmental variations assumptions may result materially different calculations impairment charges acquisitions december 24 2012 company acquired 100 voting equity interests strata control services inc “strata” private company based crowley louisiana consideration approximately 600 million strata leading supplier mud fluid loss solutions oil gas drilling operations annual sales 2012 approximately 200 million products services prevent unnecessary loss valuable materials formation matrix thereby lowering cost operations acquired strata order build presence growing market serves purchase price fair values assets acquired liabilities assumed following table summarizes calculation total purchase price preliminary allocation purchase price assets acquired liabilities assumed purchase price allocation related valuation process yet complete final determination fair values may result adjustments amounts presented strata associated goodwill included within fuel specialties segment management reporting purposes see note 7 notes consolidated financial statements information intangible assets purchase price notes consolidated financial statementscontinued comprises 531 million paid immediately december 24 2012 50 million payable cash 2015 contingent upon achievement certain predetermined financial targets currently expect achieved accounting purposes required gaap accordance accounting policy discount acquisitionrelated contingent consideration fair value 43 million addition predetermined financial targets achieved 2015 transfer 60368 innospec common stock strata’s previous owner fair value contingently issuable shares acquisition date 20 million deducted additional paidin capital supplemental unaudited condensed combined pro forma information amounts revenue earnings strata since acquisition date included results year ended december 31 2012 since material illustrative purposes however pro forma information enlarged group provided necessarily indicative financial position results operations would acquisition completed january 1 2011 addition unaudited pro forma financial information indicative purport project future financial position operating results enlarged group included unaudited pro forma financial information additional amortization respect acquired intangible assets acquisitionrelated costs incurred respect transaction 07 million excluded notes consolidated financial statementscontinued note 7 intangible assets intangible assets comprise following ethyl intangible asset 284 million recognized second quarter 2007 respect ethyl corporation foregoing entitlement effective april 1 2007 share future income stream sales marketing agreements market sell tel 2008 contract provisions longer deemed necessary 63 million offset intangible asset amount attributed octane additives reporting segment amortized straightline december 31 2012 amount attributed fuel specialties reporting segment amortized straightline december 31 2017 effective october 1 2011 company extended estimate future life octane additives segment december 31 2012 december 31 2013 therefore prospectively adjusted amortization period amount attributed octane additives segment amortization expense 16 million recognized 2012 2011 19 million cost goods sold technology following acquisition remaining 50 innospec fuel specialties llc july 8 2004 company recognized intangible asset 23 million respect various technological approvals business received certain military civilian authorities approvals act barrier entry potential competitor market would wish supply products notes consolidated financial statementscontinued intangible asset 48 million recognized respect number specialized manufacturing processes carried innospec widnes limited following acquisition entity august 2004 assets expected life 10 years amortized straightline basis period residual value anticipated amortization expense 07 million recognized 2012 2011 07 million cost goods sold customer relationships following acquisition finetex merged innospec active chemicals llc january 2005 company recognized intangible asset totaling 71 million 42 million relation customer lists acquired asset expected life 13 years amortized straightline basis period residual value anticipated intangible assets recognized 2004 respect innospec fuel specialties llc 90 million innospec widnes limited 28 million acquisitions relate ongoing customer relationships expected life 10 years amortized straightline basis period residual value anticipated amortization expense 15 million recognized 2012 2011 15 million selling general administrative expenses patents following acquisition finetex company recognized intangible asset 29 million respect patents trademarks expected life 10 years amortized straightline basis period amortization expense 03 million recognized 2012 2011 03 million cost goods sold internally developed software costs continuing implementation new companywide information system platform december 31 2012 capitalized 101 million 2011 31 million relation internally developed software amortization recognized 2012 2011 00 million strata december 24 2012 company acquired 100 voting equity interests strata purchase price allocation related valuation process yet complete however provisionally allocated 480 million purchase price intangible assets expect amortize straightline basis income statement weighted average expected life 13 years final determination fair values may result adjustments estimates notes consolidated financial statementscontinued amortization expense aggregate intangible asset amortization expense 41 million 44 million 47 million 2012 2011 2010 respectively 26 million 29 million 31 million respectively recognized cost goods sold remainder recognized selling general administrative expenses future amortization expense estimated 100 million 105 million 95 million 2013 2014 2015 respectively note 8 deferred finance costs december 14 2011 entered new fiveyear revolving credit facility 17 million refinancing costs capitalized amortized expected life revolving credit facility using effective interest method deferred finance costs associated previous finance facility became fully amortized third quarter 2011 amortization expense 04 million 05 million 14 million 2012 2011 2010 respectively charge included interest expense see note 2 note 9 pension plans united kingdom plan company maintains defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested two investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater longterm monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company notes consolidated financial statementscontinued company closed plan future service accrual effect march 31 2010 accordingly recorded noncash curtailment loss 82 million first quarter 2010 second quarter 2010 company implemented pension increase exchange “pie” program current pensioners effective april 1 2010 reduced pbo 171 million reduction pbo resulted prior service credit amortized using straightline method remaining life expectancy plan pensioners 15 years commencing april 1 2010 pie program provided pensioners option receiving oneoff immediate increase pension lieu future nonstatutory increases fourth quarter 2010 company implemented enhanced transfer value “etv” program deferred pensioners reduced pbo 157 million resulted settlement loss 11 million etv program provided deferred pensioners option transferring existing pension entitlement plan another vehicle exchange enhancement standard terms available transfer since april 2010 company contributing £58 million approximately 9 million per calendar year plan accordance 10year actuarial deficit recovery plan agreed trustees company expects annual cash contribution january 1 2013 approximately 11 million notes consolidated financial statementscontinued discount rate used represents annualized yield based cash flow matched methodology reference aa corporate bond spot curve regard duration plan’s liabilities inflation rate derived using similar cash flow matched methodology used discount rate regard difference yields fixed interest index linked united kingdom government gilts rate increase compensation levels longer relevant since company closed plan future service accrual effect march 31 2010 025 change discount rate assumption would change pbo approximately 26 million net pension charge 2013 approximately 08 million 025 change level price inflation assumption would change pbo approximately 23 million net pension charge 2013 approximately 21 million following guidance issued united kingdom government 2010 agreement plan trustees company changed inflation rate measure retail prices index consumers prices index resulting reduction actuarial net losses accounting basis approximately 47 million current investment strategy plan obtain asset allocation 65 debt securities 35 equity securities order achieve predictable return assets december 31 2012 2011 approximately 55 plan’s assets held indextracking funds one investment management company approximately 25 plan’s assets invested united kingdom government gilts 5 plan’s assets invested one individual company’s investment funds notes consolidated financial statementscontinued movements pbo fair value plan assets follows accumulated benefit obligation plan 8053 million 6874 million december 31 2012 2011 respectively notes consolidated financial statementscontinued vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund level 3 assets ready market indicative dealer prices available fund assets independently evaluated use agreed upon procedures conducted audit firm provide independent confirmation proper valuation procedures followed fair values pension assets level input follows notes consolidated financial statementscontinued reconciliation fair value plan assets using significant unobservable inputs level 3 follows projected net pension charge year ending december 31 2013 follows following benefit payments expected made notes consolidated financial statementscontinued german plan company also maintains unfunded defined benefit pension plan covering number current former employees germany “german plan” german plan closed new entrants assets movements pbo german plan follows amount unrecognized actuarial net losses comprehensive loss respect german plan 18 million net tax 08 million plans company contributions defined contribution schemes 2012 74 million 2011 66 million notes consolidated financial statementscontinued note 10 income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 128 million unrecognized tax benefits interest penalties would impact effective tax rate recognized recognize accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income fourth quarter 2012 company recorded 02 million addition unrecognized tax benefits 02 million reduction unrecognized tax benefits due expiration applicable statutes limitations third quarter 2012 notes consolidated financial statementscontinued company one subsidiaries files income tax returns us federal government various state foreign jurisdictions december 31 2012 company’s german subsidiaries subject tax audits germany company’s united kingdom subsidiaries subject tax audits united kingdom company currently anticipate adjustments arising tax audits would result material change financial position december 31 2012 company us subsidiaries remain open federal income tax examination irs years 2009 onwards company us subsidiaries received notification january 2013 federal income tax examination irs 2009 company currently anticipate adjustments arising tax audit would result material change financial position december 31 2012 company’s subsidiaries foreign tax jurisdictions open examination including france 2009 onwards germany 2006 onwards switzerland 2011 onwards united kingdom 2010 onwards sources income taxes follows components income tax charges summarized follows cash payments income taxes 131 million 181 million 229 million 2012 2011 2010 respectively notes consolidated financial statementscontinued effective tax rate varies us federal statutory rate factors indicated significant factors affecting variation statutory rate set include foreign income inclusions net foreign tax credits mix taxable profits generated different geographical localities group operates significant positive impact effective tax rate 2012 notes consolidated financial statementscontinued details deferred tax assets liabilities analyzed follows details deferred tax asset valuation allowance follows result company’s assessment net deferred tax assets december 31 2012 company considers likely valuation allowance required 03 million 2011 08 million net operating loss carry forwards valuation allowance required foreign tax credit carry forwards 2011 75 million notes consolidated financial statementscontinued net operating loss carry forwards arose us current period prior periods result trading state tax losses expected sufficient taxable profits generated net operating loss carry forwards relieved prior expiration 2021 foreign tax credit carry forwards arose us prior periods company determined future foreign income inclusions sufficient utilize 55 million 2011 121 million foreign tax credit carry forwards prior expiration 2017 2021 therefore valuation allowance required determined future longer likely assets realized valuation allowance would required company’s operating results would adversely affected period determination would made 2012 dividend 1100 million remitted company’s overseas subsidiaries us dividend remitted provide funding company’s acquisition program company position control whether repatriate foreign earnings intend permanently reinvest earnings overseas fund overseas subsidiaries taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered permanent duration amount unremitted earnings december 31 2012 2011 approximately 717 million 665 million respectively earnings remitted additional taxes could result offsetting foreign income taxes paid although calculation additional taxes practical time note 11 longterm debt longterm debt consists following december 14 2011 entered fiveyear revolving credit facility provides borrowings us 1000 million facility carries interest rate based us libor plus margin 150 225 dependent company’s ratio net debt ebitda nongaap measure liquidity defined credit facility drawn expires december 14 2016 repaid previous finance facility due expire february 6 2012 upon entering new credit facility notes consolidated financial statementscontinued company’s credit facility contains restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined credit facility include material adverse change assets operations financial condition facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda shall greater 251 2 ratio ebitda net interest shall less 401 management determined company breached covenants throughout period december 31 2012 expects breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries september 13 2011 company settled newmarket corporation civil complaint settlement agreement included company issuing 150 million promissory note newmarket corporation payable three equal annual installments carrying simple interest 1 per annum first installment paid september 7 2012 weighted average rate interest borrowings 16 december 31 2012 34 december 31 2011 payments interest longterm debt 05 million 18 million 20 million 2012 2011 2010 respectively net cash outflows respect refinancing costs 00 million 17 million 00 million 2012 2011 2010 respectively note 12 plant closure provisions principal site giving rise environmental remediation liabilities octane additives manufacturing site ellesmere port united kingdom management believes last ongoing manufacturer tel also environmental remediation liabilities much smaller scale respect manufacturing sites us europe liability estimated closure costs innospec’s octane additives manufacturing facilities includes costs decontamination environmental remediation activities remediation demand tel diminishes severance provisions made relation corporate personnel three reporting segments notes consolidated financial statementscontinued movements provisions summarized follows amounts due within one year refer provisions expenditure expected arise within one year balance sheet date severance charges recognized income statement restructuring costs along restructuring costs remediation costs recognized cost goods sold severance charge 02 million recognized respect reduction emea headcount restructuring residual accrual 01 million respect relocation us sales administration facility released 2011 notes consolidated financial statementscontinued remediation provision represents company’s liability environmental liabilities asset retirement obligations accretion expense recognized 2012 25 million remediation charge also included 15 million primarily respect changes expected cost scope future remediation activities recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention company determined due uncertain product life tel particularly market aviation gasoline products manufactured site uncertainties probability timing expected costs uncertainties considered estimating provision remediation expenditure provisions 21 million 31 million 27 million 2012 2011 2010 respectively note 13 deferred income deferred income consists noncurrent deferred income 09 million relates post acquisition government grants received innospec leuna gmbh note 14 profit disposal net notes consolidated financial statementscontinued third quarter 2012 company recognized 01 million profit following disposal surplus real estate april 2010 company recognized 02 million profit following disposal surplus real estate loss disposal surplus us real estate relates sale company’s former manufacturing site elmwood park new jersey note 15 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels 2012 company evaluated fair value hierarchy levels assigned assets liabilities concluded transfers levels 1 2 3 notes consolidated financial statementscontinued following table presents carrying amount fair values company’s assets liabilities measured recurring basis following methods assumptions used estimate fair values financial instruments cash equivalents shortterm investments carrying amount approximates fair value shortterm maturities instruments longterm debt longterm debt comprises revolving credit facility promissory note entered december 2011 september 2011 respectively carrying amount longterm debt approximates fair value acquisitionrelated contingent consideration deferred consideration payable cash discounted fair value deferred consideration contingent upon predetermined financial targets estimate fair value likely consideration payable made notes consolidated financial statementscontinued derivatives fair value derivatives relating interest rate swaps foreign currency forward exchange contracts commodity swaps derived current settlement prices comparable contracts using current assumptions cumulative gains losses interest rate swaps commodity swaps summarized follows june 12 2009 company entered 500 million interest rate swaps amortized matured february 2010 february 2012 line longterm debt maturity profile previous finance facility repaid previous finance facility upon entering new credit facility december 2011 point remaining interest rate swaps rendered ineffective associated fair value loss 01 million recognized earnings interest rate swaps qualified hedge accounting point commodity swaps used manage company’s cash flow exposure raw material cost volatility designated cash flow hedges qualified hedge accounting throughout year ended december 31 2011 march 31 2012 commodity hedges determined ineffective consequently gain 01 million recognized earnings commodity hedges likely remain ineffective remainder term accordingly subsequent changes fair value recognized earnings december 31 2011 commodity hedges determined effective consequently unrealized gain 02 million recorded comprehensive income foreign currency forward exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying amounts fair values contracts largely due changes exchange rates us dollar note 16 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign currency exchange rate raw material cost exposures december 31 2012 2011 company interest rate instruments designated effective hedges interest rate swaps expired february 6 2012 ineffective december 31 2011 company’s previous finance facility carried corresponding floating rate debt obligations repaid accordingly loss 01 million recognized earnings 2011 notes consolidated financial statementscontinued company hedged cost certain raw materials commodity swaps summarized follows impact income statement last 12 months summarized enter various foreign currency forward exchange contracts minimize currency exchange rate exposure expected future cash flows contracts maturity dates four years date inception foreign currency forward exchange contracts designated hedging instruments impact income statement 2012 2011 2010 summarized company sells range fuel specialties performance chemicals octane additives major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures used minimize bad debt risk collateral generally required notes consolidated financial statementscontinued note 17 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 29 million 2012 26 million 2011 28 million 2010 future commitments noncancelable operating leases follows environmental remediation obligations commitments respect environmental remediation obligations disclosed note 12 contingencies resolution certain government investigations matters previously disclosed first quarter 2010 company reached 402 million settlement resolve matters respect investigations us united kingdom government authorities certain legacy transactions conducted company subsidiaries united nations oil food program “offp” us foreign corrupt practices act “fcpa” us cuban assets control regulations “cacr” united kingdom antibribery laws settlement consists fines penalties disgorgements payable period four years commencing 2010 december 31 2012 expected schedule payments follows notes consolidated financial statementscontinued accounting purposes required gaap accordance accounting policy discount elements fines penalties disgorgements fair value settlement newmarket corporation civil complaint previously disclosed company subsidiaries alcor chemie vertriebs gmbh innospec limited subject two civil actions brought newmarket corporation subsidiary afton chemical corporation collectively “newmarket” newmarket company agreed settle actions pursuant terms settlement agreement signed september 13 2011 provided mutual releases parties dismissal actions prejudice settlement agreement company pay newmarket aggregate amount approximately 450 million payable combination cash promissory note stock 250 million paid cash september 2011 150 million payable three equal annual installments promissory note carrying simple interest 1 per annum first installment paid september 7 2012 approximately 50 million paid form 195313 shares company’s common stock transferred newmarket september 2011 legal matters involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims material pending legal proceedings company subsidiaries party property subject possible however adverse resolution unexpectedly large number individual items could aggregate material adverse effect results operations particular year quarter guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties december 31 2012 contingent liabilities recognized liabilities consolidated financial statements amounted 77 million terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets notes consolidated financial statementscontinued company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company note 18 stockholders’ equity december 31 2012 company authorized common stock 40000000 shares 2011 40000000 issued shares december 31 2012 29554500 2011 29554500 treasury stock amounted 6222076 shares 2011 6507081 note 19 share based compensation plans stock option plans company five active stock option plans two provide grant stock options employees one provides grant stock options nonemployee directors another provides grant stock options key executives matching basis provided use proportion annual bonus purchase common stock company open market company fifth plan savings plan provides grant stock options company employees provided commit make regular savings predefined period used purchase common stock upon vesting options stock options vesting periods ranging 24 months 6 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount aggregate number shares common stock reserved issuance granted plans 2640000 notes consolidated financial statementscontinued fair value options calculated using blackscholes model cases certain performance related options dependent upon external factors company’s stock price fair value options calculated using monte carlo model following assumptions used determine fair value options calculated using blackscholes model following table summarizes transactions company’s stock option plans year ended december 31 2012 following table summarizes information options outstanding december 31 2012 aggregate intrinsic value fully vested stock options 13 million 172122 stock options exercisable 95724 performance conditions attached total compensation cost 2012 2011 2010 31 million 31 million 31 million respectively cash tax benefit realized stock option exercises totaled 27 million notes consolidated financial statementscontinued 17 million 05 million 2012 2011 2010 respectively excess tax benefit classified financing activities 22 million 11 million 00 million 2012 2011 2010 respectively total compensation cost related nonvested stock options yet recognized december 31 2012 28 million cost expected recognized weightedaverage period 131 years stock options awards modified 2012 2011 2010 february 13 2009 extended vesting period 132470 grants made key employee performance related stock option plan february 13 2009 february 13 2011 modified performance criteria reflect longer vesting period additional compensation cost 02 million required recognized modified stock options period february 13 2009 february 13 2011 total intrinsic value options exercised 2012 2011 2010 15 million 22 million 37 million respectively amount cash received exercise stock option awards 2012 2011 2010 12 million 07 million 02 million respectively company’s policy issue shares treasury stock holders stock options exercise options 2012 2011 2010 new total fair value shares vested 13 million 29 million 44 million respectively total options vested 2012 374384 2011 290363 2010 174298 stock equivalent units company awards stock equivalent units “seus” time longterm performance incentive seus vesting periods ranging 11 months 4 years cases seus granted expire within 10 years date grant grants may priced market value premium discount limit number seus granted liability seus located current portion accrued liabilities consolidated balance sheets cash settled seus certain performance related measures dependent upon external factors company’s stock price cases fair value seus calculated using monte carlo model following assumptions used monte carlo model notes consolidated financial statementscontinued following table summarizes transactions company’s seus year ended december 31 2012 following table summarizes information seus outstanding december 31 2012 aggregate intrinsic value fully vested seus 04 million 94210 seus exercisable 70399 performance conditions attached total compensation cost 2012 2011 2010 68 million 59 million 52 million respectively charges seus spread life award subject revaluation fair value quarter revaluation may result charge credit income statement quarter dependent upon share price performance criteria weightedaverage remaining vesting period nonvested seus 085 years total intrinsic value seus exercised 2012 2011 2010 13 million 04 million 04 million respectively amount cash received exercise seu awards 2012 2011 2010 04 million 00 million 00 million respectively 2012 2011 2010 new total fair value seus vested 05 million 00 million 00 million respectively total number seus vested 2012 436914 2011 19000 2010 600 longterm incentive plan additional longterm incentive plan place reward selected executives delivering exceptional performance plan discretionary bonus payable notes consolidated financial statementscontinued eligible executives innospec share performance outperformed competitors measured russell 2000 index minimum 10 five years january 2008 december 2012 amount bonus earned set cash amount one percentage point outperformance maximum bonus plan payable outperformance versus russell 2000 index 30 maximum bonus plan respect current participants 8 million 2011 8 million 2010 8 million bonus payable plan innospec stock price outperformed russell 2000 index 10 five year period russell 2000 index fallen value period fair value liability cashsettled stock appreciation rights calculated quarterly basis using monte carlo model summarized follows following assumptions used monte carlo model note 20 recently issued accounting pronouncements july 2012 fasb issued asu 201202 intangibles goodwill topic 350 testing indefinitelived intangible assets impairment asu 201202 simplifies entities test indefinitelived intangible assets goodwill impairment permits entity first assess qualitative factors determine whether likely indefinitelived intangible asset impaired amendments effective annual interim indefinitelived intangible asset impairment tests performed fiscal years beginning september 15 2012 early adoption permitted implementation amended accounting guidance expected material impact consolidated financial statements december 2011 fasb issued asu 201111 balance sheet topic 210 disclosures offsetting assets liabilities objective asu 201111 facilitate convergence us gaap international financial reporting standards improve comparability statements financial position entities required disclose gross information net information instruments transactions eligible offset notes consolidated financial statementscontinued statement financial position instruments transactions subject agreement similar master netting arrangement scope would include derivatives sale repurchase agreements securities borrowing securities lending arrangements guidance effective annual reporting periods beginning january 1 2013 interim periods within annual periods entities provide disclosures required amendments retrospectively comparative periods presented company currently evaluating potential impact adoption statement consolidated financial statements note 21 related party transactions mr robert paller nonexecutive director company since november 1 2009 company retained continues retain smith gambrell russell llp “sgr” law firm mr paller holds position 2012 2011 2010 company incurred fees payable sgr 08 million 65 million 11 million respectively december 31 2012 amount due sgr company 00 million note 22 subsequent events company evaluated subsequent events date consolidated financial statements issued concluded additional disclosures required relation events subsequent balance sheet date item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors stockholders innospec inc audited accompanying consolidated balance sheets innospec inc subsidiaries “innospec” december 31 2013 2012 related consolidated statements income comprehensive income accumulated comprehensive loss cash flows stockholders’ equity years threeyear period ended december 31 2013 also audited innospec’s internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso innospec’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying “management’s report internal control financial reporting” appearing item 9a form 10k responsibility express opinion consolidated financial statements opinion innospec’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position innospec december 31 2013 2012 results operations cash flows years three year period ended december 31 2013 conformity us generally accepted accounting principles also opinion innospec maintained material respects effective internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission innospec acquired chemsil silicones inc “chemsil” chemtec chemical co “chemtec” august 30 2013 acquired bachman services inc specialty intermediaries inc bachman production specialties inc bachman drilling production specialties inc collectively “bachman” november 4 2013 management excluded assessment effectiveness innospec’s internal control financial reporting december 31 2013 chemsil’s chemtec’s bachman’s internal control financial reporting associated total assets 1260 million total revenues 215 million included consolidated financial statements innospec year ended december 31 2013 audit internal control financial reporting innospec also excluded evaluation internal control financial reporting chemsil chemtec bachman kpmg audit plc manchester united kingdom february 13 2014 consolidated statements income millions except share per share data accompanying notes integral part statements consolidated statements comprehensive income millions 1 impact deferred taxes year ended december 31 2011 change associated tax rate unrecognized actuarial net losses accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 04 million 2012 04 million 2011 05 million year included depreciation amortization cash flow statement interest expense income statement cash paymentsreceipts respect income taxes interest disclosed note 10 note 11 respectively accompanying notes integral part statements consolidated statements stockholders’ equity millions 1 impact deferred taxes change associated tax rate unrecognized actuarial net losses accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets supplies fuel additives personal care fragrance products specialty chemicals products sold primarily oil refineries personal care fragrance companies chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions oilfield specialties business supplies drilling production chemicals make exploration production costefficient environmentallyfriendly specialty chemicals provide effective technologybased solutions customers’ processes products focused personal care polymers fragrance ingredients markets principal product lines reportable segments fuel specialties performance chemicals octane additives see note 3 financial information company’s reportable segments note 2 accounting policies revision prior years connection preparation consolidated financial statements fourth quarter 2013 company identified error treatment amortization actuarial net losses company determined market related value assets “mrva” innospec limited’s united kingdom pension plan overstated year since 2003 marketrelated value plan assets either fair value employer defer gains losses plan assets calculated value recognizes changes fair value systematic rational manner five years expected longterm rate return used determine net periodic postretirement benefit cost overstated mrva used determine size “the corridor” gaap resulted understatement amortization actuarial net losses within pension expense year since 2004 error affects noncash pension expenses financial statements years ended 2012 2011 reported 2013 form 10k quarterly reporting purposes whole annual noncash pension expense adjustment reflected fourth quarter year impact individual quarters considered material company applied sec staff accounting bulletin sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements sab 108 states registrants must quantify impact correcting misstatements including carryover iron curtain method reversing rollover method effects prioryear misstatements currentyear financial statements evaluating error measured method light quantitative qualitative factors sab 108 prioryear misstatements corrected current year would material current year must corrected adjusting prior year financial statements even though correction previously continues immaterial prioryear financial statements correcting prioryear financial statements “immaterial errors” require previously filed reports amended notes consolidated financial statementscontinued accordance accounting guidance presented asc 25010 sec staff accounting bulletin 99 materiality company assessed materiality error concluded material company’s previously issued financial statements taken whole innospec calculated understatement noncash pension expense net tax 161 million 1 january 2011 18 million 2011 14 million 2012 adjustments made follows basis preparation consolidated financial statements prepared accordance generally accepted accounting principles united states america include notes consolidated financial statementscontinued subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation acquisitions accounted purchases results operations acquired businesses included consolidated financial statements date acquisition use estimates preparation consolidated financial statements accordance generally accepted accounting principles united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents shortterm investments investment securities maturities 3 months less 12 months purchased considered shortterm investments trade accounts receivable company records trade accounts receivable net realizable value maintains allowances customers making required payments company determines adequacy allowances periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method market value cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement inventories adjusted estimated obsolescence written market value based estimates future demand market conditions property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method allocated cost goods sold operating expenses cost additions improvements capitalized maintenance repairs charged expenses assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives amortized subject least annual impairment tests based notes consolidated financial statementscontinued projected posttax cash flows discounted company’s weighted average cost capital annual measurement date impairment testing goodwill relating fuel specialties performance chemicals segments december 31 date performed annual impairment tests concluded impairment goodwill respect reporting segments company capitalizes software development costs including licenses subsequent establishment technological feasibility intangible assets deemed finite lives including software development costs licenses amortized using straightline method estimated useful lives tested potential impairment events occur circumstances change suggest impairment may occurred deferred finance costs relating debt financing capitalized separately disclosed consolidated balance sheets amortized using effective interest method expected life debt financing facility impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result assets compared carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative instruments company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes company recognizes derivatives either noncurrent assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives designated hedges tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s creditadjusted riskfree rate notes consolidated financial statementscontinued acquisitionrelated contingent deferred consideration deferred consideration payable cash discounted fair value deferred consideration contingent upon predetermined financial targets estimate fair value likely consideration payable made contingent deferred consideration reassessed annually corresponding adjustment recognized operating income associated liability reflect passage time accretion expense revisions amount timing initial measurement revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized legal title defined generally accepted standard terms conditions risk loss transfers company customer provisions sales discounts rebates customers based upon terms sales contracts recorded period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time shipping components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads amortization expense certain intangible assets warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions amortization expense certain intangible assets cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal settlement costs litigation company involved made reported administrative expense line item research development expenses research development testing costs expensed income statement incurred notes consolidated financial statementscontinued earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy foreign exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur gains losses monetary assets relating currencies us dollar taken income statement net incomeexpense foreign exchange gains losses also included net incomeexpense income statement share based compensation plans company accounts employee stock options stock equivalent units fair value method stock options fair valued grant date fair value recognized straightline vesting period option stock equivalent units fair valued balance sheet date fair value spread remaining vesting period unit pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend prior service costs credits actuarial gains losses amortized average remaining life expectancy inactive participants using corridor method income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities appropriate company evaluates need valuation allowance reduce deferred tax assets company recognizes future tax benefits extent realization benefits likely effect deferred taxes change tax rates recognized period includes enactment date income tax positions must meet likely recognition criteria recognized company recognizes accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income note 3 segmental reporting geographical area data innospec divides business three segments management reporting purposes fuel specialties performance chemicals octane additives fuel specialties performance chemicals segments operate markets actively seek growth opportunities although ultimate customers different octane additives segment generally characterized volatile declining demand notes consolidated financial statementscontinued 2013 company significant customer fuel specialties segment royal dutch shell plc affiliates “shell” accounted 831 million 10 net group sales 2012 2011 shell accounted 829 million 11 787 million 10 net group sales respectively company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments pension charge relates united kingdom defined benefit pension plan closed future service accrual charges related much smaller pension arrangements us overseas included segment income statement captions consistent related employees’ costs notes consolidated financial statementscontinued company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources group legal compliance counsel investor relations • running corporate offices us europe • corporate development function since relate current trading activities reporting segments • corporate share information technology accounting human resources departments sales geographical area reported source transactions originate destination final sales customers made intercompany sales priced recover cost plus appropriate markup profit eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued note 4 earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2013 2012 2011 average number antidilutive options excluded calculation diluted earnings per share nil 1380 690 respectively notes consolidated financial statementscontinued note 5 property plant equipment property plant equipment consists following total net book value equipment december 31 2013 2012 amounts respect assets held capital leases depreciation charges 89 million 70 million 92 million 2013 2012 2011 respectively estimated additional cost complete work progress 22 million 2012 27 million notes consolidated financial statementscontinued note 6 goodwill following table analyzes goodwill 2013 2012 1 gross cost net 87 million 03 million 2895 million historical accumulated amortization respect fuel specialties performance chemicals octane additives reporting segments respectively company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties performance chemicals octane additives components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows clearly distinguished operationally financial reporting purposes rest company tests goodwill annually impairment years events occur circumstances change suggests impairment may occurred december 31 2013 fair value fuel specialties performance chemicals segments substantially exceeds carrying value notes consolidated financial statementscontinued determine fair value segments utilize discounted cash flow methodology based forecasted future aftertax cash flows operations since believe provides best approximation fair value methodology requires us make assumptions estimates including respect future revenue growth gross margins based upon long range plans company’s weighted average cost capital long range plans regularly updated part planning processes reviewed approved management board directors assume terminal values fuel specialties performance chemicals reporting units added present value relevant forecasted future cash flows assume terminal value octane additives reporting unit beyond estimated future life discounted cash flow methodology assume control premium use discount rate equivalent company’s weighted average cost capital estimated reference overall aftertax rate return required equity debt market participants company assign assets liabilities including deferred taxes goodwill reporting units asset liability relates operations reporting unit included determining fair value reporting unit cash debt obligations excluded carrying value reporting units 2013 assumptions estimates underpinning discounted cash flows revised part planning processes although methodology unchanged significant revisions company’s weighted average cost capital changed reflect changing proportion debt equity funding company elected perform annual tests respect fuel specialties performance chemicals goodwill december 31 year december 31 2013 1411 million 468 million goodwill relating fuel specialties performance chemicals segments respectively date performed annual impairment tests concluded impairment goodwill respect reporting segments result octane additives impairment tests performed 2013 2012 2011 impairment charges 13 million 12 million 20 million respectively recognized charges noncash nature impact taxation december 31 2013 goodwill octane additives segment fully impaired remaining sales concentrated around relatively small number customers risk future demand could dramatically decline believe assumptions used annual quarterly impairment tests reasonable judgmental variations assumptions may result materially different calculations impairment charges bachman group companies acquisition november 4 2013 company acquired 100 voting equity interests bachman services inc specialty intermediates inc bachman production specialties inc notes consolidated financial statementscontinued bachman drilling production specialties inc collectively “bachman” bachman provide chemicals services oil gas industry based oklahoma city oklahoma purchased bachman cash consideration 458 million issuance 319953 shares unregistered innospec inc common stock previous owners fair value approximately 15 million based innospec share price closing date acquired businesses order move us towards critical mass bring good technology market positioning oilfield specialties sector forms part fuel specialties segment included consolidated income statement company since acquisition date following revenue earnings bachman combined following table summarizes calculations total purchase price estimated allocation purchase price assets acquired liabilities assumed bachman purchase price allocation yet complete process finalising valuation assets acquired final determination fair values may result adjustments amounts presented bachman associated goodwill included within fuel specialties segment management reporting purposes see note 7 information intangible assets chemsil chemtec acquisitions august 30 2013 company acquired 100 voting equity interests chemsil silicones inc “chemsil” chemtec chemical co “chemtec” based chatsworth los angeles california chemsil develops markets siliconebased formulations personal care industry chemtec distributes wide range personal care ingredients acquired businesses order add technology base geographical footprint personal care business within performance chemicals segment notes consolidated financial statementscontinued purchase price chemsil chemtec net cash acquired comprised 512 million cash 62 million innospec inc common stock transferred previous owner acquisition date included consolidated income statement company since acquisition date following revenue earnings chemsil chemtec combined following table summarizes calculations total purchase price allocation purchase price assets acquired liabilities assumed chemsil chemtec complete chemsil chemtec associated goodwill included within performance chemicals segment management reporting purposes see note 7 information intangible assets supplemental unaudited pro forma information illustrative purposes pro forma information enlarged group provided necessarily indicative financial position results operations would acquisitions strata chemsil chemtec bachman completed january 1 2012 addition unaudited pro forma financial information indicative purport project future financial position operating results enlarged group notes consolidated financial statementscontinued adjustments unaudited pro forma financial information includes amortization respect acquired intangible assets acquisitions acquisitionrelated costs incurred respect transactions adjustments strata purchase price allocation 2013 finalized calculations fair values assets acquired liabilities assumed acquisition strata resulting 06 million reduction net assets acquired corresponding increase goodwill note 7 intangible assets intangible assets comprise following product rights following acquisition chemsil august 30 2013 company recognized intangible asset 340 million respect chemsil’s product rights portfolio asset expected life 9 years amortized straightline basis period notes consolidated financial statementscontinued amortization expense 13 million recognized 2013 2012 00 million cost goods sold residual value anticipated brand names following acquisition bachman november 4 2013 company recognized intangible asset 29 million respect bachman’s brand names asset expected life 5 years amortized straightline basis period amortization expense 01 million recognized 2013 2012 00 million selling general administrative expenses residual value anticipated technology following acquisition bachman november 4 2013 company recognized intangible asset 85 million respect bachman’s core chemistry knowhow oilfield chemicals asset expected life 15 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 183 million respect technological knowhow mixing manufacturing process patents protect technology associated product branding asset expected life 165 years amortized straightline basis period residual value anticipated following acquisition remaining 50 innospec fuel specialties llc july 8 2004 company recognized intangible asset 23 million respect various technological approvals business received certain military civilian authorities approvals act barrier entry potential competitor market would wish supply products asset expected life 10 years amortized straightline basis period residual value anticipated intangible asset 48 million recognized respect number specialized manufacturing processes carried innospec widnes limited following acquisition entity august 2004 asset expected life 10 years amortized straightline basis period residual value anticipated amortization expense 19 million recognized 2013 2012 07 million cost goods sold customer relationships following acquisition bachman november 4 2013 company recognized intangible asset 145 million respect bachman’s longterm customer relationships notes consolidated financial statementscontinued asset weighted average expected life 145 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 282 million respect longterm customer relationships asset expected life 115 years amortized straightline basis period residual value anticipated following acquisition finetex merged innospec active chemicals llc january 2005 company recognized intangible asset totaling 71 million 42 million relation customer lists acquired asset expected life 13 years amortized straightline basis period residual value anticipated intangible assets recognized 2004 respect innospec fuel specialties llc 90 million innospec widnes limited 28 million acquisitions relate ongoing customer relationships assets expected life 10 years amortized straightline basis period residual value anticipated amortization expense 41 million recognized 2013 2012 15 million selling general administrative expenses patents following acquisition finetex company recognized intangible asset 29 million respect patents trademarks expected life 10 years amortized straightline basis period residual value anticipated amortization expense 03 million recognized 2013 2012 03 million cost goods sold internally developed software costs continuing implementation new companywide information system platform following successful deployment majority us sites third quarter 2013 december 31 2013 capitalized 195 million 2012 101 million relation internally developed software asset expected life 5 years amortized straightline basis period residual value anticipated amortization expense 10 million recognized 2013 2012 00 million selling general administrative expenses noncompete agreements following acquisition strata december 24 2012 company recognized intangible asset 15 million respect noncompete agreement asset notes consolidated financial statementscontinued expected life 2 years amortized straightline basis period residual value anticipated amortization expense 07 million recognized 2013 2012 00 million selling general administrative expenses marketing related formerly ethyl intangible asset 284 million recognized second quarter 2007 respect ethyl corporation foregoing entitlement effective april 1 2007 share future income stream sales marketing agreements market sell tel 2008 contract provisions longer deemed necessary 63 million offset intangible asset amount attributed octane additives reporting segment amortized straightline december 31 2012 amount attributed fuel specialties reporting segment amortized straightline december 31 2017 effective october 1 2011 company extended estimate future life octane additives segment december 31 2012 december 31 2013 therefore prospectively adjusted amortization period amount attributed octane additives segment amortization expense 17 million recognized 2013 2012 16 million cost goods sold amortization expense aggregate intangible asset amortization expense 111 million 41 million 44 million 2013 2012 2011 respectively 38 million 26 million 29 million respectively recognized cost goods sold remainder recognized selling general administrative expenses future amortization expense estimated follows next five years note 8 deferred finance costs august 28 2013 amended fiveyear revolving credit facility “the facility” amendment provides increase facility available company certain subsidiaries company 100 million 150 million retains term facility december 2016 addition amendment allows company request additional amount 50 million committed lenders 30 million committed fourth quarter 2013 result 09 million refinancing costs capitalized 2013 amortized expected life facility using effective interest method line costs capitalized original facility december 2011 notes consolidated financial statementscontinued amortization expense 04 million 04 million 05 million 2013 2012 2011 respectively charge included interest expense see note 2 note 9 pension plans united kingdom plan company maintains defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested several investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater longterm monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company second quarter 2010 company implemented pension increase exchange “pie” program current pensioners effective april 1 2010 reduced pbo 171 million reduction pbo resulted prior service credit amortized using straightline method remaining life expectancy plan pensioners 15 years commencing april 1 2010 plan closed future accrual 2010 employees became inactive gaap requires average remaining life expectancy inactive participants used instead average remaining service spread future amortization actuarial net losses average remaining life expectancy inactive participants approximately 24 years since plan closed 2010 2013 company contributed approximately 11 million cash plan accordance actuarial deficit recovery plan agreed trustees notes consolidated financial statementscontinued discount rate used represents annualized yield based cash flow matched methodology reference aa corporate bond spot curve regard duration plan’s liabilities inflation rate derived using similar cash flow matched methodology used discount rate regard difference yields fixed interest index linked united kingdom government gilts rate increase compensation levels longer relevant since company closed plan future service accrual effect march 31 2010 025 change discount rate assumption would change pbo approximately 28 million net pension charge 2014 approximately 05 million 025 change level price inflation assumption would change pbo approximately 22 million net pension charge 2014 approximately 17 million current investment strategy plan obtain asset allocation 65 debt securities 35 equity securities order achieve predictable return assets december 31 2013 2012 approximately 55 plan’s assets held indextracking funds one investment management company approximately 25 plan’s assets invested united kingdom government gilts 5 plan’s assets invested one individual company’s investment funds notes consolidated financial statementscontinued movements pbo fair value plan assets follows accumulated benefit obligation plan 8198 million 8053 million december 31 2013 2012 respectively notes consolidated financial statementscontinued vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund level 3 assets ready market indicative dealer prices available fund assets independently evaluated use agreed upon procedures conducted audit firm provide independent confirmation proper valuation procedures followed fair values pension assets level input follows notes consolidated financial statementscontinued reconciliation fair value plan assets using significant unobservable inputs level 3 follows projected net pension charge year ending december 31 2014 follows following benefit payments expected made german plan company also maintains unfunded defined benefit pension plan covering number current former employees germany “german plan” german plan closed new entrants assets notes consolidated financial statementscontinued movements pbo german plan follows amount unrecognized actuarial net losses comprehensive loss respect german plan 16 million net tax 06 million plans company contributions defined contribution schemes 2013 77 million 2012 74 million notes consolidated financial statementscontinued note 10 income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 130 million unrecognized tax benefits interest penalties would impact effective tax rate recognized recognize accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income fourth quarter 2013 company recorded 02 million addition unrecognized tax benefits 05 million reduction unrecognized tax benefits due expiration applicable statutes limitations first quarter 2013 notes consolidated financial statementscontinued company one subsidiaries files income tax returns us federal government various state foreign jurisdictions december 31 2013 company us subsidiaries subject federal income tax examination irs 2009 employment tax examination 2010 2011 company us subsidiaries remain open federal income tax examination irs years 2009 onwards company currently anticipate adjustments arising tax audit would result material change financial position december 31 2013 company’s subsidiaries foreign tax jurisdictions open examination including france 2012 onwards germany 2010 onwards switzerland 2012 onwards united kingdom 2011 onwards sources income taxes follows components income tax charges summarized follows cash payments income taxes 211 million 131 million 181 million 2013 2012 2011 respectively notes consolidated financial statementscontinued effective tax rate varies us federal statutory rate factors indicated significant factors affecting variation statutory rate set include foreign income inclusions net foreign tax credits mix taxable profits generated different geographical localities group operates significant positive impact effective tax rate 2013 notes consolidated financial statementscontinued details deferred tax assets liabilities analyzed follows details deferred tax asset valuation allowance follows notes consolidated financial statementscontinued result company’s assessment net deferred tax assets december 31 2013 company considers likely valuation allowance required 03 million 2012 03 million net operating loss carry forwards valuation allowance required foreign tax credit carry forwards 2012 00 million net operating loss carry forwards arose us prior periods result state tax losses expected sufficient taxable profits generated net operating loss carry forwards relieved prior expiration 2021 foreign tax credit carry forwards arose us prior periods company determined future foreign income inclusions sufficient utilize 45 million 2012 55 million foreign tax credit carry forwards prior expiration 2017 2021 therefore valuation allowance required determined future longer likely assets realized valuation allowance would required company’s operating results would adversely affected period determination would made company position control whether repatriate foreign earnings intend permanently reinvest earnings overseas fund overseas subsidiaries taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered permanent duration amount unremitted earnings december 31 2013 2012 approximately 605 million 717 million respectively earnings remitted additional taxes could result offsetting foreign income taxes paid although calculation additional taxes practical time note 11 longterm debt longterm debt consists following december 14 2011 entered fiveyear revolving credit facility provides borrowings us 100 million facility carries interest rate based us dollar libor plus margin 150 225 dependent company’s ratio net debt ebitda nongaap measure liquidity notes consolidated financial statementscontinued defined credit facility drawn expires december 14 2016 repaid previous finance facility due expire february 6 2012 upon entering new credit facility august 28 2013 amended existing fiveyear revolving credit facility “the facility” amendment provides increase facility available company certain subsidiaries company 100 million 150 million retains term conditions original facility december 2016 addition amendment allowed company request additional amount 50 million committed lenders 30 million committed fourth quarter 2013 company’s credit facility contains restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined credit facility include material adverse change assets operations financial condition facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda shall greater 251 2 ratio ebitda net interest shall less 401 management determined company breached covenants throughout period december 31 2013 expects breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries september 13 2011 company settled newmarket corporation civil complaint settlement agreement included company issuing 150 million promissory note newmarket corporation payable three equal annual installments carrying simple interest 1 per annum first installment paid september 7 2012 weighted average rate interest borrowings 16 december 31 2013 16 december 31 2012 payments interest longterm debt 10 million 05 million 18 million 2013 2012 2011 respectively net cash outflows respect refinancing costs 09 million 00 million 17 million 2013 2012 2011 respectively note 12 plant closure provisions principal site giving rise environmental remediation liabilities manufacturing site ellesmere port united kingdom management believes last ongoing notes consolidated financial statementscontinued manufacturer tel also environmental remediation liabilities much smaller scale respect manufacturing sites us europe liability estimated closure costs innospec’s manufacturing facilities includes costs decontamination environmental remediation activities remediation demand tel diminishes severance provisions made relation corporate personnel three reporting segments movements provisions summarized follows amounts due within one year refer provisions expenditure expected arise within one year balance sheet date severance charges recognized income statement restructuring costs along restructuring costs remediation costs recognized cost goods sold notes consolidated financial statementscontinued remediation provision represents company’s liability environmental liabilities asset retirement obligations charge period 2013 represents accretion expense recognized 26 million 13 million primarily respect changes expected cost scope future remediation activities discount rate 892 used valuing remediation provision recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention company determined due uncertain product life tel particularly market aviation gasoline products manufactured site uncertainties probability timing expected costs uncertainties considered estimating provision remediation expenditure utilized provisions 19 million 21 million 31 million 2013 2012 2011 respectively note 13 deferred income deferred income consists noncurrent deferred income 12 million relates post acquisition government grants received innospec leuna gmbh note 14 profit disposal net third quarter 2012 company recognized 01 million profit following disposal surplus real estate notes consolidated financial statementscontinued note 15 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels 2013 company evaluated fair value hierarchy levels assigned assets liabilities concluded transfers levels 1 2 3 notes consolidated financial statementscontinued following table presents carrying amount fair values company’s assets liabilities measured recurring basis following methods assumptions used estimate fair values financial instruments cash equivalents shortterm investments carrying amount approximates fair value shortterm maturities instruments longterm debt longterm debt principally comprises revolving credit facility promissory note entered december 2011 september 2011 respectively carrying amount longterm debt approximates fair value acquisitionrelated contingent consideration deferred consideration payable cash discounted fair value deferred consideration contingent upon predetermined financial targets estimate fair value likely consideration payable made derivatives fair value derivatives relating interest rate swaps foreign currency forward exchange contracts commodity swaps derived current settlement prices comparable contracts using current assumptions stock equivalent units fair values stock equivalent units calculated balance sheet date using either blackscholes monte carlo method notes consolidated financial statementscontinued cumulative gains losses interest rate swaps commodity swaps summarized follows commodity swaps used manage company’s cash flow exposure raw material cost volatility designated cash flow hedges qualified hedge accounting throughout year ended december 31 2011 march 31 2012 commodity hedges determined ineffective consequently gain 01 million recognized earnings december 31 2011 commodity hedges determined effective consequently unrealized gain 02 million recorded comprehensive income foreign currency forward exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying amounts fair values contracts largely due changes exchange rates us dollar note 16 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign currency exchange rate raw material cost exposures december 31 2013 2012 company interest rate instruments designated effective hedges interest rate swaps expired february 6 2012 ineffective december 31 2011 company’s previous finance facility carried corresponding floating rate debt obligations repaid accordingly loss 01 million recognized earnings 2011 company hedged cost certain raw materials commodity swaps summarized follows enter various foreign currency forward exchange contracts intended minimize currency exchange rate exposure expected future cash flows contracts maturity dates four years date inception foreign currency notes consolidated financial statementscontinued forward exchange contracts designated hedging instruments impact income statement 2013 2012 2011 summarized company sells range fuel specialties performance chemicals octane additives major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures intended minimize bad debt risk collateral generally required note 17 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 31 million 2013 29 million 2012 26 million 2011 future commitments noncancelable operating leases follows environmental remediation obligations commitments respect environmental remediation obligations disclosed note 12 contingencies resolution certain government investigations matters previously disclosed first quarter 2010 company reached 402 million settlement resolve matters respect investigations us united kingdom government authorities certain legacy transactions conducted company notes consolidated financial statementscontinued subsidiaries united nations oil food program “offp” us foreign corrupt practices act “fcpa” us cuban assets control regulations “cacr” united kingdom antibribery laws settlement consists fines penalties disgorgements payable period four years commencing 2010 december 31 2013 expected schedule payments follows accounting purposes required gaap accordance accounting policy discount elements fines penalties disgorgements fair value jalal bezee mejel algaood partner litigation september 19 2012 claim filed high court justice united kingdom jalal bezee mejel algaood partner future agencies company limited collectively “jag” company innospec limited former employee innospec limited company believes jag former iraq distributor afton chemicals limited subsidiary newmarket corporation least 2005 termination relationship 2010 stated claim inclusive costs expenses 423 million relates alleged loss profits jag’s business iraq 2004 2010 company believes allegations jag claim without merit intends defend vigorously interests settlement newmarket corporation civil complaint previously disclosed company subsidiaries alcor chemie vertriebs gmbh innospec limited subject two civil actions brought newmarket corporation subsidiary afton chemical corporation collectively “newmarket” newmarket company agreed settle actions pursuant terms settlement agreement signed september 13 2011 provided mutual releases parties dismissal actions prejudice settlement agreement company pay newmarket aggregate amount notes consolidated financial statementscontinued approximately 450 million payable combination cash promissory note stock 250 million paid cash september 2011 150 million payable three equal annual installments promissory note carrying simple interest 1 per annum approximately 50 million paid form 195313 shares company’s common stock transferred newmarket september 2011 first installment promissory note paid september 7 2012 second installment paid september 9 2013 legal matters involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims material pending legal proceedings company subsidiaries party property subject possible however adverse resolution unexpectedly large number individual items could aggregate material adverse effect results operations particular year quarter guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties december 31 2013 contingent liabilities recognized liabilities consolidated financial statements amounted 38 million terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company notes consolidated financial statementscontinued note 18 stockholders’ equity december 31 2013 company authorized common stock 40000000 shares 2012 40000000 issued shares december 31 2013 29554500 2012 29554500 treasury stock amounted 5207947 shares 2012 6222076 note 19 stockbased compensation plans stock option plans company five active stock option plans two provide grant stock options employees one provides grant stock options nonemployee directors another provides grant stock options key executives matching basis provided use proportion annual bonus purchase common stock company open market company fifth plan savings plan provides grant stock options company employees provided commit make regular savings predefined period used purchase common stock upon vesting options stock options vesting periods ranging 24 months 6 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount aggregate number shares common stock reserved issuance granted plans 2640000 fair value stock options measured grant date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following weighted average assumptions used determine grantdate fair value options notes consolidated financial statementscontinued following table summarizes transactions company’s stock option plans year ended december 31 2013 december 31 2013 186741 stock options exercisable 77001 performance conditions attached company’s policy issue shares treasury stock holders stock options exercise options sufficient treasury stock available company issue previously unissued shares stock holders stock options exercise options total compensation cost 2013 2012 2011 25 million 31 million 31 million respectively total intrinsic value options exercised 2013 2012 2011 47 million 15 million 22 million respectively total compensation cost related nonvested stock options yet recognized december 31 2013 27 million cost expected recognized weightedaverage period 207 years cash tax benefit realized stock option exercises totaled 57 million 27 million 17 million 2013 2012 2011 respectively excess tax benefit classified financing activities 38 million 22 million 11 million 2013 2012 2011 respectively stock options awards modified 2013 2012 2011 stock equivalent units company awards stock equivalent units “seus” time longterm performance incentive seus cash settled equity instruments conditional certain performance criteria linked innospec inc share price seus vesting periods ranging 11 months 4 years cases seus granted expire within 10 years date grant grants may priced market value premium discount limit number seus granted december 31 2013 liability seus 121 million located accrued liabilities consolidated balance sheets cash settled notes consolidated financial statementscontinued fair value seus measured balance sheet date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following assumptions used determine fair value seus balance sheet dates following table summarizes transactions company’s seus year ended december 31 2013 december 31 2013 64019 seus exercisable 57677 performance conditions attached charges seus spread life award subject revaluation fair value quarter revaluation may result charge credit income statement quarter dependent upon share price performance criteria total compensation cost 2013 2012 2011 71 million 68 million 59 million respectively total intrinsic value seus exercised 2013 2012 2011 22 million 13 million 04 million respectively weightedaverage remaining vesting period nonvested seus 080 years longterm incentive plan additional longterm incentive plan place reward selected executives delivering exceptional performance plan discretionary bonus payable eligible executives innospec share performance outperformed competitors measured russell 2000 index minimum 10 five years january 2008 december 2012 maximum bonus plan 8 million notes consolidated financial statementscontinued ultimately earned participants fair value liability cashsettled stock appreciation rights calculated quarterly basis using monte carlo model summarized follows following assumptions used monte carlo model note 20 reclassifications accumulated comprehensive incomeloss reclassifications accumulated comprehensive loss 2013 1 items included computation net periodic pension cost see note 9 additional information notes consolidated financial statementscontinued changes accumulated comprehensive loss 2013 net tax note 21 recently issued accounting pronouncements july 2013 fasb issued asu 201311 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists “asu 201311” requires unrecognized tax benefit presented financial statements reduction deferred tax asset net operating loss carryforward similar tax loss tax credit carryforward extent tax benefit available reporting date governing tax law entity intend use deferred tax asset purpose unrecognized tax benefit presented liability combined deferred tax assets asu 201311 effective annual periods interim periods within years beginning december 15 2013 amendments applied unrecognized tax benefits exist effective date may applied retrospectively prior reporting period presented expect material impact adoption guidance consolidated financial statements february 2013 fasb issued asu 201302 comprehensive income topic 220 reporting amounts reclassified accumulated comprehensive income amendments asu 201302 require company report effect significant reclassifications accumulated comprehensive income respective line items net income either face income statement notes amount reclassified required gaap reclassified entirety net income reporting period amounts required gaap reclassified entirety net income reporting period entity required crossreference disclosures provide additional information amounts guidance effective prospectively reporting periods beginning december 15 2012 guidance provides presentation requirements adoption standard impact company’s results operations financial position cash flows notes consolidated financial statementscontinued july 2012 fasb issued asu 201202 intangibles goodwill topic 350 testing indefinitelived intangible assets impairment asu 201202 simplifies entities test indefinitelived intangible assets goodwill impairment permits entity first assess qualitative factors determine whether likely indefinitelived intangible asset impaired amendments effective annual interim indefinitelived intangible asset impairment tests performed fiscal years beginning september 15 2012 early adoption permitted implementation amended accounting guidance material impact consolidated financial statements december 2011 fasb issued asu 201111 balance sheet topic 210 disclosures offsetting assets liabilities objective asu 201111 facilitate convergence us gaap international financial reporting standards improve comparability statements financial position entities required disclose gross information net information instruments transactions eligible offset statement financial position instruments transactions subject agreement similar master netting arrangement scope would include derivatives sale repurchase agreements securities borrowing securities lending arrangements guidance effective annual reporting periods beginning january 1 2013 interim periods within annual periods entities provide disclosures required amendments retrospectively comparative periods presented implementation amended accounting guidance material impact consolidated financial statements note 22 related party transactions mr robert paller nonexecutive director company since november 1 2009 company retained continues retain smith gambrell russell llp “sgr” law firm mr paller holds position 2013 2012 2011 company incurred fees payable sgr 10 million 08 million 65 million respectively december 31 2013 amount due sgr company 02 million note 23 subsequent events company evaluated subsequent events date consolidated financial statements issued concluded additional disclosures required relation events subsequent balance sheet date item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors stockholders innospec inc audited accompanying consolidated balance sheets innospec inc innospec subsidiaries december 31 2015 2014 related consolidated statements income comprehensive income accumulated comprehensive loss cash flows equity years threeyear period ended december 31 2015 also audited innospec’s internal control financial reporting december 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso innospec’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying “management’s report internal control financial reporting” appearing item 9a form 10k responsibility express opinion consolidated financial statements opinion innospec’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position innospec subsidiaries december 31 2015 2014 results operations cash flows years threeyear period ended december 31 2015 conformity us generally accepted accounting principles also opinion innospec maintained material respects effective internal control financial reporting december 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso kpmg audit plc manchester united kingdom february 17 consolidated statements income millions except share per share data accompanying notes integral part statements consolidated statements comprehensive income millions accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 12 million 2014 07 million 2013 04 million year included depreciation amortization cash flow statement interest expense income statement cash paymentsreceipts respect income taxes interest disclosed note 10 note 11 respectively notes consolidated financial statements accompanying notes integral part statements consolidated statements equity millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets supplies fuel additives oilfield chemicals personal care products specialty chemicals products sold primarily oil gas exploration production companies oil refineries personal care companies chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions oilfield services business supplies drilling production chemicals make exploration production costefficient environmentallyfriendly specialty chemicals provide effective technologybased solutions customers’ processes products focused personal care polymers markets octane additives business manufactures products use automotive gasoline provides services respect environmental remediation principal product lines reportable segments fuel specialties performance chemicals octane additives see note 3 notes consolidated financial statements financial information company’s reportable segments note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles “gaap” united states america include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation acquisitions disposals accounted accordance gaap results operations acquired disposed business included excluded consolidated financial statements date acquisition disposal use estimates preparation consolidated financial statements accordance gaap united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents shortterm investments investment securities maturities 3 months less 12 months purchased considered shortterm investments trade accounts receivable company records trade accounts receivable net realizable value maintains allowances customers making required payments company determines adequacy allowances periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions notes consolidated financial statementscontinued inventories stated lower cost fifo method market value cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement inventories adjusted estimated obsolescence written market value based estimates future demand market conditions property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method allocated cost goods sold operating expenses cost additions improvements capitalized maintenance repairs charged expenses assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives amortized subject least annual impairment assessments initially perform qualitative assessment determine whether likely fair value segment less carrying amount prior performing twostep goodwill impairment test twostep test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital annual measurement date impairment assessment goodwill relating fuel specialties performance chemicals segments december 31 year company capitalizes software development costs including licenses subsequent establishment technological feasibility intangible assets deemed finite lives including software development costs licenses amortized using straightline method estimated useful lives tested potential impairment events occur circumstances change suggest impairment may occurred deferred finance costs relating debt financing capitalized separately disclosed consolidated balance sheets amortized using effective interest method expected life debt financing facility impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result assets compared notes consolidated financial statementscontinued carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative instruments time company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes company recognizes derivatives either noncurrent assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives designated hedges tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s creditadjusted riskfree rate acquisitionrelated contingent consideration contingent consideration payable cash discounted fair value balance sheet date contingent consideration dependent upon predetermined financial targets estimate fair value likely consideration payable made balance sheet date adjustments fair value contingent consideration recognized operating income reporting period within associated liability balance sheet date reflect passage time accretion expense revisions amount timing initial measurement revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized legal title defined generally accepted standard terms conditions risk loss transfers company customer provisions sales discounts rebates customers based upon terms sales contracts recorded period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time shipping notes consolidated financial statementscontinued components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads amortization expense certain intangible assets warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions amortization expense certain intangible assets cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal settlement costs litigation company involved made reported administrative expense line item research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy foreign exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur gains losses monetary assets relating currencies us dollar taken income statement net incomeexpense gains losses intercompany foreign currency loans longterm nature company intend settle foreseeable future also recorded accumulated comprehensive loss foreign exchange gains losses also included net incomeexpense income statement stockbased compensation plans company accounts employee stock options stock equivalent units fair value method stock options fair valued grant notes consolidated financial statementscontinued date fair value recognized straightline vesting period option stock equivalent units fair valued balance sheet date fair value spread remaining vesting period unit pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend service costs recognized employees render services necessary earn postemployment benefits prior service costs credits actuarial gains losses amortized average remaining life expectancy inactive participants using corridor method income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities appropriate company evaluates need valuation allowance reduce deferred tax assets effect deferred taxes change tax rates recognized period includes enactment date company recognizes tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements positions measured based largest benefit greater 50 likelihood realized upon settlement changes recognition measurement reflected period change judgment occurs company recognizes accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income note 3 segment reporting geographical area data innospec divides business three segments management reporting purposes fuel specialties performance chemicals octane additives fuel specialties performance chemicals segments operate markets actively seek growth opportunities although ultimate customers different octane additives segment generally characterized unpredictable declining demand 2015 company significant customer fuel specialties segment royal dutch shell plc affiliates “shell” accounted 658 million 65 net group sales 2014 2013 shell accounted 819 million 85 831 million 101 net group sales respectively notes consolidated financial statementscontinued company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments pension creditcharge relates united kingdom defined benefit pension plan closed future service accrual charges related much smaller pension arrangements us overseas included segment income statement captions consistent related employees’ costs notes consolidated financial statementscontinued company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources group legal compliance counsel investor relations • running corporate offices us europe • corporate development function since relate current trading activities reporting segments • corporate share information technology accounting human resources departments sales geographical area reported source transactions originated intercompany sales priced using appropriate pricing methodology eliminated consolidated financial statements identifiable assets directly associated operations geographical area notes consolidated financial statementscontinued goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued note 4 profit disposal subsidiary july 6 2015 company divested 100 equity interest aroma chemicals business innospec widnes limited cash consideration 415 million transaction costs 1 effects include foreign exchange losses transferred income statement twelve month period ended december 31 2015 aroma chemicals business generated pretax profits amounting 26 million 2014 73 million guidance asu 201408 determined aroma chemicals business qualify discontinued operations december 31 2015 disposal aroma chemicals business represent strategic shift major impact operations financial results following table presents aggregate carrying amount major classes assets liabilities related aroma chemicals business disposed july 6 2015 notes consolidated financial statementscontinued note 5 earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2015 2014 2013 average number antidilutive options excluded calculation diluted earnings per share 0 36775 0 respectively note 6 property plant equipment property plant equipment consists following total net book value equipment december 31 2015 30 million 2014 22 million respect assets held finance leases depreciation charges 130 million 106 million 89 million 2015 2014 2013 respectively estimated additional cost complete work progress 24 million 2014 14 million notes consolidated financial statementscontinued note 7 goodwill following table analyzes goodwill 2015 2014 1 gross cost net 87 million 03 million 2895 million historical accumulated amortization respect fuel specialties performance chemicals octane additives reporting segments respectively company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties performance chemicals octane additives components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows clearly distinguished operationally financial reporting purposes rest company assesses goodwill impairment least annual basis initially based qualitative assessment determine whether likely fair value segment less carrying amount potential impairment identified twostep impairment test followed notes consolidated financial statementscontinued company performs annual impairment assessment respect fuel specialties performance chemicals goodwill december 31 2015 date 2283 million 391 million goodwill relating fuel specialties performance chemicals segments respectively impairment assessment concluded impairment goodwill respect reporting segments years ended december 31 2014 2013 company performed annual impairment tests concluded impairment goodwill respect reporting segments balance sheet dates believe appropriate assumptions used impairment assessments reasonable judgmental variations assumptions may result materially different calculations potential impairment charges note 8 intangible assets intangible assets comprise following notes consolidated financial statementscontinued product rights following acquisition chemsil august 30 2013 company recognized intangible asset 340 million respect chemsil’s product rights portfolio asset expected life 9 years amortized straightline basis period residual value anticipated amortization expense 38 million recognized 2015 2014 37 million cost goods sold brand names following acquisition independence october 27 2014 company recognized intangible asset 60 million respect independence’s brand name asset expected life 10 years amortized straightline basis period residual value anticipated following acquisition bachman november 4 2013 company recognized intangible asset 29 million respect bachman’s brand names asset expected life 5 years amortized straightline basis period residual value anticipated amortization expense 12 million recognized 2015 2014 07 million selling general administrative expenses technology following acquisition independence october 27 2014 company recognized intangible asset 260 million respect independence’s product formulations asset expected life 15 years amortized straightline basis period residual value anticipated following acquisition bachman november 4 2013 company recognized intangible asset 85 million respect bachman’s core chemistry knowhow oilfield chemicals asset expected life 15 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 183 million respect technological knowhow mixing manufacturing process patents protect technology associated product branding asset expected life 165 years amortized straightline basis period residual value anticipated amortization expense 34 million recognized 2015 2014 24 million cost goods sold notes consolidated financial statementscontinued customer relationships following acquisition independence october 27 2014 company recognized intangible asset 292 million respect independence’s longterm customer relationships asset weighted average expected life 10 years amortized straightline basis period residual value anticipated following acquisition bachman november 4 2013 company recognized intangible asset 145 million respect bachman’s longterm customer relationships asset weighted average expected life 145 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 282 million respect longterm customer relationships asset expected life 115 years amortized straightline basis period residual value anticipated following acquisition finetex merged innospec active chemicals llc january 2005 company recognized intangible asset 42 million relation customer lists acquired asset expected life 13 years amortized straightline basis period residual value anticipated amortization expense 67 million recognized 2015 2014 50 million selling general administrative expenses noncompete agreements following acquisition independence october 27 2014 company recognized intangible asset 26 million respect noncompete agreement asset expected life 3 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 15 million respect noncompete agreement asset expected life 2 years fully amortized amortization expense 09 million recognized 2015 2014 09 million selling general administrative expenses marketing related intangible asset 284 million recognized second quarter 2007 respect ethyl corporation foregoing entitlement effective april 1 2007 share future income stream sales marketing agreements market sell tel 2008 notes consolidated financial statementscontinued contract provisions longer deemed necessary 63 million offset intangible asset amount attributed octane additives reporting segment amortized straightline december 31 2013 amount attributed fuel specialties reporting segment amortized straightline december 31 2017 amortization expense 10 million recognized 2015 2014 10 million cost goods sold internally developed software 2015 continued process developing new companywide information system platform fourth quarter 2015 implemented new platform majority reporting units outside us combined initial deployment 2013 means majority businesses operating new platform december 31 2015 capitalized 364 million 2014 278 million relation internally developed software asset expected life 5 years point time deployment completed amortized straightline basis periods residual value anticipated amortization expense 40 million recognized 2015 2014 38 million selling general administrative expenses amortization expense aggregate intangible asset amortization expense 210 million 178 million 111 million 2015 2014 2013 respectively 82 million 74 million 38 million respectively recognized cost goods sold remainder recognized selling general administrative expenses future amortization expense estimated follows next five years note 9 pension plans united kingdom plan company maintains defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service notes consolidated financial statementscontinued accrual large number deferred current pensioners projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested several investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater longterm monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company 2015 company contributed 90 million cash plan accordance actuarial deficit recovery plan agreed trustees discount rate used represents annualized yield based cash flow matched methodology reference aa corporate bond spot curve regard duration plan’s liabilities inflation rate derived using similar cash flow matched methodology used discount rate regard difference notes consolidated financial statementscontinued yields fixed interest index linked united kingdom government gilts 025 change discount rate assumption would change pbo approximately 24 million net pension credit 2016 would unchanged 025 change level price inflation assumption would change pbo approximately 17 million net pension credit 2016 approximately 01 million current investment strategy plan obtain asset allocation 65 debt securities 35 equity securities order achieve predictable return assets december 31 2015 approximately 35 december 31 2014 50 plan’s assets held indextracking funds one investment management company approximately 16 december 31 2014 40 plan’s assets invested united kingdom government gilts 5 plan’s assets invested one individual company’s investment funds movements pbo fair value plan assets follows accumulated benefit obligation plan 7397 million 8171 million december 31 2015 2014 respectively vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund notes consolidated financial statementscontinued equity securities common preferred stock market prices readily available measurement date valued last reported sale price official closing price primary market exchange actively traded classified level 1 fixed income securities fixed income securities valued based quotations received independent pricing services dealers make markets securities classified level 1 insurance contracts year company invested insurance contracts known buyin contracts value insurance contract used significant unobservable inputs including plan participant medical data addition observable inputs includes expected return assets estimated value premium therefore classified contracts level 3 investments fair value estimates provided external parties subsequently reviewed approved management notes consolidated financial statementscontinued fair values pension assets level input follows 1 certain investments measured fair value using net asset value per share equivalent categorized fair value hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented statement financial position notes consolidated financial statementscontinued reconciliation fair value plan assets measured net asset value follows projected net pension credit year ending december 31 2016 follows following benefit payments expected made notes consolidated financial statementscontinued german plan company also maintains unfunded defined benefit pension plan covering number current former employees germany “german plan” german plan closed new entrants assets movements pbo german plan follows amount unrecognized actuarial net losses comprehensive loss respect german plan 19 million net tax 06 million plans company contributions defined contribution schemes 2015 85 million 2014 82 million notes consolidated financial statementscontinued note 10 income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 39 million unrecognized tax benefits interest penalties would impact effective tax rate recognized recognize accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income 2015 company recorded net reduction 23 million unrecognized tax benefits associated interest penalties company one subsidiaries files income tax returns us federal government various state foreign jurisdictions previously disclosed one notes consolidated financial statementscontinued company’s us subsidiaries received notification march 2015 federal income tax examination irs respect 2013 examination effectively settled fourth quarter 2015 additional tax cost company’s german subsidiaries received tax audit notification october 2015 respect 2010 2014 inclusive company currently anticipates adjustments arising tax audit would result material change company’s financial position december 31 2015 company us subsidiaries remain open examination irs years 2012 onwards company’s subsidiaries foreign tax jurisdictions open examination including france 2013 onwards germany 2010 onwards switzerland 2014 onwards united kingdom 2014 onwards sources income taxes follows components income tax charges summarized follows cash payments income taxes 225 million 116 million 211 million 2015 2014 2013 respectively notes consolidated financial statementscontinued effective tax rate varies us federal statutory rate factors indicated significant factor mix taxable profits generated different geographical localities group operates continues significant positive impact effective rate foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime foreign income inclusions negative impact effective tax rate foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits effective rate positively impacted utilization foreign tax credits foreign income inclusions 2015 consequence group operations outside us exposed foreign currency fluctuations positive impact effective rate 2015 items material impact effective tax rate notes consolidated financial statementscontinued details deferred tax assets liabilities analyzed follows company evaluates deferred tax assets determine whether likely realized valuation allowances reviewed period tax jurisdiction tax jurisdiction basis analyze whether sufficient positive negative evidence support change judgment realizability related deferred tax assets result company’s assessment deferred tax assets december 31 2015 company considers likely recover full benefit deferred tax assets valuation allowance required notes consolidated financial statementscontinued determined future longer likely assets realized valuation allowance would required company’s operating results would adversely affected period determination would made net operating loss carry forwards result deferred tax asset 27 million 2014 06 million net operating loss carry forwards arose us three company’s foreign subsidiaries net operating loss carry forwards 02 million us arose state tax losses prior periods current year federal income tax loss one company’s us subsidiaries expected sufficient taxable profits generated us federal net operating loss carry forwards 01 million relieved prior expiration 2035 state net operating loss carry forwards 01 million relieved prior expiration period 2016 2033 net operating loss carry forwards three company’s foreign subsidiaries totaling 25 million arose primarily current period expected sufficient taxable profits generated net operating loss carry forwards relieved losses carried forward indefinitely without expiration company position control whether repatriate foreign earnings currently expect make repatriation foreseeable future taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered permanent duration amount unremitted earnings december 31 2015 approximately 775 million earnings remitted additional taxes could result offsetting foreign income taxes paid although calculation additional taxes practicable compute time note 11 longterm debt longterm debt consists following november 6 2015 company agreed new revolving credit facility retains 2000 million previous facility available company certain subsidiaries company extends term facility november 2020 addition new credit agreement allows company request additional amount 500 million committed existing lenders credit agreement new lenders notes consolidated financial statementscontinued result company capitalized 15 million refinancing costs amortized expected life facility shown amortization expense 12 million 07 million 04 million 2015 2014 2013 respectively charge included interest expense see note 2 notes consolidated financial statements obligations company revolving facility secured obligations guaranteed certain subsidiaries company amounts available revolving facility may borrowed us dollars euros british pounds freely convertible currencies company’s credit facility contains restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined credit facility include material adverse change assets operations financial condition facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda shall greater 301 2 ratio ebitda net interest shall less 401 management determined company breached covenants throughout period december 31 2015 expect breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries notes consolidated financial statementscontinued weighted average rate interest borrowings 167 december 31 2015 17 december 31 2014 payments interest longterm debt 23 million 23 million 10 million 2015 2014 2013 respectively net cash outflows respect refinancing costs 15 million 01 million 09 million 2015 2014 2013 respectively note 12 plant closure provisions principal site giving rise environmental remediation liabilities manufacturing site ellesmere port united kingdom management believes last ongoing manufacturer tel also environmental remediation liabilities much smaller scale respect manufacturing sites us europe liability estimated closure costs innospec’s manufacturing facilities includes costs decontamination environmental remediation activities remediation demand tel diminishes notes consolidated financial statementscontinued movements provisions summarized follows amounts due within one year refer provisions expenditure expected arise within one year balance sheet date severance charges recognized income statement selling general administrative expenses remediation costs recognized cost goods sold remediation provision represents company’s liability environmental liabilities asset retirement obligations charge period 2015 represents accretion expense recognized 30 million 38 million primarily respect changes expected cost scope future remediation activities discount rate 892 used valuing remediation provision notes consolidated financial statementscontinued recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention remediation expenditure utilized provisions 26 million 20 million 19 million 2015 2014 2013 respectively note 13 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels 2015 company evaluated fair value hierarchy levels assigned assets liabilities concluded transfers levels 1 2 3 notes consolidated financial statementscontinued following table presents carrying amount fair values company’s assets liabilities measured recurring basis following methods assumptions used estimate fair values financial instruments cash equivalents shortterm investments carrying amount approximates fair value shortterm maturities instruments longterm debt finance leases longterm debt principally comprises revolving credit facility entered december 2011 subsequently amended restated november 2015 finance leases relate certain fixed assets oilfield services business carrying amount longterm debt finance leases approximates fair value acquisitionrelated contingent consideration contingent consideration payable cash discounted fair value balance sheet date contingent consideration dependent upon predetermined financial targets estimate fair value likely consideration payable made balance sheet date carrying value contingent consideration balance sheet dates based estimated ebitda free cash flow generated independence business period october 31 2016 notes consolidated financial statementscontinued contingent consideration payable relation acquisition independence based management’s latest forecasts business current trading performance results independence business particularly sensitive level exploration development production activity customers oil gas sector directly affected trends oil prices derivatives fair value derivatives relating interest rate swaps foreign currency forward exchange contracts commodity swaps derived current settlement prices comparable contracts using current assumptions foreign currency forward exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying amounts fair values contracts largely due changes exchange rates us dollar stock equivalent units fair values stock equivalent units calculated balance sheet date using either blackscholes monte carlo method note 14 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign currency exchange rate raw material cost exposures need arises december 31 2015 december 31 2014 company hold interest rate raw material derivatives company enters various foreign currency forward exchange contracts minimize currency exchange rate exposure expected future cash flows december 31 2015 contracts maturity dates one year date inception foreign currency forward exchange contracts designated hedging instruments impact income statement 2015 gain 14 million company sells range fuel specialties performance chemicals octane additives major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures intended minimize bad debt risk collateral generally required note 15 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 45 million notes consolidated financial statementscontinued 2015 37 million 2014 31 million 2013 future commitments noncancelable operating leases follows environmental remediation obligations commitments respect environmental remediation obligations disclosed note 12 notes consolidated financial statements contingencies legal matters involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims material pending legal proceedings company subsidiaries party property subject possible however adverse resolution unexpectedly large number individual items could aggregate material adverse effect results operations particular year quarter guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties december 31 2015 guarantees recognized liabilities consolidated financial statements amounted 42 million terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets notes consolidated financial statementscontinued company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company note 16 stockholders’ equity december 31 2015 company authorized common stock 40000000 shares 2014 40000000 issued shares december 31 2015 29554500 2014 29554500 treasury stock amounted 5453078 shares 2014 5263481 note 17 stockbased compensation plans stock option plans company five active stock option plans two provide grant stock options employees one provides grant stock options nonemployee directors another provides grant stock options key executives matching basis provided use proportion annual bonus purchase common stock company open market company fifth plan savings plan provides grant stock options company employees provided commit make regular savings predefined period used purchase common stock upon vesting options stock options vesting periods ranging 24 months 6 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount aggregate number shares common stock reserved issuance granted plans 2640000 fair value stock options measured grant date using either blackscholes model cases performance criteria dependent upon external factors notes consolidated financial statementscontinued company’s stock price using monte carlo model following weighted average assumptions used determine grantdate fair value options following table summarizes transactions company’s stock option plans year ended december 31 2015 december 31 2015 89949 stock options exercisable 18318 performance conditions attached company’s policy issue shares treasury stock holders stock options exercise options sufficient treasury stock available company issue previously unissued shares stock holders stock options exercise options stock option compensation cost 2015 2014 2013 37 million 26 million 25 million respectively total intrinsic value options exercised 2015 2014 2013 24 million 09 million 47 million respectively total compensation cost related nonvested stock options yet recognized december 31 2015 48 million cost expected recognized weightedaverage period 224 years cash tax benefit realized stock option exercises totaled 13 million 09 million 57 million 2015 2014 2013 respectively excess tax benefit classified financing activities 05 million 04 million 38 million 2015 2014 2013 respectively stock options awards modified 2015 2014 2013 notes consolidated financial statementscontinued stock equivalent units company awards stock equivalent units “seus” time longterm performance incentive seus cash settled equity instruments conditional certain performance criteria linked innospec inc share price seus vesting periods ranging 11 months 4 years cases seus granted expire within 10 years date grant grants may priced market value premium discount limit number seus granted december 31 2015 liability seus 78 million located accrued liabilities consolidated balance sheets cash settled fair value seus measured balance sheet date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following assumptions used determine fair value seus balance sheet dates following table summarizes transactions company’s seus year ended december 31 2015 december 31 2015 56435 seus exercisable 46951 performance conditions attached charges seus spread life award subject revaluation fair value quarter revaluation may result charge credit income statement quarter dependent upon share price performance criteria seu compensation cost 2015 2014 2013 49 million 20 million 71 million respectively total intrinsic value seus exercised 2015 2014 2013 24 million 37 million 22 million respectively notes consolidated financial statementscontinued weightedaverage remaining vesting period nonvested seus 150 years additional exceptional longterm incentive plan first quarter 2014 innospec implemented additional exceptional longterm incentive plan reward selected executives cash bonus delivering exceptional performance one elements plan payable innospec share performance matches outperforms competitors measured russell 2000 index performance period january 1 2014 december 31 2016 maximum cash bonus payable element plan 30 million accounted sharebased compensation fair value liability cashsettled longterm incentives calculated quarterly basis fair value calculated using monte carlo model summarized follows following assumptions used monte carlo model december 31 note 18 reclassifications accumulated comprehensive loss reclassifications accumulated comprehensive loss 2015 1 items included computation net periodic pension cost see note 9 notes consolidated financial statements additional information notes consolidated financial statementscontinued changes accumulated comprehensive loss 2015 net tax note 19 recently issued accounting pronouncements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 “asu 201409” amends existing accounting standards revenue recognition asu 201409 based principles govern recognition revenue amount entity expects entitled products transferred customers original effective date asu 201509 annual interim periods within years beginning december 15 2016 august 2015 fasb issued asu 201514 revenue contracts customers topic 606 deferral effective date defers effective date asu 201409 one year permits early adoption early original effective date asu 201409 new revenue standard may applied retrospectively prior period presented retrospectively cumulative effect recognized date adoption company currently evaluating timing adoption impact adopting new revenue standard consolidated financial statements fasb issued accounting standards update asu 201507 “disclosures investments certain entities calculate net asset value per share equivalent” may 2015 company elected early adopt asu 201507 standard eliminates requirement categorize investments fair value hierarchy fair value measured net asset value per share equivalent using practical expedient fasb asc topic 820 fair value measurement fasb issued accounting standards update asu 201517 “balance sheet classification deferred taxes” november 2015 company presents classified balance sheet asu required classify deferred taxes noncurrent assets noncurrent liabilities asu effective annual periods beginning december 15 2016 company chosen early adoption asu 201517 company determined effect standard ongoing financial reporting notes consolidated financial statementscontinued note 20 related party transactions mr robert paller nonexecutive director company since november 1 2009 company retained continues retain smith gambrell russell llp “sgr” law firm mr paller holds position 2015 2014 2013 company incurred fees payable sgr 03 million 11 million 10 million respectively december 31 2015 amount due sgr company 01 million december 31 2014 01 million note 21 subsequent events company evaluated subsequent events date consolidated financial statements issued concluded additional disclosures required relation events subsequent balance sheet date item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors stockholders innospec inc audited accompanying consolidated balance sheets innospec inc innospec subsidiaries december 31 2016 2015 related consolidated statements income comprehensive income accumulated comprehensive loss cash flows equity years threeyear period ended december 31 2016 also audited innospec’s internal control financial reporting december 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso innospec’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying “management’s report internal control financial reporting” responsibility express opinion consolidated financial statements opinion innospec’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position innospec subsidiaries december 31 2016 2015 results operations cash flows years threeyear period ended december 31 2016 conformity us generally accepted accounting principles also opinion innospec maintained material respects effective internal control financial reporting december 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso innospec acquired european differentiated surfactants business “huntsman” 2016 huntsman investments netherlands bv management excluded assessment effectiveness innospec’s internal control financial reporting december 31 2016 huntsman’s internal control financial reporting associated total assets 2282 million 1074 million represents goodwill intangibles included within scope assessment total revenues 00 million included consolidated financial statements innospec subsidiaries year ended december 31 2016 audit internal control financial reporting innospec also excluded evaluation internal control financial reporting huntsman kpmg audit plc manchester united kingdom february 15 2017 consolidated statements income millions except share per share data accompanying notes integral part statements consolidated statements comprehensive income millions accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 04 million 2015 12 million 2014 07 million year included depreciation amortization cash flow statement interest expense income statement cash paymentsreceipts respect income taxes interest disclosed note 10 note 11 respectively notes consolidated financial statements accompanying notes integral part statements consolidated statements equity millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets supplies fuel additives oilfield chemicals personal care products specialty chemicals products sold primarily oil gas exploration production companies oil refineries personal care companies chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions oilfield services business supplies drilling production chemicals make exploration production costefficient environmentallyfriendly specialty chemicals provide effective technologybased solutions customers’ processes products focused personal care polymers markets octane additives business manufactures fuel additive use automotive gasoline provides services respect environmental remediation principal product lines reportable segments fuel specialties performance chemicals oilfield services octane additives second quarter 2016 finalized changes reporting segments reflect development management structure strategy result changes information company’s chief operating decision maker regularly reviews purposes allocating resources assessing financial performance changed therefore company reported financial performance based four reportable segments described • fuel specialties including polymers business previously reported performance chemicals excluding oilfield services business • performance chemicals excluding polymers business • oilfield services previously reported within fuel specialties • octane additives change recast certain prior period amounts conform way internally manage monitor segment performance fuel specialties performance chemicals oilfield services segments operate markets actively seek growth opportunities although ultimate customers different octane additives segment expected decline near future one remaining refinery customer transitions unleaded fuel see note 3 notes consolidated financial statements financial information company’s reportable segments note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles “gaap” united states america notes consolidated financial statementscontinued going concern basis include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation acquisitions disposals accounted accordance gaap results operations acquired disposed business included excluded consolidated financial statements date acquisition disposal use estimates preparation consolidated financial statements accordance gaap united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents shortterm investments investment securities maturities 3 months less 12 months purchased considered shortterm investments trade accounts receivable company records trade accounts receivable net realizable value maintains allowances customers making required payments company determines adequacy allowances periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method market value cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement inventories adjusted estimated obsolescence written market value based estimates future demand market conditions property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method allocated cost goods sold operating expenses cost additions improvements capitalized maintenance repairs charged expenses assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives amortized subject least annual impairment assessments notes consolidated financial statementscontinued initially perform qualitative assessment determine whether likely fair value segment less carrying amount prior performing twostep goodwill impairment test twostep test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital annual measurement date impairment assessment goodwill relating fuel specialties performance chemicals oilfield services segments december 31 year company capitalizes software development costs including licenses subsequent establishment technological feasibility intangible assets deemed finite lives including software development costs licenses amortized using straightline method estimated useful lives tested potential impairment events occur circumstances change suggest impairment may occurred deferred finance costs relating debt financing capitalized offset longterm debt consolidated balance sheets amortized using effective interest method expected life debt financing facility offsetting deferred finance costs longterm debt requirement recently issued accounting standard resulted restatement prior year comparatives see note 11 notes consolidated financial statements impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result assets compared carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative instruments time company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes company recognizes derivatives either noncurrent assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives designated hedges tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs recognize environmental liabilities notes consolidated financial statementscontinued probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s historic creditadjusted riskfree rate acquisitionrelated contingent consideration contingent consideration payable cash discounted fair value balance sheet date contingent consideration dependent upon predetermined financial targets estimate fair value likely consideration payable made balance sheet date adjustments fair value contingent consideration recognized operating income reporting period within associated liability balance sheet date reflect passage time accretion expense revisions amount timing initial measurement revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized legal title defined generally accepted standard terms conditions risk loss transfers company customer provisions sales discounts rebates customers based upon terms sales contracts recorded period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time delivery components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads amortization expense certain intangible assets warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions amortization expense certain intangible assets cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management notes consolidated financial statementscontinued finance tax treasury investor relations legal departments provision management’s best estimate legal settlement costs litigation company involved made reported administrative expense line item research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy foreign exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur gains losses monetary assets relating currencies us dollar taken income statement net incomeexpense gains losses intercompany foreign currency loans longterm nature company intend settle foreseeable future also recorded accumulated comprehensive loss foreign exchange gains losses also included net incomeexpense income statement stockbased compensation plans company accounts employee stock options stock equivalent units fair value method stock options fair valued grant date fair value recognized straightline vesting period option stock equivalent units fair valued balance sheet date fair value spread remaining vesting period unit pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend service costs recognized employees render services necessary earn postemployment benefits prior service costs credits actuarial gains losses amortized average remaining life expectancy inactive participants using corridor method income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities company evaluates need valuation allowance reduce deferred tax assets amount likely realized effect deferred taxes change tax rates recognized period includes enactment date company recognizes tax benefit tax position likely tax position sustained examination taxing authorities based technical merits notes consolidated financial statementscontinued position tax benefits recognized financial statements positions measured based largest benefit greater 50 percent likelihood realized upon settlement changes recognition measurement reflected period change judgment occurs company recognizes accrued interest penalties associated unrecognized tax benefits part income taxes consolidated statements income note 3 segment reporting geographical area data second quarter 2016 finalized changes reporting segments reflect development management structure strategy result changes information company’s chief operating decision maker regularly reviews purposes allocating resources assessing financial performance changed therefore company reported financial performance based four reportable segments described • fuel specialties including polymers business previously reported performance chemicals excluding oilfield services business • performance chemicals excluding polymers business • oilfield services previously reported within fuel specialties • octane additives change recast certain prior period amounts conform way internally manage monitor segment performance fuel specialties performance chemicals oilfield services segments operate markets actively seek growth opportunities although ultimate customers different octane additives segment expected decline near future one remaining refinery customer transitions unleaded fuel specialties segment develops manufactures blends markets supplies range specialty chemicals products used additives wide range fuels performance chemicals segment provides effective technologybased solutions customers’ processes products focused personal care home care agrochemical mining markets oilfield services segment develops markets products prevent loss mud drilling operations chemical solutions fracturing stimulation operations products oil gas production aid flow assurance asset integrity octane additives segment believe world’s producer tetra ethyl lead “tel” comprises sales tel use automotive gasoline provides services respect environmental remediation notes consolidated financial statementscontinued significant customers sales greater 10 net group sales last three financial years company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments notes consolidated financial statementscontinued pension creditcharge relates united kingdom defined benefit pension plan closed future service accrual charges related much smaller pension arrangements us overseas included segment income statement captions consistent related employees’ costs company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources group legal compliance counsel investor relations • running corporate offices us europe • corporate development function since relate current trading activities reporting segments • corporate share information technology accounting human resources departments notes consolidated financial statementscontinued sales geographical area reported source transactions originated intercompany sales priced using appropriate pricing methodology eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable following tables analyze sales financial information location notes consolidated financial statementscontinued note 4 acquisition european differentiated surfactants business december 30 2016 company acquired european differentiated surfactants business “huntsman” huntsman investments netherlands bv purchased business total consideration 1992 million subject working capital adjustments acquired business order continue strategy building presence personal care home care markets forms part performance chemicals segment huntsman revenue earnings included consolidated income statement company since acquisition date following table summarizes calculations total purchase price estimated allocation purchase price assets acquired liabilities assumed business measurement periods valuation assets acquired liabilities assumed ends soon information facts circumstances existed acquisition dates becomes available exceed twelve months reviewed acquired intangibles associated acquisition concluded main identifiable asset relation customer lists fair value acquired customers lists acquired fixed assets finalized accordingly excess purchase consideration net assets acquired classified goodwill huntsman associated goodwill included within performance chemicals segment management reporting purposes currently goodwill amortizable tax purposes supplemental unaudited pro forma information illustrative purposes pro forma information enlarged group provided necessarily indicative financial position results operations would huntsman acquisition completed part company january 1 2015 addition unaudited pro forma financial information indicative purport project future financial position operating results enlarged group notes consolidated financial statementscontinued adjustments unaudited pro forma financial information includes amortization respect acquired intangible assets acquisitionrelated costs incurred respect transactions note 5 earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2016 2015 2014 average number antidilutive options excluded calculation diluted earnings per share 0 36775 respectively note 6 property plant equipment property plant equipment consists following notes consolidated financial statementscontinued total net book value equipment december 31 2016 44 million 2015 30 million respect assets held finance leases depreciation charges 135 million 130 million 106 million 2016 2015 2014 respectively estimated additional cost complete work progress 95 million 2015 24 million note 7 goodwill following table analyzes goodwill 2016 2015 1 gross cost net 87 million 03 million 2895 million historical accumulated amortization respect fuel specialties performance chemicals octane additives reporting segments respectively company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties performance chemicals oilfield services octane additives components segment including products markets competitors similar economic characteristics segments therefore reflect notes consolidated financial statementscontinued lowest level operations cash flows clearly distinguished operationally financial reporting purposes rest company assesses goodwill impairment least annual basis initially based qualitative assessment determine whether likely fair value segment less carrying amount potential impairment identified twostep impairment test followed company performed annual impairment assessment respect goodwill december 31 2016 2015 2014 impairment assessment concluded impairment goodwill respect reporting segments believe appropriate assumptions used impairment assessments reasonable judgmental variations assumptions may result materially different calculations potential impairment charges note 8 intangible assets intangible assets comprise following notes consolidated financial statementscontinued product rights following acquisition chemsil august 30 2013 company recognized intangible asset 340 million respect chemsil’s product rights portfolio asset expected life 9 years amortized straightline basis period residual value anticipated amortization expense 38 million recognized 2016 2015 38 million selling general administrative expenses brand names following acquisition independence october 27 2014 company recognized intangible asset 60 million respect independence’s brand name asset expected life 10 years amortized straightline basis period residual value anticipated following acquisition bachman november 4 2013 company recognized intangible asset 29 million respect bachman’s brand names asset expected life 5 years amortized straightline basis period residual value anticipated amortization expense 12 million recognized 2016 2015 12 million selling general administrative expenses technology following acquisition independence october 27 2014 company recognized intangible asset 260 million respect independence’s product formulations asset expected life 15 years amortized straightline basis period residual value anticipated following acquisition bachman november 4 2013 company recognized intangible asset 85 million respect bachman’s core chemistry knowhow oilfield chemicals asset expected life 15 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 183 million respect technological knowhow mixing manufacturing process patents protect technology associated product branding asset expected life 165 years amortized straightline basis period residual value anticipated amortization expense 34 million recognized 2016 2015 34 million cost goods sold notes consolidated financial statementscontinued customer relationships following acquisition independence october 27 2014 company recognized intangible asset 292 million respect independence’s longterm customer relationships asset weighted average expected life 10 years amortized straightline basis period residual value anticipated following acquisition bachman november 4 2013 company recognized intangible asset 145 million respect bachman’s longterm customer relationships asset weighted average expected life 145 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 282 million respect longterm customer relationships asset expected life 115 years amortized straightline basis period residual value anticipated following acquisition finetex merged innospec active chemicals llc january 2005 company recognized intangible asset 42 million relation customer lists acquired asset expected life 13 years amortized straightline basis period residual value anticipated amortization expense 68 million recognized 2016 2015 67 million selling general administrative expenses noncompete agreements following acquisition independence october 27 2014 company recognized intangible asset 26 million respect noncompete agreement asset expected life 3 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 15 million respect noncompete agreement asset expected life 2 years fully amortized amortization expense 09 million recognized 2016 2015 09 million selling general administrative expenses marketing related intangible asset 284 million recognized second quarter 2007 respect ethyl corporation foregoing entitlement effective april 1 2007 share future income stream sales marketing agreements market sell tel 2008 contract provisions longer deemed necessary 63 million offset notes consolidated financial statementscontinued intangible asset amount attributed octane additives reporting segment amortized straightline december 31 2013 amount attributed fuel specialties reporting segment amortized straightline december 31 2017 amortization expense 09 million recognized 2016 2015 10 million cost goods sold internally developed software november 2015 completed implementation new information system platform majority reporting units across group december 31 2016 capitalized 364 million 2015 364 million relation internally developed software asset expected life 5 years point time deployment completed amortized straightline basis periods residual value anticipated amortization expense 73 million recognized 2016 2015 40 million selling general administrative expenses amortization expense aggregate intangible asset amortization expense 242 million 210 million 178 million 2016 2015 2014 respectively 43 million 44 million 37 million respectively recognized cost goods sold remainder recognized selling general administrative expenses future amortization expense estimated follows next five years note 9 pension plans united kingdom plan company maintains defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested several investment management notes consolidated financial statementscontinued companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater longterm monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company 2016 company contributed 11 million cash plan accordance agreement trustees discount rate used represents annualized yield based cash flow matched methodology reference aa corporate bond spot curve regard duration plan’s liabilities inflation rate derived using similar cash flow matched methodology used discount rate regard difference yields fixed interest index linked united kingdom government gilts 025 change discount rate assumption would change pbo approximately 26 million net pension credit 2017 would change approximately 02 million 025 change level price inflation assumption would change pbo approximately 19 million net pension credit 2016 approximately 02 million notes consolidated financial statementscontinued current investment strategy plan obtain asset allocation 65 debt securities 35 equity securities order achieve predictable return assets december 31 2016 approximately 37 december 31 2015 35 plan’s assets held indextracking funds one investment management company approximately 18 december 31 2015 16 plan’s assets invested united kingdom government gilts 5 plan’s assets invested one individual company’s investment funds movements pbo fair value plan assets follows accumulated benefit obligation plan 7102 million 7397 million december 31 2016 2015 respectively vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund equity securities common preferred stock market prices readily available measurement date valued last reported sale price official closing price primary market exchange actively traded classified level 1 fixed income securities fixed income securities valued based quotations received independent pricing services dealers make markets securities classified level 1 notes consolidated financial statementscontinued insurance contracts company invested insurance contracts known buyin contracts value insurance contract used significant unobservable inputs including plan participant medical data addition observable inputs includes expected return assets estimated value premium therefore classified contracts level 3 investments fair value estimates provided external parties subsequently reviewed approved management notes consolidated financial statementscontinued fair values pension assets level input follows 1 certain investments measured fair value using net asset value per share equivalent categorized fair value hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented statement financial position notes consolidated financial statementscontinued reconciliation fair value plan assets measured using significant unobservable inputs follows projected net pension credit year ending december 31 2017 follows following benefit payments expected made notes consolidated financial statementscontinued german plan company also maintains unfunded defined benefit pension plan covering number current former employees germany “german plan” german plan closed new entrants assets movements pbo german plan follows amount unrecognized actuarial net losses comprehensive loss respect german plan 25 million net tax 07 million plans company contributions defined contribution schemes 2016 79 million 2015 85 million huntsman acquisition pension plans liability december 31 2016 41 million notes consolidated financial statementscontinued note 10 income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 23 million unrecognized tax benefits interest penalties would impact effective tax rate recognized recognize accrued interest penalties associated unrecognized tax benefits part income taxes consolidated statements income 2016 company recorded net reduction 16 million unrecognized tax benefits associated interest penalties notes consolidated financial statementscontinued company one subsidiaries files income tax returns us federal government various state foreign jurisdictions previously disclosed one company’s us subsidiaries currently subject state tax examination respect 2012 2014 inclusive company currently anticipates adjustments arising tax audit would result material change company’s financial position december 31 2016 previously disclosed company’s german subsidiaries received tax audit notification october 2015 respect 2010 2014 inclusive examination effectively settled fourth quarter 2016 additional cost company material company us subsidiaries remain open examination irs years 2013 onwards company’s subsidiaries foreign tax jurisdictions open examination including france 2013 onwards germany 2015 onwards switzerland 2015 onwards united kingdom 2015 onwards sources income taxes follows components income tax expense summarized follows cash payments income taxes 231 million 225 million 116 million 2016 2015 2014 respectively notes consolidated financial statementscontinued effective tax rate varies us federal statutory rate factors indicated significant factor mix taxable profits generated different geographical jurisdictions group operates continues significant positive impact effective rate foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime foreign income inclusions negative impact effective tax rate foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits effective rate favorably impacted generation foreign tax credits foreign income inclusions 2016 consequence group operations outside us exposed foreign currency fluctuations negative impact effective rate 2016 items material impact effective tax rate notes consolidated financial statementscontinued details deferred tax assets liabilities analyzed follows company evaluates deferred tax assets determine whether likely realized deferred tax assets reviewed period tax jurisdiction tax jurisdiction basis analyze whether sufficient positive negative evidence support realizability result company’s assessment deferred tax assets december 31 2016 company considers likely recover full benefit deferred tax assets valuation allowance required determined future longer likely assets realized valuation allowance would required company’s operating results would adversely affected period determination would made gross net operating loss carry forwards 753 million result deferred tax asset 182 million net operating loss carry forwards arose us four company’s foreign subsidiaries net operating loss carry forwards 172 million arose notes consolidated financial statementscontinued state federal tax losses prior current periods certain company’s us subsidiaries expected sufficient taxable profits generated us federal net operating loss carry forwards 102 million relieved prior expiration period 2035 2036 state net operating loss carry forwards 70 million relieved expiration period 2022 2036 net operating loss carry forwards two company’s foreign subsidiaries totaling 581 million arose prior periods expected sufficient taxable profits generated net operating loss carry forwards relieved losses carried forward indefinitely without expiration company position control whether repatriate foreign earnings currently expect make repatriation foreseeable future taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered indefinite duration amount unremitted earnings december 31 2016 approximately 788 million earnings remitted additional taxes could result offsetting foreign income taxes paid although calculation additional taxes practicable compute time note 11 longterm debt longterm debt consists following december 14 2016 innospec certain subsidiaries company entered third amendment restatement agreement various lenders amends restates company’s credit facility agreement dated december 14 2011 amended restated august 28 2013 november 6 2015 “preexisting credit agreement” preexisting credit agreement amended restated pursuant third amendment restatement agreement “amended credit agreement” amended credit agreement retains 200000000 revolving credit facility available company adds term loan facility 110000000 termination date revolving facility remains november 6 2020 term loan 11000000 repayment installment due december 28 2017 16500000 installment due december 28 2018 22000000 installment due december 28 2019 outstanding balance due november 6 2020 notes consolidated financial statementscontinued result company capitalized 12 million refinancing costs 2016 15 million 2015 amortized expected life facility shown amortization expense 04 million 12 million 07 million 2016 2015 2014 respectively charge included interest expense see note 2 notes consolidated financial statements obligations company credit facilities secured obligations guaranteed certain subsidiaries company amounts available revolving facility may borrowed us dollars euros british pounds freely convertible currencies company’s credit facilities contain restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined credit facility include material adverse change assets operations financial condition facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition credit facilities contain terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda shall greater 301 2 ratio ebitda net interest shall less 401 management determined company breached covenants throughout period december 31 2016 expect breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries notes consolidated financial statementscontinued weighted average rate interest borrowings 172 december 31 2016 167 december 31 2015 payments interest longterm debt 26 million 23 million 23 million 2016 2015 2014 respectively net cash outflows respect refinancing costs 12 million 15 million 01 million 2016 2015 2014 respectively note 12 plant closure provisions principal site giving rise environmental remediation liabilities manufacturing site ellesmere port united kingdom management believes last ongoing manufacturer tel also environmental remediation liabilities much smaller scale respect manufacturing sites us europe liability estimated closure costs innospec’s manufacturing facilities includes costs decontamination environmental remediation activities “remediation” demand tel diminishes movements provisions summarized follows amounts due within one year refer provisions expenditure expected arise within one year balance sheet date remediation costs recognized cost goods sold provisions remediation represent company’s liability environmental liabilities asset retirement obligations charge period 2016 represents accretion expense recognized 34 million 13 million primarily respect changes expected cost scope future remediation activities discount rate 892 used valuing remediation provision recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries notes consolidated financial statementscontinued operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention remediation expenditure utilized provisions 27 million 26 million 20 million 2016 2015 2014 respectively note 13 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels 2016 company evaluated fair value hierarchy levels assigned assets liabilities concluded transfers levels 1 2 3 notes consolidated financial statementscontinued following table presents carrying amount fair values company’s assets liabilities measured recurring basis following methods assumptions used estimate fair values financial instruments cash equivalents shortterm investments carrying amount approximates fair value shortterm maturities instruments longterm debt finance leases longterm debt principally comprises term loan revolving credit facility shown net deferred finance costs capitalized fair value longterm debt approximates carrying value discounting present value offset payments interest rate swaps finance leases relate certain fixed assets oilfield services business carrying amount longterm debt finance leases approximates fair value acquisitionrelated contingent consideration contingent consideration payable cash discounted fair value balance sheet date contingent consideration notes consolidated financial statementscontinued dependent upon predetermined financial targets estimate fair value likely consideration payable made balance sheet date contingent consideration payable december 31 2016 calculated based actual trading results although amount paid subject final agreement previous owners derivatives fair value derivatives relating interest rate swaps foreign currency forward exchange contracts commodity swaps derived current settlement prices comparable contracts using current assumptions interest rate swaps relate contracts taken hedge interest rate risk portion credit facilities borrowing foreign currency forward exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying amounts fair values contracts largely due changes exchange rates us dollar stock equivalent units fair values stock equivalent units calculated balance sheet date using either blackscholes monte carlo method note 14 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign currency exchange rate raw material cost exposures need arises company enters interest rate swap contracts reduce interest rate risk core debt 31 december 2016 interest rate swaps notional value 160000000 place fixed interest rates payable interest rate swaps vary 141 167 interest rate swaps place hedge interest rate risk term loan notional value matches repayment profile term loan interest rate swap contracts designated hedging instruments impact comprehensive loss 2016 gain 04 million company enters various foreign currency forward exchange contracts minimize currency exchange rate exposure expected future cash flows december 31 2016 contracts maturity dates one year date inception foreign currency forward exchange contracts designated hedging instruments impact income statement 2016 gain 44 million december 31 2016 december 31 2015 company hold raw material derivatives company sells range specialty chemicals major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures intended minimize bad debt risk collateral generally required notes consolidated financial statementscontinued note 15 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 52 million 2016 45 million 2015 37 million 2014 future commitments noncancelable operating leases follows environmental remediation obligations commitments respect environmental remediation obligations disclosed note 12 notes consolidated financial statements contingencies legal matters involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims material pending legal proceedings company subsidiaries party property subject possible however adverse resolution unexpectedly large number individual items could aggregate material adverse effect results operations particular year quarter guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties december 31 2016 guarantees recognized liabilities consolidated financial statements amounted 47 million notes consolidated financial statementscontinued terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company note 16 stockholders’ equity december 31 2016 company authorized common stock 40000000 shares 2015 40000000 issued shares december 31 2016 29554500 2015 29554500 treasury stock amounted 5483341 shares 2015 5453078 note 17 stockbased compensation plans stock option plans company five active stock option plans two provide grant stock options employees one provides grant stock options nonemployee directors another provides grant stock options key executives matching basis provided use proportion annual bonus purchase common stock company open market company fifth plan savings plan provides grant stock options company employees provided commit make regular savings predefined period used purchase common stock upon vesting options stock options vesting periods ranging 24 months 6 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount aggregate number shares common stock reserved issuance granted plans 2640000 fair value stock options measured grant date using either blackscholes model cases performance criteria dependent upon external factors notes consolidated financial statementscontinued company’s stock price using monte carlo model following weighted average assumptions used determine grantdate fair value options following table summarizes transactions company’s stock option plans year ended december 31 2016 december 31 2016 68796 stock options exercisable 20417 performance conditions attached company’s policy issue shares treasury stock holders stock options exercise options sufficient treasury stock available company issue previously unissued shares stock holders stock options exercise options stock option compensation cost 2016 2015 2014 33 million 37 million 26 million respectively total intrinsic value options exercised 2016 2015 2014 28 million 24 million 09 million respectively total compensation cost related nonvested stock options yet recognized december 31 2016 36 million cost expected recognized weightedaverage period 192 years cash tax benefit realized stock option exercises totaled 09 million 13 million 09 million 2016 2015 2014 respectively excess tax benefit classified financing activities 10 million 05 million 04 million 2016 2015 2014 respectively stock options awards modified 2016 2015 2014 notes consolidated financial statementscontinued stock equivalent units company awards stock equivalent units “seus” time longterm performance incentive seus cash settled equity instruments conditional certain performance criteria linked innospec inc share price seus vesting periods ranging 11 months 4 years cases seus granted expire within 10 years date grant grants may priced market value premium discount limit number seus granted december 31 2016 liability seus 98 million located accrued liabilities consolidated balance sheets cash settled fair value seus measured balance sheet date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following assumptions used determine fair value seus balance sheet dates following table summarizes transactions company’s seus year ended december 31 2016 december 31 2016 48964 seus exercisable 46260 performance conditions attached charges seus spread life award subject revaluation fair value quarter revaluation may result charge credit income statement quarter dependent upon share price performance criteria seu compensation cost 2016 2015 2014 47 million 49 million 20 million respectively total intrinsic value seus exercised 2016 2015 2014 18 million 24 million 37 million respectively weightedaverage remaining vesting period nonvested seus 140 years notes consolidated financial statementscontinued additional exceptional longterm incentive plan first quarter 2014 innospec implemented additional exceptional longterm incentive plan reward selected executives cash bonus delivering exceptional performance one elements plan payable innospec share performance matches outperforms competitors measured russell 2000 total return index performance period january 1 2014 december 31 2016 maximum cash bonus payable element plan 30 million accounted sharebased compensation fair value liability cashsettled longterm incentives calculated 30 million december 31 2016 payment liability expected first quarter 2017 note 18 reclassifications accumulated comprehensive loss reclassifications accumulated comprehensive loss 2016 1 items included computation net periodic pension cost see note 9 notes consolidated financial statements additional information changes accumulated comprehensive loss 2016 net tax notes consolidated financial statementscontinued note 19 recently issued accounting pronouncements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 “asu 201409” amends existing accounting standards revenue recognition asu 201409 based principles govern recognition revenue amount entity expects entitled products transferred customers original effective date asu 201509 annual interim periods within years beginning december 15 2016 august 2015 fasb issued asu 201514 revenue contracts customers topic 606 deferral effective date defers effective date asu 201409 one year permits early adoption early original effective date asu 201409 new revenue standard may applied retrospectively prior period presented retrospectively cumulative effect recognized date adoption company currently evaluating timing adoption impact adopting new revenue standard consolidated financial statements november 2015 fasb issued accounting standards update asu 201517 “balance sheet classification deferred taxes” simplifies presentation deferred income taxes asu 201517 requires deferred tax assets liabilities classified noncurrent classified balance sheet asu 201517 effective financial statements issued fiscal years beginning december 15 2016 interim periods within fiscal years early adoption permitted asu 201517 may either applied prospectively retrospectively periods presented elected early adopt asu 201517 prospectively fourth quarter 2016 provides simplified presentation deferred tax balances result presented deferred tax assets liabilities noncurrent consolidated balance sheet december 31 2016 reclassified current deferred tax assets liabilities consolidated balance sheet december 31 2015 february 2016 fasb issued accounting standards update asu 201602 revision lease accounting amends asc topic 842 leases asu requires lessees recognize rightofuse asset lease liability virtually leases meet definition shortterm lease new standard effective fiscal years beginning december 15 2018 including interim periods within fiscal years early adoption permitted new standard must adopted using modified retrospective transition provides certain practical expedients transition require application new guidance beginning earliest comparative period presented company yet determined effect standard ongoing financial reporting march 2016 fasb issued accounting standards update asu 201609 improvements employee sharebased payment accounting amends asc topic 718 compensation stock compensation asu includes provisions intended simplify various aspects related sharebased payments accounted presented notes consolidated financial statementscontinued financial statements asu 201609 effective annual reporting periods beginning december 15 2016 interim periods within reporting period early adoption permitted company determined new standard significant effect ongoing financial reporting adopt new standard year ended december 31 2017 october 2016 fasb issued accounting standards update asu 201616 accounting income taxes intraentity asset transfers inventory asu intended simplify taxation certain intraentity sales assets asu 201616 effective financial statements issued fiscal years beginning december 15 2017 interim periods within fiscal years early adoption permitted company chosen early adoption asu 201616 determined new standard significant effect ongoing financial reporting note 20 related party transactions mr robert paller nonexecutive director company since november 1 2009 company retained continues retain smith gambrell russell llp “sgr” law firm mr paller holds position 2016 2015 2014 company incurred fees payable sgr 05 million 03 million 11 million respectively december 31 2016 amount due sgr company 00 million december 31 2015 01 million note 21 subsequent events company evaluated subsequent events date consolidated financial statements issued concluded additional disclosures required relation events subsequent balance sheet date item 9item 8 financial statements supplementary data report independentregistered public accounting firm stockholders board directors innospec inc opinions consolidated financial statements internal control financial reporting audited accompanying consolidated balance sheets innospec inc subsidiaries “company” december 31 2017 2016 related consolidated statements income comprehensive income accumulated comprehensive loss cash flows equity years threeyear period ended december 31 2017 related notes collectively “consolidated financial statements” also audited company’s internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission opinion consolidated financial statements referred present fairly material respects financial position company december 31 2017 2016 results operations cash flows years threeyear period ended december 31 2017 conformity us generally accepted accounting principles also opinion company maintained material respects effective internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission basis opinion company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion company’s consolidated financial statements opinion company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states “pcaob” required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate kpmg audit plc served company’s auditor since 2011 manchester united kingdom february 15 2018 consolidated statements income millions except share per share data accompanying notes integral part statements consolidated statements comprehensive income millions accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 06 million 2016 04 million 2015 12 million year included depreciation amortization cash flow statement interest expense income statement cash paymentsreceipts respect income taxes interest disclosed note 10 note 11 respectively notes consolidated financial statements recast certain prior period amounts conform new accounting standards accompanying notes integral part statements consolidated statements equity millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets supplies fuel additives oilfield chemicals personal care products specialty chemicals products sold primarily oil gas exploration production companies oil refineries personal care home care companies formulators agrochemical mining preparations chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions oilfield services business supplies drilling production chemicals make exploration production costefficient environmentallyfriendly performance chemicals business provides effective technologybased solutions customers’ processes products focused personal care home care agrochemical mining markets octane additives business manufactures fuel additive use automotive gasoline provides services respect environmental remediation principal reportable segments fuel specialties performance chemicals oilfield services octane additives note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles “gaap” united states america going concern basis include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation accordance gaap united states america results operations acquired disposed business included excluded consolidated financial statements date acquisition disposal use estimates preparation consolidated financial statements accordance gaap united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents trade accounts receivable company records trade accounts receivable net realizable value maintains allowances customers making required payments company determines adequacy allowances periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method market value cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost notes consolidated financial statementscontinued materials based projected purchases period agreement inventories adjusted estimated obsolescence written market value based estimates future demand market conditions property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method allocated cost goods sold operating expenses cost additions improvements capitalized maintenance repairs charged expenses incurred assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives subject least annual impairment assessments initially perform qualitative assessment determine whether likely fair value segment less carrying amount prior performing twostep goodwill impairment test twostep test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital annual measurement date impairment assessment goodwill relating fuel specialties performance chemicals oilfield services segments december 31 year company capitalizes software development costs including licenses subsequent establishment technological feasibility intangible assets deemed finite lives including software development costs licenses amortized using straightline method estimated useful lives tested potential impairment events occur circumstances change suggest impairment may occurred deferred finance costs relating debt financing capitalized offset longterm debt consolidated balance sheets amortized using effective interest method expected life debt financing facility see note 11 notes consolidated financial statements impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value asset groups lower impairment loss may recognized amount impairment loss difference fair value notes consolidated financial statementscontinued carrying value asset groups fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative instruments time company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes company recognizes derivatives either current noncurrent assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives designated hedges tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s historic creditadjusted riskfree rate revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized legal title defined generally accepted standard terms conditions risk loss transfers company customer provisions sales discounts rebates customers based upon terms sales contracts recorded period related sales deduction revenue company accounts estimate provision required sales discounts rebates based terms agreement time revenue recognition components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads amortization expense certain intangible assets warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item notes consolidated financial statementscontinued components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions amortization expense certain intangible assets cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal settlement costs litigation company involved accounted administrative expense line item research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy foreign exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur gains losses monetary assets relating currencies us dollar taken income statement incomeexpense net gains losses intercompany foreign currency loans longterm nature company intend settle foreseeable future also recorded accumulated comprehensive loss foreign exchange gains losses also included income net income statement stockbased compensation plans company accounts employee stock options stock equivalent units fair value method stock options fair valued grant date fair value recognized straightline vesting period option stock equivalent units fair valued balance sheet date fair value spread remaining vesting period unit pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend service costs recognized employees render services necessary earn postemployment benefits prior service costs credits actuarial gains losses amortized average remaining life expectancy inactive participants using corridor method notes consolidated financial statementscontinued income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities company evaluates need valuation allowance reduce deferred tax assets amount likely realized effect deferred taxes change tax rates recognized period includes enactment date company recognizes tax benefit tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements positions measured based largest benefit greater 50 percent likelihood realized upon settlement changes recognition measurement reflected period change judgment occurs company recognizes accrued interest penalties associated unrecognized tax benefits part income taxes consolidated statements income note 3 segment reporting geographical area data fuel specialties performance chemicals oilfield services segments operate markets actively seek growth opportunities although ultimate customers different octane additives segment expected decline near future one remaining refinery customer transitions unleaded fuel specialties segment develops manufactures blends markets supplies range specialty chemicals products used additives wide range fuels performance chemicals segment provides effective technologybased solutions customers’ processes products focused personal care home care agrochemical mining markets oilfield services segment develops markets products prevent loss mud drilling operations chemical solutions fracturing stimulation operations products oil gas production aid flow assurance asset integrity octane additives segment believe world’s producer tetra ethyl lead “tel” comprises sales tel use automotive gasoline provides services respect environmental remediation significant customers sales greater 10 net group sales last three financial years notes consolidated financial statementscontinued company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments notes consolidated financial statementscontinued pension credit relates united kingdom defined benefit pension plan closed future service accrual charges related much smaller pension arrangements us overseas included segment income statement captions consistent related employees’ costs company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources group legal compliance counsel investor relations • running corporate offices us europe • corporate development function since relate current trading activities reporting segments • corporate share information technology accounting human resources departments notes consolidated financial statementscontinued following tables analyze sales financial information location sales geographical area reported source transactions originated intercompany sales priced using appropriate pricing methodology eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued note 4 acquisition european differentiated surfactants business december 30 2016 company acquired european differentiated surfactants business “huntsman” huntsman investments netherlands bv purchased business total consideration 2002 million acquired business order continue strategy building presence personal care home care markets form part performance chemicals segment year reviewed fair values assets acquired liabilities assumed based information becoming available previous filing resulting 231 million increase assets acquired corresponding decrease goodwill relation recognition customer relationships offset increase deferred taxation liabilities final working capital adjustments 26 million agreed third quarter 2017 huntsman associated goodwill included within performance chemicals segment management reporting purposes currently goodwill amortizable tax purposes note 5 earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2017 2016 2015 average number antidilutive options excluded calculation diluted earnings per share 9422 0 respectively notes consolidated financial statementscontinued note 6 property plant equipment property plant equipment consists following huntsman acquisition recognized 28 million asset retirement obligations increase value tangible assets acquired depreciated remaining useful economic life assets total net book value equipment december 31 2017 62 million 2016 44 million respect assets held finance leases depreciation charges 214 million 135 million 130 million 2017 2016 2015 respectively estimated additional cost complete work progress 23 million 2016 95 million notes consolidated financial statementscontinued note 7 goodwill following table analyzes goodwill movement 2017 2016 1 gross cost net 87 million 03 million 2895 million historical accumulated amortization respect fuel specialties performance chemicals octane additives reporting segments respectively year reviewed fair values assets acquired liabilities assumed huntsman acquisition within performance chemicals segment based information becoming available previous filing resulting 231 million increase assets acquired corresponding decrease goodwill company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties performance chemicals oilfield services octane additives components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows clearly distinguished operationally financial reporting purposes rest company assesses goodwill impairment least annual basis initially based qualitative assessment determine whether likely fair value segment less carrying amount potential impairment identified twostep impairment test followed notes consolidated financial statementscontinued company performed annual impairment assessment respect goodwill december 31 2017 2016 2015 impairment assessment concluded impairment goodwill respect reporting units believe appropriate assumptions used impairment assessments reasonable judgmental variations assumptions may result materially different calculations potential impairment charges note 8 intangible assets intangible assets comprise following product rights following acquisition chemsil august 30 2013 company recognized intangible asset 340 million respect chemsil’s product rights portfolio asset expected life 9 years amortized straightline basis period residual value anticipated notes consolidated financial statementscontinued amortization expense 38 million recognized 2017 2016 38 million selling general administrative expenses brand names following acquisition independence october 27 2014 company recognized intangible asset 60 million respect independence’s brand name asset expected life 10 years amortized straightline basis period residual value anticipated following acquisition bachman november 4 2013 company recognized intangible asset 29 million respect bachman’s brand names asset expected life 5 years amortized straightline basis period residual value anticipated amortization expense 12 million recognized 2017 2016 12 million selling general administrative expenses technology following acquisition independence october 27 2014 company recognized intangible asset 260 million respect independence’s product formulations asset expected life 15 years amortized straightline basis period residual value anticipated following acquisition bachman november 4 2013 company recognized intangible asset 85 million respect bachman’s core chemistry knowhow oilfield chemicals asset expected life 15 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 183 million respect technological knowhow mixing manufacturing process patents protect technology associated product branding asset expected life 165 years amortized straightline basis period residual value anticipated amortization expense 34 million recognized 2017 2016 34 million cost goods sold customer distributor relationships august 9 2017 company acquired intangible asset huntsman holland bv 42 million respect longterm customer distributor relationships aspac america asset weighted average expected life 10 years amortized straightline basis period residual value anticipated notes consolidated financial statementscontinued march 31 2017 company recognized intangible asset 335 million respect longterm customer relationships relating huntsman acquisition december 30 2016 asset weighted average expected life 10 years amortized straightline basis period residual value anticipated following acquisition independence october 27 2014 company recognized intangible asset 292 million respect independence’s longterm customer relationships asset weighted average expected life 10 years amortized straightline basis period residual value anticipated following acquisition bachman november 4 2013 company recognized intangible asset 145 million respect bachman’s longterm customer relationships asset weighted average expected life 145 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 282 million respect longterm customer relationships asset expected life 115 years amortized straightline basis period residual value anticipated following acquisition finetex merged innospec active chemicals llc january 2005 company recognized intangible asset 42 million relation customer lists acquired asset expected life 13 years amortized straightline basis period residual value anticipated amortization expense 107 million recognized 2017 2016 68 million selling general administrative expenses noncompete agreements following acquisition independence october 27 2014 company recognized intangible asset 26 million respect noncompete agreement asset expected life 3 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 15 million respect noncompete agreement asset expected life 2 years fully amortized amortization expense 07 million recognized 2017 2016 09 million selling general administrative expenses notes consolidated financial statementscontinued marketing related intangible asset 284 million recognized second quarter 2007 respect ethyl corporation foregoing entitlement effective april 1 2007 share future income stream sales marketing agreements market sell tel 2008 contract provisions longer deemed necessary 63 million offset intangible asset amount attributed octane additives reporting segment amortized straightline december 31 2013 amount attributed fuel specialties reporting segment amortized straightline december 31 2017 amortization expense 09 million recognized 2017 2016 09 million cost goods sold internally developed software september 2017 completed implementation new information system platform acquired huntsman businesses december 31 2017 capitalized 44 million 2016 00 million relation internally developed software asset expected life 5 years amortized straightline basis period residual value anticipated august 2017 completed implementation existing information system platform two reporting entities united states cost 03 million december 31 2017 capitalized 367 million 2016 364 million relation phased deployment internally developed software majority entities group began 2013 asset expected life 5 years point time deployment completed amortized straightline basis periods residual value anticipated amortization expense 76 million recognized 2017 2016 73 million selling general administrative expenses amortization expense aggregate intangible asset amortization expense 283 million 242 million 210 million 2017 2016 2015 respectively 43 million 43 million 44 million respectively recognized cost goods sold remainder recognized selling general administrative expenses notes consolidated financial statementscontinued future amortization expense estimated follows next five years note 9 pension postemployment benefits united kingdom plan company maintains defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested several investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater longterm monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company 2017 company contributed 10 million cash plan accordance agreement trustees notes consolidated financial statementscontinued discount rate used represents annualized yield based cash flow matched methodology reference aa corporate bond spot curve regard duration plan’s liabilities inflation rate derived using similar cash flow matched methodology used discount rate regard difference yields fixed interest index linked united kingdom government gilts 025 change discount rate assumption would change pbo approximately 25 million net pension credit 2017 would change approximately 01 million 025 change level price inflation assumption would change pbo approximately 18 million net pension credit 2017 approximately 15 million current investment strategy plan obtain asset allocation approximately 85 debt securities 15 equity securities order achieve predictable return assets december 31 2017 approximately 30 december 31 2016 37 plan’s assets held indextracking funds one investment management company approximately 10 december 31 2016 18 plan’s assets invested united kingdom government gilts 5 plan’s assets invested one individual company’s investment funds notes consolidated financial statementscontinued movements pbo fair value plan assets follows accumulated benefit obligation plan 7214 million 7102 million december 31 2017 2016 respectively vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund equity securities common preferred stock market prices readily available measurement date valued last reported sale price official closing price primary market exchange actively traded classified level 1 fixed income securities fixed income securities valued based quotations received independent pricing services dealers make markets securities classified level 1 insurance contracts company invested insurance contracts known buyin contracts value insurance contract based significant unobservable inputs including plan participant medical data addition observable inputs include expected return assets notes consolidated financial statementscontinued estimated value premium therefore classified contracts level 3 investments fair value estimates provided external parties subsequently reviewed approved management fair values pension assets level input follows 1 certain investments measured fair value using net asset value per share equivalent categorized fair value hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented statement financial position notes consolidated financial statementscontinued reconciliation fair value plan assets measured using significant unobservable inputs follows projected net service cost year ending december 31 2018 12 million recognized selling general administrative expenses following recognized income expense total net pension credit 52 million innospec’s net income year ending december 31 2018 following benefit payments expected made notes consolidated financial statementscontinued german plan company also maintains unfunded defined benefit pension plan covering number current former employees germany “german plan” german plan closed new entrants assets movements pbo german plan follows amount unrecognized actuarial net losses comprehensive loss respect german plan 26 million net tax 08 million plans company contributions defined contribution schemes 2017 79 million 2016 79 million december 31 2017 performance chemicals segment postemployment obligations european businesses liability 47 million december 31 2016 41 million notes consolidated financial statementscontinued note 10 income taxes rollforward unrecognized tax benefits follows recognize accrued interest penalties associated unrecognized tax benefits part income taxes consolidated statements income related unrecognized tax benefits noted accrued net interest penalties 02 million 2017 net reduction interest penalties 02 million 2016 net reduction interest penalties 02 million 2015 total accrued interest penalties december 31 2017 remaining unrecognized tax benefits amounted 03 million december 31 2016 01 million 25 million unrecognized tax benefits interest penalties would impact effective tax rate recognized company one subsidiaries files income tax returns us federal government various state foreign jurisdictions previously disclosed one company’s us subsidiaries subject state tax examination respect 2012 2014 inclusive examination completed fourth quarter 2017 additional cost company us subsidiaries currently subject federal income tax examination respect 2015 company currently anticipates adjustments arising tax audit would result material change company’s financial position december 31 2017 previously disclosed tax audits opened italian tax authorities respect innospec performance chemicals italia srl acquired part huntsman business respect period 2011 2013 inclusive consequence information received fourth quarter 2017 company believes additional tax approximately 05 million together associated interest 02 million may arise result 2011 audit insufficient evidence conclude position relation 2012 2013 current time additional tax arising consequence tax audit would reimbursed previous owner terms sale purchase agreement company recorded unrecognized tax benefit 07 million quarter notes consolidated financial statementscontinued together indemnification asset amount reflect fact final liability would reimbursed previous owner company us subsidiaries remain open examination irs years 2014 onwards company’s subsidiaries foreign tax jurisdictions open examination including france 2014 onwards germany 2015 onwards switzerland 2015 onwards united kingdom 2016 onwards sources income taxes follows components income tax expense summarized follows cash payments income taxes 242 million 231 million 225 million 2017 2016 2015 respectively notes consolidated financial statementscontinued effective tax rate varies us federal statutory rate factors indicated significant factor impacting effective tax rate recognized implications tax reform act us gaap requires impact tax legislation recognized period law enacted december 2017 sec staff issued staff accounting bulletin 118 “sab 118” provides guidance accounting tax effects tax reform act sab 118 provides measurement period extend beyond one year tax reform act enactment date companies complete accounting asc 740 income taxes accounting complete companies may record provisional estimates result tax reform act accrued provisional estimate mandatory transition tax accumulated earnings december 31 2017 resulting increase income tax expense 477 million addition us deferred tax assets liabilities remeasured using tax rate reduced 35 21 date resulted 71 million deferred income tax benefit account complexity new global intangible lowtaxed income “gilti” tax rules company continues evaluate provision tax reform act application asc 740 income taxes us gaap company allowed make accounting policy choice either treating taxes due future us inclusions taxable income related gilti current period expense incurred “period cost method” factoring amounts company’s recognition measurement deferred taxes “deferred method” company yet made adjustments related potential gilti tax financial statements yet made accounting policy decision respect gilti consider accounting transition tax gilti provisions items incomplete due forthcoming guidance ongoing analysis final data tax positions may impact calculations notes consolidated financial statementscontinued expect complete analysis within measurement period accordance sab 118 mix taxable profits generated different geographical jurisdictions group operates continues significant positive impact effective rate foreign income inclusions arise year certain types income earned overseas taxable us tax regulations types income include subpart f income principally foreign based company sales united kingdom including associated section 78 tax gross also income earned certain overseas subsidiaries taxable us tax regime foreign income inclusions negative impact effective tax rate foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may certain years prevent offset foreign tax credits effective rate favorably impacted generation foreign tax credits foreign income inclusions 2017 items material impact effective tax rate notes consolidated financial statementscontinued details deferred tax assets liabilities analyzed follows tax reform act reduces us statutory corporate tax rate 35 21 effective january 1 2018 resulted remeasurement us deferred tax positions december 31 2017 consequently recorded decrease net deferred tax liability 71 million corresponding net adjustment deferred tax benefit 71 million year ended december 31 2017 company evaluates deferred tax assets determine whether likely realized deferred tax assets reviewed period tax jurisdiction tax jurisdiction basis analyze whether sufficient positive negative evidence support realizability result company’s assessment deferred tax assets december 31 2017 company considers likely recover full benefit deferred tax assets valuation allowance required determined future longer likely assets realized valuation allowance would required company’s operating notes consolidated financial statementscontinued results would adversely affected period determination would made gross net operating loss carry forwards 752 million result deferred tax asset 159 million net operating loss carry forwards arose us five company’s foreign subsidiaries net operating loss carry forwards 271 million arose state federal tax losses prior current periods certain company’s us subsidiaries expected sufficient taxable profits generated us federal net operating loss carry forwards 166 million relieved prior expiration period 2035 2037 state net operating loss carry forwards 105 million relieved expiration period 2022 2037 net operating loss carry forwards five company’s foreign subsidiaries totaling 481 million arose prior current periods expected sufficient taxable profits generated net operating loss carry forwards relieved losses carried forward indefinitely without expiration company position control whether repatriate foreign earnings currently expect make repatriation foreseeable future additional income taxes provided remaining undistributed foreign earnings subject transition tax additional outside basis difference inherent entities earnings continue indefinitely reinvested foreign operations determining amount unrecognized deferred tax liability related remaining undistributed foreign earnings subject transition tax additional outside basis difference entities ie basis difference excess subject onetime transition tax practicable time note 11 longterm debt longterm debt consists following december 14 2016 innospec certain subsidiaries company entered third amendment restatement agreement various lenders amends restates company’s credit facility agreement dated december 14 2011 amended restated august 28 2013 november 6 2015 “preexisting credit agreement” preexisting credit agreement amended restated pursuant third amendment restatement agreement “amended credit agreement” notes consolidated financial statementscontinued amended credit agreement retains 200000000 revolving credit facility available company adds term loan facility 110000000 termination date revolving facility remains november 6 2020 repayment term loan 11000000 made december 29 2017 followed 16500000 installment due december 28 2018 22000000 installment due december 28 2019 outstanding balance due november 6 2020 company capitalized refinancing costs 12 million 2016 amortized expected life facility shown amortization expense 06 million 04 million 12 million 2017 2016 2015 respectively charge included interest expense see note 2 notes consolidated financial statements obligations company credit facilities secured obligations guaranteed certain subsidiaries company amounts available revolving facility may borrowed us dollars euros british pounds freely convertible currencies company’s credit facilities contain restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined credit facility include material adverse change assets operations financial condition facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition credit facilities contain terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda shall greater 301 2 ratio ebitda net interest shall less notes consolidated financial statementscontinued 401 management determined company breached covenants throughout period december 31 2017 expect breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries weighted average rate interest borrowings 259 december 31 2017 172 december 31 2016 payments interest longterm debt 72 million 26 million 23 million 2017 2016 2015 respectively net cash outflows respect refinancing costs 00 million 12 million 15 million 2017 2016 2015 respectively note 12 plant closure provisions principal site giving rise environmental remediation liabilities manufacturing site ellesmere port united kingdom management believes last ongoing manufacturer tel also environmental remediation liabilities much smaller scale respect manufacturing sites us europe liability estimated closure costs innospec’s manufacturing facilities includes costs decontamination environmental remediation activities “remediation” demand tel diminishes movements provisions summarized follows amounts due within one year refer provisions expenditure expected arise within one year balance sheet date remediation costs recognized cost goods sold provisions remediation represent company’s liability environmental liabilities asset retirement obligations charge period 2017 represents accretion expense recognized 35 million 24 million primarily respect changes expected cost scope future remediation activities discount rate 892 used valuing remediation provision notes consolidated financial statementscontinued following huntsman acquisition recognized 28 million asset retirement obligations increase value tangible assets acquired depreciated remaining useful economic life assets recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention remediation expenditure utilized provisions 24 million 27 million 26 million 2017 2016 2015 respectively note 13 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels 2017 company evaluated fair value hierarchy levels assigned assets liabilities concluded transfers levels 1 2 3 notes consolidated financial statementscontinued following table presents carrying amount fair values company’s assets liabilities measured recurring basis following methods assumptions used estimate fair values financial instruments cash equivalents carrying amount approximates fair value shortterm maturities instruments longterm debt finance leases longterm debt principally comprises term loan revolving credit facility shown net deferred finance costs capitalized fair value longterm debt approximates carrying value discounting present value offset interest rate swaps finance leases relate certain fixed assets fuel specialties oilfield services businesses carrying amount longterm debt finance leases approximates fair value derivatives fair value derivatives relating foreign currency forward exchange contracts interest rate swaps derived current settlement prices comparable notes consolidated financial statementscontinued contracts using current assumptions foreign currency forward exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying amounts fair values contracts largely due changes exchange rates us dollar interest rate swaps relate contracts taken hedge interest rate risk portion credit facilities borrowing stock equivalent units fair values stock equivalent units calculated balance sheet date using either blackscholes monte carlo method note 14 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign currency exchange rate raw material cost exposures need arises company enters interest rate swap contracts reduce interest rate risk core debt december 31 2017 interest rate swaps notional value 149000000 place fixed interest rates payable interest rate swaps vary 142 167 interest rate swaps place hedge interest rate risk term loan notional value matches repayment profile term loan interest rate swap contracts designated hedging instruments impact comprehensive loss 2017 gain 11 million 2016 gain 04 million company enters various foreign currency forward exchange contracts minimize currency exchange rate exposure expected future cash flows december 31 2017 foreign currency forward exchange contracts notional value 792 million place maturity dates one year date inception foreign currency forward exchange contracts designated hedging instruments impact income statement 2017 loss 09 million 2016 gain 44 million december 31 2017 december 31 2016 company hold raw material derivatives company sells range specialty chemicals major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures intended minimize bad debt risk collateral generally required note 15 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected notes consolidated financial statementscontinued renewed replaced normal course business rental expense 55 million 2017 52 million 2016 45 million 2015 future commitments noncancelable operating leases follows environmental remediation obligations commitments respect environmental remediation obligations disclosed note 12 notes consolidated financial statements contingencies legal matters involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims material pending legal proceedings company subsidiaries party property subject possible however adverse resolution unexpectedly large number individual items could aggregate material adverse effect results operations particular year quarter guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties december 31 2017 guarantees recognized liabilities consolidated financial statements amounted 35 million december 31 2016 47 million terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets notes consolidated financial statementscontinued company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company note 16 stockholders’ equity december 31 2017 company authorized common stock 40000000 shares 2016 40000000 note 17 stockbased compensation plans stock option plans company five active stock option plans two provide grant stock options employees one provides grant stock options nonemployee directors another provides grant stock options key executives matching basis provided use proportion annual bonus purchase common stock company open market company fifth plan savings plan provides grant stock options company employees provided commit make regular savings predefined period used purchase common stock upon vesting options stock options vesting periods ranging 24 months 6 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount aggregate number shares common stock reserved issuance granted plans 2640000 fair value stock options measured grant date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following weighted average assumptions used determine grantdate fair value options notes consolidated financial statementscontinued following table summarizes transactions company’s stock option plans year ended december 31 2017 december 31 2017 62102 stock options exercisable 8577 performance conditions attached company’s policy issue shares treasury stock holders stock options exercise options sufficient treasury stock available company issue previously unissued shares stock holders stock options exercise options stock option compensation cost 2017 2016 2015 42 million 33 million 37 million respectively total intrinsic value options exercised 2017 2016 2015 29 million 28 million 24 million respectively total compensation cost related nonvested stock options yet recognized december 31 2017 56 million cost expected recognized weightedaverage period 190 years 2017 company recorded current tax benefit 30 million respect stock option compensation cash tax benefit realized stock option exercises totaled 03 million 02 million 2016 2015 respectively stock options awards modified 2017 2016 2015 stock equivalent units company awards stock equivalent units “seus” time longterm performance incentive seus cash settled equity instruments conditional certain performance criteria linked innospec inc share price seus vesting periods ranging 11 months 4 years cases seus granted expire within 10 years date grant grants may priced market value premium discount limit number seus granted december 31 2017 liability seus 136 million located accrued liabilities consolidated balance sheets cash settled notes consolidated financial statementscontinued fair value seus measured balance sheet date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following assumptions used determine fair value seus balance sheet dates following table summarizes transactions company’s seus year ended december 31 2017 december 31 2017 44636 seus exercisable 39705 performance conditions attached charges seus spread life award subject revaluation fair value quarter revaluation may result charge credit income statement quarter dependent upon share price performance criteria seu compensation cost 2017 2016 2015 66 million 47 million 49 million respectively total intrinsic value seus exercised 2017 2016 2015 17 million 18 million 24 million respectively weightedaverage remaining vesting period nonvested seus 173 years notes consolidated financial statementscontinued note 18 reclassifications accumulated comprehensive loss reclassifications accumulated comprehensive loss 2017 1 items included computation net periodic pension cost see note 9 notes consolidated financial statements additional information changes accumulated comprehensive loss 2017 net tax note 19 recently issued accounting pronouncements march 2017 fasb issued asu 201707 compensationretirement benefits topic 715 improving presentation net periodic pension cost net periodic postretirement benefit cost asu 201707 requires companies present service cost component net benefit cost line items report compensation cost companies present components net benefit cost outside operating income notes consolidated financial statementscontinued subtotal presented new standard effective annual periods beginning december 15 2017 including interim periods within fiscal years company determined standard impact operating subtotal reported company’s consolidated statements income reduction operating income 47 million corresponding increase nonoperating income year ended december 31 2017 february 2016 fasb issued accounting standards update asu 201602 revision lease accounting amends asc topic 842 leases asu requires lessees recognize rightofuse asset lease liability virtually leases meet definition shortterm lease new standard effective fiscal years beginning december 15 2018 including interim periods within fiscal years early adoption permitted new standard must adopted using modified retrospective transition method provides certain practical expedients transition require application new guidance beginning earliest comparative period presented standard material impact consolidated balance sheet significant impact recognition rightofuse assets lease liabilities operating leases company still assessing effect standard ongoing financial reporting may 2014 fasb issued accounting standards update asu 201409 revenue contracts customers topic 606 asu 201409 based principles govern recognition revenue amount entity expects entitled products transferred customers new standard become effective annual reporting periods beginning december 15 2017 asu 201409 may applied retrospectively prior period presented financial statements full retrospective approach retrospectively cumulative effect initially applying standard recognized adjustment opening balance retained earnings date adoption modified retrospective approach adopt new revenue standard january 1 2018 utilizing modified retrospective approach spent significant time evaluating analyzing documenting expected impact asu 201409 financial statements performed detailed review key contracts representative different businesses product lines reviewing various industry publications comparing current accounting policies principles requirements outlined new standard assessment stage expect new revenue recognition standard material impact financial statements upon adoption note 20 related party transactions mr robert paller nonexecutive director company since november 1 2009 company retained continues retain smith gambrell russell llp “sgr” law firm mr paller holds position 2017 2016 2015 company incurred fees payable sgr 04 million 05 million 03 million respectively december 31 2017 december 31 2016 company amounts outstanding due sgr notes consolidated financial statementscontinued note 21 subsequent events company evaluated subsequent events date consolidated financial statements issued concluded additional disclosures required relation events subsequent balance sheet date item 9item 8 financial statements supplementary data report independent registered public accounting firm stockholders board directors innospec inc opinions consolidated financial statements internal control financial reporting audited accompanying consolidated balance sheet innospec inc subsidiaries company december 31 2018 related consolidated statements income comprehensive income accumulated comprehensive loss cash flows equity year ended related notes collectively consolidated financial statements also audited company’s internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission opinion consolidated financial statements referred present fairly material respects financial position company december 31 2018 results operations cash flows year ended conformity us generally accepted accounting principles also opinion company maintained material respects effective internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion company’s consolidated financial statements opinion company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audit consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audit also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate kpmg llp served company’s auditor since 2011 manchester united kingdom february 20 2019 report independent registered public accounting firm stockholders board directors innospec inc opinion consolidated financial statements audited accompanying consolidated balance sheet innospec inc subsidiaries company december 31 2017 related consolidated statements income comprehensive income accumulated comprehensive loss cash flows equity years two year period ended december 31 2017 related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2017 results operations cash flows years two year period ended december 31 2017 conformity us generally accepted accounting principles basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion kpmg audit plc served company’s auditor since 2011 manchester united kingdom february 15 2018 consolidated statements income millions except share per share data recast certain prior period amounts conform new accounting standards disclosed note 19 notes consolidated financial statements accompanying notes integral part statements consolidated statements comprehensive income millions accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 07 million 2017 06 million 2016 04 million year included depreciation amortization cash flow statement interest expense income statement cash paymentsreceipts respect income taxes interest disclosed note 10 note 11 respectively notes consolidated financial statements accompanying notes integral part statements consolidated statements equity millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets supplies fuel additives oilfield chemicals personal care products specialty chemicals products sold primarily oil gas exploration production companies oil refineries personal care home care companies formulators agrochemical metal extraction preparations chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions oilfield services business supplies drilling production chemicals make exploration production costefficient environmentallyfriendly performance chemicals business provides effective technologybased solutions customers’ processes products focused personal care home care agrochemical metal extraction markets octane additives business manufactures fuel additive use automotive gasoline provides services respect environmental remediation principal reportable segments fuel specialties performance chemicals oilfield services octane additives note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles “gaap” united states america going concern basis include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation accordance gaap united states america results operations acquired disposed business included excluded consolidated financial statements date acquisition disposal use estimates preparation consolidated financial statements accordance gaap united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents trade accounts receivable company records trade accounts receivable net realizable value maintains allowances customers making required payments company determines adequacy allowances periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method market value cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained notes consolidated financial statementscontinued amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement inventories adjusted estimated obsolescence written market value based estimates future demand market conditions property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method allocated cost goods sold operating expenses cost additions improvements capitalized maintenance repairs charged expenses incurred assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives subject least annual impairment assessments initially perform qualitative assessment determine whether likely fair value segment less carrying amount prior performing twostep goodwill impairment test twostep test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital annual measurement date impairment assessment goodwill relating fuel specialties performance chemicals oilfield services segments december 31 year company capitalizes software development costs including licenses subsequent establishment technological feasibility intangible assets deemed finite lives including software development costs licenses amortized using straightline method estimated useful lives tested potential impairment events occur circumstances change suggest impairment may occurred deferred finance costs relating debt financing capitalized offset longterm debt consolidated balance sheets amortized using effective interest method expected life debt financing facility amortization charge included interest expense income statement see note 11 notes consolidated financial statements impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value asset groups lower impairment loss may notes consolidated financial statementscontinued recognized amount impairment loss difference fair value carrying value asset groups fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative instruments time company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes company recognizes derivatives either current noncurrent assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives designated hedges tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s historic creditadjusted riskfree rate revenue recognition january 1 2018 adopted accounting standard update asu 201409 revenue contracts customers topic 606 using modified retrospective method impact adopting asc 606 result change income therefore reflecting cumulative effect opening balance retained earnings due adoption asc 606 comparative periods adjusted continue reported accounting standards effect periods revenues primarily derived manufacture sale specialty chemicals recognize revenue control product transferred customer amount reflects consideration expect collect customer control generally transferred customer title transfers may include physical possession customer right payment customer accepted product customer assumed risks rewards ownership supplier managed inventory arrangements customers facilitate ondemand product availability cases inventory resides customer site although title transferred entitled payment invoiced product evaluated contract terms arrangements determined control transfers customer uses product time revenue recognized contracts generally include one performance obligation providing notes consolidated financial statementscontinued specialty chemicals performance obligation satisfied point time products shipped delivered consumed customer depending underlying contracts customers payment terms beyond 30 days provide extended payment terms year contracts include financing component contracts include variable consideration form rebates record rebates point sale reduction sales reasonably estimate amount rebate estimates based best judgment time sale includes anticipated well historical performance taxes assessed governmental authority concurrent sales customers including sales use valueadded revenuerelated excise taxes collected us customer included net sales reflected accrued expenses remitted appropriate governmental authority responsible shipping handling costs title transferred account fulfilment costs include cost goods sold components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads amortization expense certain intangible assets warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions amortization expense certain intangible assets cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal settlement costs litigation company involved accounted administrative expense line item research development expenses research development testing costs expensed income statement incurred notes consolidated financial statementscontinued earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy foreign exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur gains losses monetary assets relating currencies us dollar taken income statement incomeexpense net gains losses intercompany foreign currency loans longterm nature company intend settle foreseeable future also recorded accumulated comprehensive loss foreign exchange gains losses also included income net income statement stockbased compensation plans company accounts employee stock options stock equivalent units fair value method stock options fair valued grant date fair value recognized straightline vesting period option stock equivalent units fair valued balance sheet date fair value spread remaining vesting period unit pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend service costs recognized employees render services necessary earn postemployment benefits prior service costs credits actuarial gains losses amortized average remaining life expectancy inactive participants using corridor method income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities company evaluates need valuation allowance reduce deferred tax assets amount likely realized effect deferred taxes change tax rates recognized period includes enactment date company recognizes tax benefit tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements positions measured based largest benefit greater 50 percent likelihood realized upon settlement changes recognition measurement reflected period change judgment occurs company recognizes accrued interest penalties associated unrecognized tax benefits part income taxes consolidated statements income notes consolidated financial statementscontinued note 3 segment reporting geographical area data fuel specialties performance chemicals oilfield services segments operate markets actively seek growth opportunities although ultimate customers different octane additives segment expected decline next twelve months one remaining refinery customer transitions unleaded fuel specialties segment develops manufactures blends markets supplies range specialty chemicals products used additives wide range fuels performance chemicals segment provides effective technologybased solutions customers’ processes products focused personal care home care agrochemical metal extraction markets oilfield services segment develops markets products prevent loss mud drilling operations chemical solutions fracturing stimulation operations products oil gas production aid flow assurance asset integrity octane additives segment believe world’s producer tetra ethyl lead “tel” comprises sales tel use automotive gasoline provides services respect environmental remediation significant customers sales greater 10 net group sales last three financial years company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments notes consolidated financial statementscontinued recast certain prior period amounts conform new accounting standards company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources group legal compliance counsel investor relations • running corporate offices us europe • corporate development function since relate current trading activities reporting segments • corporate share information technology accounting human resources departments notes consolidated financial statementscontinued following tables analyze sales financial information location sales geographical area reported source transactions originated intercompany sales priced using appropriate pricing methodology eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued note 4 acquisition biosuite llc may 31 2018 company acquired biosuite llc “biosuite” specialized formulator biocide biostat solutions oil gas industry purchased biosuite total consideration 86 million initial payment closing 58 million funded existing cash debt facilities followed reduction working capital adjustments 04 million third quarter remaining payment performance related based multiple biosuite’s earnings interest taxes depreciation amortization twelve month period based current forecast anticipate payment 32 million payable november 30 2019 following table summarizes calculations total purchase price estimated allocation purchase price assets acquired liabilities assumed business 75 million goodwill recorded 43 million amortizable income tax purposes 15 year period finalized review valuation assets acquired liabilities assumed measurement period adjustments required note 5 earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows notes consolidated financial statementscontinued 2018 2017 2016 average number antidilutive options excluded calculation diluted earnings per share 0 9422 0 respectively note 6 property plant equipment property plant equipment consists following prior year cost accumulated depreciation comparatives restated impact net book value total net book value equipment december 31 2018 36 million 2017 62 million respect assets held finance leases depreciation charges 226 million 214 million 135 million 2018 2017 2016 respectively estimated additional cost complete work progress december 31 2018 60 million 2017 23 million notes consolidated financial statementscontinued note 7 goodwill following table analyzes goodwill movement 2018 2017 1 gross cost net 87 million 03 million 2895 million historical accumulated amortization respect fuel specialties performance chemicals octane additives reporting segments respectively information regarding acquisition 2018 shown see note 4 notes consolidated financial statements company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties performance chemicals oilfield services octane additives components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows clearly distinguished operationally financial reporting purposes rest company assesses goodwill impairment least annual basis initially based qualitative assessment determine whether likely fair value segment less carrying amount potential impairment identified twostep impairment test followed notes consolidated financial statementscontinued company performed annual impairment assessment respect goodwill december 31 2018 2017 2016 impairment assessment concluded impairment goodwill respect reporting units believe appropriate assumptions used impairment assessments reasonable judgmental variations assumptions may result materially different calculations potential impairment charges note 8 intangible assets intangible assets comprise following product rights following acquisition chemsil august 30 2013 company recognized intangible asset 340 million respect chemsil’s product rights portfolio asset expected life 9 years amortized straightline basis period notes consolidated financial statementscontinued amortization expense 37 million recognized 2018 2017 38 million selling general administrative expenses brand names following acquisition independence october 27 2014 company recognized intangible asset 60 million respect independence’s brand name asset expected life 10 years amortized straightline basis period following acquisition bachman november 4 2013 company recognized intangible asset 29 million respect bachman’s brand names asset expected life 5 years fully amortized amortization expense 10 million recognized 2018 2017 12 million selling general administrative expenses technology following acquisition independence october 27 2014 company recognized intangible asset 260 million respect independence’s product formulations asset expected life 15 years amortized straightline basis period following acquisition bachman november 4 2013 company recognized intangible asset 85 million respect bachman’s core chemistry knowhow oilfield chemicals asset expected life 15 years amortized straightline basis period following acquisition strata december 24 2012 company recognized intangible asset 183 million respect technological knowhow mixing manufacturing process patents protect technology associated product branding asset expected life 165 years amortized straightline basis period amortization expense 34 million recognized 2018 2017 34 million cost goods sold customer distributor relationships august 9 2017 company acquired intangible asset huntsman holland bv 42 million respect longterm customer distributor relationships aspac america asset weighted average expected life 10 years amortized straightline basis period march 31 2017 company recognized intangible asset 335 million respect longterm customer relationships relating huntsman acquisition december 30 2016 notes consolidated financial statementscontinued asset weighted average expected life 10 years amortized straightline basis period following acquisition independence october 27 2014 company recognized intangible asset 292 million respect independence’s longterm customer relationships asset weighted average expected life 10 years amortized straightline basis period following acquisition bachman november 4 2013 company recognized intangible asset 145 million respect bachman’s longterm customer relationships asset weighted average expected life 145 years amortized straightline basis period following acquisition strata december 24 2012 company recognized intangible asset 282 million respect longterm customer relationships asset expected life 115 years amortized straightline basis period following acquisition finetex merged innospec active chemicals llc january 2005 company recognized intangible asset 42 million relation customer lists acquired asset expected life 13 years fully amortized amortization expense 107 million recognized 2018 2017 107 million selling general administrative expenses impact foreign exchange translation balance sheet amortization recognized cumulative translation adjustment within equity noncompete agreements following acquisition independence october 27 2014 company recognized intangible asset 26 million respect noncompete agreement asset expected life 3 years fully amortized following acquisition strata december 24 2012 company recognized intangible asset 15 million respect noncompete agreement asset expected life 2 years fully amortized amortization expense 00 million recognized 2018 2017 07 million selling general administrative expenses marketing related intangible asset 284 million recognized second quarter 2007 respect ethyl corporation foregoing entitlement effective april 1 2007 share future income stream sales marketing agreements market sell tel 2008 contract provisions longer deemed necessary 63 million offset intangible asset amount attributed octane additives reporting segment notes consolidated financial statementscontinued amortized straightline basis december 31 2013 amount attributed fuel specialties reporting segment amortized straightline basis december 31 2017 asset fully amortized amortization expense 00 million recognized 2018 2017 09 million cost goods sold internally developed software 2018 completed implementation new information system platform acquired huntsman businesses december 31 2018 capitalized 52 million 2017 44 million relation internally developed software asset expected life 5 years amortized straightline basis period december 31 2018 capitalized 367 million 2017 367 million relation phased deployment companywide information system platform majority entities group began 2013 asset expected life 5 years point time deployment completed amortized straightline basis periods amortization expense 75 million recognized 2018 2017 76 million selling general administrative expenses amortization expense aggregate intangible asset amortization expense 263 million excluding impact foreign exchange translation balance sheet 283 million 242 million 2018 2017 2016 respectively 34 million 43 million 43 million respectively recognized cost goods sold remainder recognized selling general administrative expenses future amortization expense estimated follows next five years note 9 pension postemployment benefits united kingdom plan company maintains defined benefit pension plan “plan” covering number current former employees united kingdom although also much notes consolidated financial statementscontinued smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested several investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater longterm monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company 2018 company contributed 10 million cash plan accordance agreement trustees net service cost twelve months ended december 31 2018 12 million twelve months ended december 31 2017 09 million twelve months ended december 31 2016 10 million recognized selling general administrative expenses within corporate costs following table shows income statement effect recognized within income net notes consolidated financial statementscontinued discount rate used represents annualized yield based cash flow matched methodology reference aa corporate bond spot curve regard duration plan’s liabilities inflation rate derived using similar cash flow matched methodology used discount rate regard difference yields fixed interest index linked united kingdom government gilts 025 change discount rate assumption would change pbo approximately 21 million net pension credit 2018 would change approximately 05 million 025 change level price inflation assumption would change pbo approximately 14 million net pension credit 2018 approximately 06 million movements pbo fair value plan assets follows current investment strategy plan obtain asset allocation approximately 85 debt securities 15 equity securities order achieve predictable return assets due change plan’s investment strategy 2018 plan’s assets longer include indextracking funds one investment management company december 31 2017 30 plan continues hold approximately 9 december 31 2017 10 plan’s assets united kingdom government gilts 5 plan’s assets invested one individual company’s investment funds vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund notes consolidated financial statementscontinued equity securities common preferred stock market prices readily available measurement date valued last reported sale price official closing price primary market exchange actively traded classified level 1 fixed income securities fixed income securities valued based quotations received independent pricing services dealers make markets securities classified level 1 insurance contracts company invested insurance contracts known buyin contracts value insurance contract based significant unobservable inputs including plan participant medical data addition observable inputs include expected return assets estimated value premium therefore classified contracts level 3 investments fair value estimates provided external parties subsequently reviewed approved management notes consolidated financial statementscontinued fair values pension assets level input follows 1 certain investments measured fair value using net asset value per share equivalent categorized fair value hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented statement financial position notes consolidated financial statementscontinued reconciliation fair value plan assets measured using significant unobservable inputs follows projected net service cost year ending december 31 2019 09 million recognized selling general administrative expenses following recognized income expense total net pension credit 67 million innospec’s net income year ending december 31 2019 following benefit payments expected made notes consolidated financial statementscontinued german plan company also maintains unfunded defined benefit pension plan covering number current former employees germany “german plan” german plan closed new entrants assets net service cost german plan twelve months ended december 31 2018 02 million twelve months ended december 31 2017 02 million twelve months ended december 31 2016 02 million following table shows income statement effect recognized within income expense movements pbo german plan follows amount unrecognized actuarial net losses comprehensive loss respect german plan 21 million net tax 07 million plans company contributions defined contribution schemes 2018 86 million 2017 79 million december 31 2018 postemployment obligations european businesses liability 44 million december 31 2017 47 million notes consolidated financial statementscontinued note 10 income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 134 million unrecognized tax benefits would impact effective tax rate recognized previously disclosed company certain us subsidiaries subject federal income tax examination respect 2015 examination completed first quarter 2018 additional cost company previously disclosed tax audits opened italian tax authorities respect innospec performance chemicals italia srl acquired part huntsman business relation period 2011 2013 inclusive company believes additional tax notes consolidated financial statementscontinued approximately 05 million together associated interest 02 million may arise result 2011 audit amount recorded december 31 2017 2018 company determined additional tax approximately 09 million together associated interest 03 million may arise result 2012 2013 audits collectively additional tax arising consequence tax audit would reimbursed previous owner terms sale purchase agreement unrecognized tax benefit 19 million recorded together indemnification asset amount reflect fact final liability would reimbursed previous owner fourth quarter 2018 company recorded uncertain tax position 108 million portion primarily relates potential adjustment could arise consequence tax act retrospective adjustment filed 2017 us federal income tax returns permissible company us subsidiaries remain open examination irs years 2016 onwards company’s subsidiaries foreign tax jurisdictions open examination including spain 2014 onwards france 2015 onwards germany 2015 onwards switzerland 2016 onwards united kingdom 2017 onwards sources income taxes follows components income tax expense summarized follows notes consolidated financial statementscontinued cash payments income taxes 354 million 242 million 231 million 2018 2017 2016 respectively effective tax rate varies us federal statutory rate factors indicated significant factor impacting effective tax rate 2018 recognized implications tax act december 22 2017 us government enacted comprehensive tax legislation tax act us gaap requires impact tax legislation recognized period law enacted date sec staff issued staff accounting bulletin 118 “sab 118 provided guidance accounting tax effects tax act sab 118 provides measurement period extend beyond one year tax act enactment date companies complete accounting asc 740 income taxes accounting impact tax act complete fasb released guidance accounting tax global intangible lowtaxed income “gilti” provisions tax act guidance indicates either treating taxes gilti inclusions current period costs accounting deferred taxes gilti inclusions acceptable subject accounting policy election company elected account gilti period cost year incurred deemed repatriation transition tax deemed repatriation transition tax “transition tax” tax certain previously untaxed accumulated earnings profits “ep” company’s nonus subsidiaries december 31 2017 able reasonably estimate transition tax recorded provisional transition tax obligation 477 million basis revised ep computations completed reporting period adjusted transition tax estimate 611 million net related notes consolidated financial statementscontinued consequential impacts recorded 2017 us federal income tax return recorded additional 123 million income tax expense fourth quarter accounting relation transition tax complete reduction us federal income tax rate tax act reduced federal income tax rate 35 per cent 21 per cent effective january 1 2018 able reasonably estimate effect reduction tax rate us deferred tax assets liabilities recorded net provisional reduction deferred income tax liabilities 71 million corresponding net adjustment 71 million deferred income tax benefit december 31 2017 changes made adjustments 2018 accounting reduction rate complete indefinite reinvestment assertion previous periods company recognize deferred tax liability related unremitted foreign earnings company expect make repatriation foreseeable future december 31 2018 company changed assertion respect excess amount financial reporting tax basis investments foreign subsidiaries additional deferred income taxes 11 million recorded corresponding adjustment 11 million deferred income tax expense consequence company operations outside us exposed foreign currency fluctuations negative impact effective tax rate 2018 united kingdom tax legislation prohibits tax deduction relation certain intercompany interest expense arising also negative impact effective tax rate 2018 items material impact effective tax rate notes consolidated financial statementscontinued details deferred tax assets liabilities analysed follows company evaluates deferred tax assets determine whether likely realized deferred tax assets reviewed period tax jurisdiction tax jurisdiction basis analyze whether sufficient positive evidence support realizability result company’s assessment deferred tax assets december 31 2018 company considers likely recover full benefit deferred tax assets valuation allowance required determined future longer likely assets realized valuation allowance would required company’s operating results would adversely affected period determination would made notes consolidated financial statementscontinued gross net operating loss carry forwards 368 million result deferred tax asset 88 million net operating loss carry forwards arose us four company’s foreign subsidiaries net operating loss carry forwards 23 million arose state federal tax losses prior periods certain company’s us subsidiaries expected sufficient taxable profits generated us federal net operating loss carry forwards 10 million relieved prior expiration 2037 state net operating loss carry forwards 13 million relieved expiration period 2022 2037 net operating loss carry forward four company’s foreign subsidiaries totalling 344 million arose prior current periods expected sufficient taxable profits generated net operating loss carry forwards relieved losses carried forward indefinitely without expiration note 11 longterm debt longterm debt consists following december 14 2016 innospec certain subsidiaries company entered third amendment restatement agreement various lenders amends restates company’s credit facility agreement dated december 14 2011 amended restated august 28 2013 november 6 2015 “preexisting credit agreement” preexisting credit agreement amended restated pursuant third amendment restatement agreement “amended credit agreement” amended credit agreement retains 2000 million revolving credit facility available company adds term loan facility 1100 million termination date revolving facility remains november 6 2020 repayments term loan 110 million 165 million made december 29 2017 december 28 2018 respectively installment 220 million due december 28 2019 outstanding balance due november 6 2020 notes consolidated financial statementscontinued amortization expense 07 million 06 million 04 million 2018 2017 2016 respectively charge included interest expense see note 2 notes consolidated financial statements obligations company credit facilities secured obligations guaranteed certain subsidiaries company amounts available revolving facility may borrowed us dollars euros british pounds freely convertible currencies company’s credit facilities contain restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined credit facility include material adverse change assets operations financial condition facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition credit facilities contain terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda shall greater 301 2 ratio ebitda net interest shall less 401 management determined company breached covenants throughout period december 31 2018 expect breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries weighted average rate interest borrowings 332 december 31 2018 259 december 31 2017 payments interest longterm debt 65 million 72 million 26 million 2018 2017 2016 respectively net cash outflows respect refinancing costs 00 million 00 million 12 million 2018 2017 2016 respectively notes consolidated financial statementscontinued note 12 plant closure provisions principal site giving rise environmental remediation liabilities manufacturing site ellesmere port united kingdom management believes last ongoing manufacturer tel also environmental remediation liabilities much smaller scale respect manufacturing sites us europe liability estimated closure costs innospec’s manufacturing facilities includes costs decontamination environmental remediation activities “remediation” demand tel diminishes movements provisions summarized follows amounts due within one year refer provisions expenditure expected arise within one year balance sheet date remediation costs recognized cost goods sold provisions remediation represent company’s liability environmental liabilities asset retirement obligations charge period 2018 represents accretion expense recognized 40 million 28 million primarily respect changes expected cost scope future remediation activities 2017 recognized 28 million asset retirement obligations relation acquisition european performance chemicals business increase value tangible assets acquired depreciated remaining useful economic life assets recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated remediation expenditure utilized provisions 31 million 24 million 27 million 2018 2017 2016 respectively notes consolidated financial statementscontinued note 13 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels 2018 company evaluated fair value hierarchy levels assigned assets liabilities concluded transfers levels 1 2 3 notes consolidated financial statementscontinued following table presents carrying amount fair values company’s assets liabilities measured recurring basis following methods assumptions used estimate fair values financial instruments cash equivalents carrying amount approximates fair value shortterm maturities instruments longterm debt finance leases longterm debt principally comprises term loan revolving credit facility shown net deferred finance costs capitalized fair value longterm debt approximates carrying value discounting present value offset interest rate swaps finance leases relate certain fixed assets fuel specialties oilfield services businesses carrying amount longterm debt finance leases approximates fair value derivatives fair value derivatives relating foreign currency forward exchange contracts interest rate swaps derived current settlement prices comparable contracts using current assumptions foreign currency forward exchange contracts primarily notes consolidated financial statementscontinued relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying amounts fair values contracts largely due changes exchange rates us dollar interest rate swaps relate contracts taken hedge interest rate risk portion credit facilities borrowing stock equivalent units fair values stock equivalent units calculated balance sheet date using either blackscholes monte carlo method note 14 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign currency exchange rate raw material cost exposures need arises company enters interest rate swap contracts reduce interest rate risk core debt december 31 2018 interest rate swaps notional value 1325 million place fixed interest rates payable interest rate swaps vary 142 167 interest rate swaps place hedge interest rate risk term loan notional value matches repayment profile term loan interest rate swap contracts designated hedging instruments impact comprehensive loss 2018 gain 04 million 2017 gain 11 million company enters various foreign currency forward exchange contracts minimize currency exchange rate exposure expected future cash flows december 31 2018 foreign currency forward exchange contracts notional value 1087 million place maturity dates one year date inception foreign currency forward exchange contracts designated hedging instruments impact income statement 2018 loss 18 million 2017 loss 09 million december 31 2018 december 31 2017 company hold raw material derivatives company sells range specialty chemicals major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures intended minimize bad debt risk collateral generally required note 15 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 61 million notes consolidated financial statementscontinued 2018 55 million 2017 52 million 2016 future commitments noncancelable operating leases follows environmental remediation obligations commitments respect environmental remediation obligations disclosed note 12 notes consolidated financial statements contingencies legal matters involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims material pending legal proceedings company subsidiaries party property subject possible however adverse resolution unexpectedly large number individual items could aggregate material adverse effect results operations particular year quarter guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties december 31 2018 guarantees recognized liabilities consolidated financial statements amounted 50 million december 31 2017 35 million terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets notes consolidated financial statementscontinued company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company note 16 stockholders’ equity december 31 2018 company authorized common stock 40000000 shares 2017 40000000 note 17 stockbased compensation plans stock option plans company two stock option plans omnibus longterm incentive plan sharesave plan 2008 currently grant awards stock options vesting periods ranging 24 months 5 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount aggregate number shares common stock reserved issuance granted plans 2550000 fair value stock options measured grant date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following weighted average assumptions used determine grantdate fair value options notes consolidated financial statementscontinued following table summarizes transactions company’s stock option plans year ended december 31 2018 december 31 2018 41014 stock options exercisable 1600 performance conditions attached company’s policy issue shares treasury stock holders stock options exercise options sufficient treasury stock available company issue previously unissued shares stock holders stock options exercise options stock option compensation cost 2018 2017 2016 49 million 42 million 33 million respectively total intrinsic value options exercised 2018 2017 2016 32 million 29 million 28 million respectively total compensation cost related nonvested stock options yet recognized december 31 2018 107 million cost expected recognized weightedaverage period 219 years 2018 company recorded current tax benefit 12 million respect stock option compensation 2017 30 million amount inclusive excess tax benefits stock options awards modified 2018 2017 2016 stock equivalent units company awards stock equivalent units “seus” time longterm performance incentive seus cash settled equity instruments conditional certain performance criteria linked innospec inc share price seus vesting periods ranging 11 months 4 years cases seus granted expire within 10 years date grant grants may priced market value premium discount limit number seus granted december 31 2018 liability seus 151 million located accrued liabilities consolidated balance sheets cash settled notes consolidated financial statementscontinued fair value seus measured balance sheet date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following assumptions used determine fair value seus balance sheet dates following table summarizes transactions company’s seus year ended december 31 2018 december 31 2018 34710 seus exercisable 32005 performance conditions attached charges seus spread life award subject revaluation fair value quarter revaluation may result charge credit income statement quarter dependent upon share price performance criteria seu compensation cost 2018 2017 2016 57 million 66 million 47 million respectively total intrinsic value seus exercised 2018 2017 2016 27 million 17 million 18 million respectively weightedaverage remaining vesting period nonvested seus 173 years notes consolidated financial statementscontinued note 18 reclassifications accumulated comprehensive loss reclassifications accumulated comprehensive loss 2018 1 items included computation net periodic pension cost see note 9 notes consolidated financial statements additional information changes accumulated comprehensive loss 2018 net tax note 19 recently issued accounting pronouncements march 2017 fasb issued asu 201707 compensationretirement benefits topic 715 improving presentation net periodic pension cost net periodic postretirement benefit cost asu 201707 requires companies present service cost component net benefit cost line items report compensation cost components net benefit cost presented outside operating income new standard effective annual periods beginning december 15 2017 including interim periods within fiscal years adopting new standard january 1 2018 resulted restatement prior period comparatives reduction operating income year ending december 31 2017 2016 47 million 72 million respectively corresponding increase nonoperating income notes consolidated financial statementscontinued february 2016 fasb issued accounting standards update asu 201602 revision lease accounting asc topic 842 amends asc topic 840 leases asu requires lessees recognize rightofuse asset lease liability virtually leases meet definition shortterm lease new standard effective fiscal years beginning december 15 2018 including interim periods within fiscal years july 2018 fasb issued asu 201811 leases targeted improvements provide entities relief costs implementing certain aspects new leasing standard asu 201602 innospec evaluated asu 201811 intends use optional transitional method allows companies use effective date initial application transition adjust comparative financial information make new required disclosures periods prior effective date due number leases company believe standard material impact consolidated balance sheet significant impact recognition rightofuse assets lease liabilities operating leases company believe adoption standard significant impact consolidated statements income equity cash flows company still assessing effect standard ongoing financial reporting note 20 related party transactions mr robert paller nonexecutive director company since november 1 2009 company retained continues retain smith gambrell russell llp “sgr” law firm mr paller holds position 2018 2017 2016 company incurred fees payable sgr 03 million 04 million 05 million respectively december 31 2018 december 31 2017 company amounts outstanding due sgr mr david f landless nonexecutive director ausurus group limited owns european metal recycling limited “emr” company sold scrap metal emr 2018 value 03 million tendering process operated select best buyer scrap metal december 31 2018 emr owed 01 million scrap metal purchased last quarter 2018 note 21 subsequent events company evaluated subsequent events date consolidated financial statements issued concluded additional disclosures required relation events subsequent balance sheet date item 9item 8 financial statements supplementary data consolidated financial statements together report pricewaterhousecoopers dated february 8 2001 quarterly financial information pages 14 40 report incorporated herein reference financial highlights page 11 report also incorporated herein reference item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders innospec inc completed integrated audits innospec inc’s 2005 2004 consolidated financial statements internal control financial reporting december 31 2005 audit 2003 consolidated financial statements accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements opinion consolidated balance sheets related consolidated statements income comprehensive income shareholders’ equity cash flows present fairly material respects financial position innospec inc subsidiaries december 31 2005 2004 results operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion internal control financial reporting also opinion management’s assessment included management’s report internal control financial reporting appearing item 9a company maintained effective internal control financial reporting december 31 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting december 31 2005 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate described management’s report internal control financial reporting management excluded finetex inc assessment internal control financial reporting december 31 2005 acquired company purchase business combination 2005 also excluded finetex inc audit internal control financial reporting finetex inc whollyowned subsidiary whose total assets total revenues represent 32 33 respectively related consolidated financial statement amounts year ended december 31 2005 pricewaterhousecoopers llp london united kingdom march 16 2006 consolidated statements income millions except per share data accompanying notes integral part statements consolidated balance sheets millions except per share data accompanying notes integral part statements consolidated statements cash flows millions accompanying notes integral part statements consolidated statements stockholders’ equity millions 1 cumulative translation adjustment 2 unrealized exchange gainslosses derivative instruments consolidated statements comprehensive income millions accumulated comprehensive income millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations company major international manufacturer distributor fuel specialties octane additives performance chemicals operating 21 countries worldwide company’s products sold globally primarily oil refineries chemical industrial companies principal product lines operating segments fuel specialties octane additives performance chemicals october 1 1998 company entered sales marketing agreements ethyl corporation ethyl market sell tel areas world except north america european economic area period december 31 2009 marketing sales efforts made arrangement made name innospec continues produce tel marketed agreements also provide marketing services ethyl continues provide bulk distribution services marketing services net proceeds agreements paid innospec ethyl compensation services based agreedupon formula innospec receiving 68 total compensation services provided separate legal entity joint venture established consequence agreement sales expenses incurred agreements included within innospec’s income statement comprise revenues costs incurred directly innospec together costs recharged ethyl distribution services provided terms agreements ethyl’s share net proceeds services charged within cost goods sold relationship extended effective january 1 2000 oboadler entered similar agreement effective july 1 2001 ethyl agreed participate veritel agreement see note 10 scope agreements extended include european economic area refer note 3 financial information company’s reportable segments note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles united states america include subsidiaries company controlling financial interest intercompany accounts balances eliminated upon consolidation acquisitions accounted purchases results operations acquired businesses included consolidated financial statements date acquisition results discontinued operations shown separately income statement comparative figures 2004 2003 also adjusted reflect discontinued operations notes consolidated financial statementscontinued use estimates preparation consolidated financial statements requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents accounts receivable company records accounts receivable net realizable value maintains allowance customers making required payments company determines adequacy allowance periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method market price cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement provision made slowmoving obsolete inventories appropriate property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method cost additions improvements capitalized maintenance repairs charged expenses estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives longer amortized subject least annual impairment tests intangible assets continue amortized useful lives notes consolidated financial statementscontinued measurement date impairment testing fuel specialties performance chemicals goodwill december 31 annually octane additives goodwill reviewed impairment end quarter company regularly reviews goodwill intangible assets impairment based projected posttax cash flows discounted company’s weighted average cost capital expected decline octane additives market resulted impairment charges incurred 2005 highly likely charges incurred future years market continues decline impairment reviews goodwill relating fuel specialties performance chemicals businesses indicates requirement recognize impairment charge respect goodwill deferred finance costs relating debt financing capitalized separately disclosed balance sheets new financing arrangement agreed december 13 2005 deferred finance costs previous refinancing fully amortized 2005 costs financing arrangements 21 million capitalized amortized using average interest method expected life agreement impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result assets compared carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative financial instruments company uses various derivative instruments including forward currency contracts options interest rate swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes fas 133 accounting derivative instruments hedging activities establishes accounting reporting standards derivative instruments requires entity recognize derivatives either assets liabilities consolidated balance sheet measure instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting fas 133 recognized earnings derivatives tested effectiveness quarterly basis notes consolidated financial statementscontinued ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings company employs interest rate swaps convert variable rate debt 500 million 1000 million senior term loan fixed rate designated cash flow hedges underlying variable rate obligation tested effectiveness using dollar offset method amounts accumulated comprehensive income shall reclassified income statement period periods hedged forecasted transaction affects earnings interest rate swaps recorded non current liability balance sheet environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs environmental costs accrued environmental assessments remedial efforts probable cost reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s weighted average cost capital revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized transfer legal title defined generally accepted standard terms conditions arises company customer company recognizes total revenue octane additive sales ethyl agreements 32 compensation paid ethyl recognized cost goods sold component ethyl’s share net proceeds see note 1 amount recoverable ethyl agreed annually arrears company recognizes quarterly based best current estimates expected outcome provisions sales discounts rebates customers based upon terms sales contracts recorded period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time shipping components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold notes consolidated financial statementscontinued components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials production costs including labor costs maintenance utility costs plant engineering overhead warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item 32 compensation paid ethyl recognized cost goods sold components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises costs sales conferences trade shows cost advertising promotions cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal costs litigation company involved made reported administrative expense line item research development expenses research testing development costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur entities gains losses monetary assets relating currencies us dollar taken income statement gains losses foreign currency transactions included expenses income statement management conducted review functional currencies year concluded changes functional currencies company’s subsidiaries 2005 notes consolidated financial statementscontinued stock option plans company elected follow accounting principles board opinion 25 accounting stock issued employees apb 25 related interpretations accounting employee stock options apb 25 fixed awards exercise price employee stock options equals market price underlying stock date grant compensation expense recorded company adopted disclosureonly provisions fas 123 accounting stockbased compensation fas 148 accounting stockbased compensation transition disclosure pension plans postemployment benefits annual costs pension plans actuarially determined based fas 87 employers’ accounting pensions curtailment events accounted fas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits company makes pension postretirement disclosures comply fas 132r employers’ disclosures pensions postretirement benefits reclassifications certain reclassifications made consolidated financial statements prior years conform december 31 2005 presentation note 3 business segment geographical area data company three businesses fuel specialties octane additives performance chemicals newly renamed fuel specialties business includes tel use aviation gasoline certain cold flow improvers previously reported octane additives performance chemicals businesses respectively certain research development activities previously reported corporate costs reallocated performance chemicals strategic business unit 2004 2003 comparatives reflect changes 2005 single customer accounted 10 net sales largest customer 405 million 2004 company one significant customer octane additive business segment accounted 10 net sales net sales customer totalled 618 million 2003 company two customers whose net sales accounted ten percent turnover net sales customers 475 million 482 million respectively second quarter 2005 one customers permanently left octane additives market notes consolidated financial statementscontinued following table analyzes sales financial information product group product group data company includes corporate costs line item costs managing group company securities listed new york stock exchange registered sec cost presidentceo’s office group finance group human resources corporate secretary legal fees investor relations fall category establishment costs running corporate offices usa europe also included costs corporate development function also included line item relate current trading activities business segments corporate share costs related information technology accounting human resources also included line item due low proportion currently active members defined benefit pension scheme net pension cost credit also recognized line item notes consolidated financial statementscontinued sales geographic area reported source transaction originates destination final sale customers made intercompany sales priced recover cost plus appropriate markup profit eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable geographical area data notes consolidated financial statementscontinued note 4 stock option plans company six stock option plans provide issuance options key employees directors company grants sole discretion compensation committee board directors administers plans grants may priced market value premium discount vesting periods four years exercise periods ten years total 3043000 shares approved shareholders allocation issue share options following table summarizes transactions company’s stock option plans three year period ended december 31 2005 following table summarizes information options outstanding december 31 2005 notes consolidated financial statementscontinued fair value options granted estimated using blackscholes model following assumptions following table summarizes effect net income earnings per share company recorded compensation expense consistently method prescribed fas 123 notes consolidated financial statementscontinued note 5 loss earnings per share basic earnings per share based weighted average number common shares outstanding year diluted earnings per share includes effect options dilutive outstanding year per share amounts computed follows 254255 options antidilutive 2005 excluded calculation diluted earnings per share 59513 options antidilutive 2004 2003 notes consolidated financial statementscontinued note 6 pension plans company maintains contributory defined benefit pension plan covering substantially uk employees projected benefit obligation pbo based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement company’s funding policy contribute amounts plan cover service costs date recommended company’s actuary employee employer contributions since january 1 2004 5 226 respectively pensionable pay plan’s assets invested six investment management companies funds holding uk overseas equities uk overseas fixed interest securities index linked securities property unit trusts cash equivalents full actuarial valuation pension plan carried 2003 update carried october 5 2005 results reflected calculations assumptions plan end last three years follows discount rate used represents annualised yield medium longer term aa rated corporate bonds uk 025 reduction discount rate would increase projected benefit obligation around 27 million increase net periodic pension cost 2006 15 million rate increase compensation levels assumes real salary growth innospec restricted 1 assumed level price inflation 26 notes consolidated financial statementscontinued movements pbo fair value plan assets funded status prepaid pension cost plan follows net pension charge credit uk pension plan follows accumulated benefit obligation uk pension plan 6956 million 6139 million december 31 2005 2004 respectively curtailment loss 125 million reported restructuring costs notes consolidated financial statementscontinued uk pension plan’s asset allocations december 31 2005 2004 asset category follows current investment strategy uk pension plan obtain asset allocation 70 favour debt securities 30 equity securities order achieve predictable return assets estimated level company contributions uk pension plan 2006 31 million following benefit payments reflect expected future service appropriate expected made german subsidiary unfunded defined benefit pension scheme material company valuation fas 87 performed 2005 charge recognized reflect projected benefit obligation company contributions defined contribution pension schemes 2005 09 million 2004 11 million note 7 income taxes income taxes accounted using asset liability method pursuant fas 109 accounting income taxes deferred taxes recognized tax consequences “temporary differences” applying enacted statutory rates applicable future years differences financial statements carrying amounts tax bases existing assets liabilities effect deferred taxes change tax rates recognized income period includes enactment date addition fas 109 requires recognition future tax benefits extent realization benefits likely notes consolidated financial statementscontinued sources incomeloss income taxes follows components income tax charges summarized follows cash payments income taxes 214 million 137 million 237 million 2005 2004 2003 respectively effective tax rate varies us federal statutory rate factors indicated 1344 million charge respect impairment tel business goodwill cash taxation impact represents significant factor variation us federal statutory rate mix taxable profits made different geographical localities group operates negative impact effective tax rate 2005 notes consolidated financial statementscontinued details deferred tax assets liabilities follows result company’s assessment net deferred tax assets december 31 2005 company considers likely valuation allowance required 08 million 2004 10 million net operating loss carry forwards net operating loss carry forwards 2004 2003 generated france result recent restructuring activity europe expected sufficient taxable profits generated net operating loss carry forwards relieved usage expires approximately three years time determined future longer likely assets realized additional valuation allowance would required company’s operating results would adversely affected period determination would made company made provision unremitted earnings overseas subsidiaries grounds remitted required entities concerned used fund investment territories determination potential amount unrecognized deferred taxes practicable due complexities associated hypothetical calculation note 8 acquisitions january 14 2005 company acquired 100 interest finetex inc finetex consideration 212 million company purchased 234 common shares valued 174 million balance funds used separately acquire two properties business operates pay costs acquisition finetex manufacturer supplier specialty surfactants emollients personal care cosmetics industrial markets results finetex consolidated notes consolidated financial statementscontinued since acquisition date reported performance chemicals business segment material adjustment assessment goodwill consequently following values assigned major classes assets liabilities balance sheets acquired entities acquisition date goodwill recognized respect finetex included within performance chemicals business segment see note 9 following intangible assets recognized respect finetex following unaudited information illustrates results operations years ended december 31 2005 2004 acquisitions occurred january 1 2004 information illustrative purposes meant indicative actual results might achieved results might attained future unaudited proforma information notes consolidated financial statementscontinued june 30 2004 company acquired 100 interest leuna polymer gmbh leuna consideration 81 million company purchased one common share valued 1 leuna manufacturer diesel fuel additives specialty waxes leuna released receivership late june 2004 consequently results consolidated since beginning july 2004 july 8 2004 company purchased 50 share octel starreon llc previously held starreon corporation llc total consideration 438 million value partnership interest acquired starreon corporation llc 06 million results octel starreon llc already consolidated prior acquisition remaining 50 though july 2004 charge income statement minority interests relation octel starreon llc august 26 2004 company acquired 100 interest aroma fine chemicals limited afc 345 million results afc consolidated since september 1 2004 13 million common shares purchased value 02 million total consideration 43 million form loan notes half due repayment january 2006 remaining half september 2006 afc manufactures aroma chemicals principally sold household institutional industrial personal care markets following unaudited information illustrates results operations years ended december 31 2004 2003 2004 acquisitions made january 1 2003 unaudited proforma information octel starreon llc octel starreon fully consolidated company prior acquisition remaining 50 held starreon corporation llc appropriate 50 proportion net income balance sheet recognized minority interest goodwill recognized respect octel starreon included within fuel specialties business segment goodwill respect afc finetex included within performance chemicals see note 9 goodwill arose acquisition leuna notes consolidated financial statementscontinued note 9 goodwill comprises following note 1 324m octane additives goodwill relates solely tel used aviation gas business reported fuel specialties part segment change consequently related goodwill moved fuel specialties 2004 2005 table company’s reporting units consistent operating segments underlying segments identified note 3 company adopted fas 142 goodwill intangible assets effective january 1 2002 requires goodwill deemed indefinite life longer amortized subject annual impairment review years events occur circumstances change suggest impairment may occurred due continuing decline world market octane additives goodwill respect octane additives business segment reviewed impairment quarterly basis company elected perform annual tests respect fuel specialties performance chemicals goodwill december 31 year notes consolidated financial statementscontinued reviewing impairment charge fair value impaired reporting units underlying segments estimated using tax cash flow methodology based management’s best estimates time based impairment reviews conducted respect octane additives business 2005 impairment charge 1344 million full year recognized charge noncash nature impact taxation company continue perform impairment reviews respect octane additives business segment quarterly basis recognize charges appropriate end fourth quarter 2005 company performed annual impairment review goodwill fuel specialties performance chemicals believes impairment goodwill respect reporting segments note 10 intangible assets intangible assets comprise following veritel intangible asset recognized 2001 relation amounts payable veritel chemicals bv swiss subsidiary pursuant marketing agreement effective july 1 2001 initial signing fee 50 million paid entering agreement december 2001 notice given permanent source interruption triggered payments due veritel 700 million terms separate marketing agreement ethyl 245 million notes consolidated financial statementscontinued recoverable ethyl company’s share 505 million capitalized swiss subsidiary asset amortized straightline basis six years ending december 31 2007 technology following acquisition remaining 50 octel starreon llc july 8 2004 company recognized intangible asset 23 million respect various technological approvals business received certain military civilian authorities approvals act barrier entry potential competitor market would wish supply products intangible asset 48 million recognized respect number specialized manufacturing processes carried aroma fine chemicals limited following acquisition entity august 2004 assets expected life ten years amortized straightline basis period residual value anticipated customer relationships following acquisition finetex company recognized intangible asset totalling 71 million 42 million relation customer lists acquired asset expected life thirteen years amortised straight line basis period residual value anticipated intangible assets recognized 2004 respect octel starreon llc 90 million aroma fine chemicals limited 28 million acquisitions relate ongoing customer relationships expected life thirteen years amortized straightline basis period residual value anticipated patents following acquisition finetex company recognized intangible asset 29 million respect patents trade marks expected life ten years amortized straight line basis period remaining balance relates principally software costs amortized 3 years company elected perform annual tests respect intangible assets december 31 year end fourth quarter 2005 company performed annual impairment review intangible assets believes impairment exists notes consolidated financial statementscontinued intangible asset amortization expense 127 million 112 million 104 million 2005 2004 2003 respectively future estimated amortization expense 126 million per annum 2006 129 million 2007 26 million 2008 2009 2010 note 11 deferred finance costs company agreed three one half year financing facility december 13 2005 see note 14 replaced previous company debt facility december 31 2004 net book amount deferred finance costs capitalized result refinancing january 2004 14 million beginning 2005 amortized full 2005 consequence refinancing 2005 21 million refinancing costs capitalized incurred relation refinancing agreed december 13 2005 amortized expected life agreement using average interest method amortization expense 14 million 14 million 44 million 2005 2004 2003 respectively charge included interest payable see note 2 note 12 property plant equipment property plant equipment consists following total net book value equipment december 31 2005 03 million 2004 07 million respect assets held capital leases assets principally computer hardware 2005 2004 depreciation charges 147 million 119 million 112 million 2005 2004 2003 respectively gross book value equipment accumulated depreciation impacted disposals 2005 notes consolidated financial statementscontinued estimated additional cost complete work progress 26 million 2004 25 million company adopted fas 143 accounting asset retirement obligations january 1 2003 see note 23 result company recognized historical assets 83 million costs carrying value property plant equipment cumulative depreciation uplift 78 million note 13 plant closure provisions liability estimated closure costs innospec’s tel manufacturing facilities includes costs personnel reductions severance decontamination environmental remediation activities remediation demand tel diminishes severance provisions also made relation fuel specialties performance chemicals businesses movements provisions summarized follows severance charges recognized income statement restructuring costs along restructuring costs remediation costs recognized cost goods sold pension curtailment charge 125 million recognized restructuring costs 2005 added 188 million charge severance restructuring analysed explains 313 million restructuring charge income statement severance charge 40 million recognized relating salary emoluments including pension costs mr kerrison together costs professional advice may entitled resignation agreement expected 11 million amount paid one year balance sheet date charge 22 million recognized relation new cost reduction program manufacturing support activities tel manufacturing site ellesmere port uk charge 14 million notes consolidated financial statementscontinued recognized fas 146 previous cost reduction program leavers stayed beyond formal notice periods charge 11 million recognized result decision relocate activities fuel technology centre bletchley uk ellesmere port uk charge 16 million recognized relation severance costs incurred result streamlining executive structure relocation european head office manchester uk ellesmere port uk charge 04 million recognized relation decision close adastra business balance 11 million relates severance fuel specialties usa performance chemicals business restructuring charge 16 million recognized first quarter relating closure adastra business charge 25 million relates ongoing demolition work ellesmere port site included remediation provision discretionary nature sundry restructuring costs 06 million incurred ellesmere port charge 07 million related onerous lease charges arising closure european head office manchester uk charge 07m reported restructuring line item related write value fixed assets result closure european head office manchester uk also charge 09 million reported restructuring line item related write value fixed assets resulting decision relocate research technology activities bletchley park uk site remediation total costs remediation evaluated regular basis take account expenditure incurred amend scope future activities light findings projects carried detailed review expected future costs decontamination remediation ellesmere port site concluded december 2004 results summarized discounted cash flow model results reflected herein remediation expenditure provisions 2005 2004 2003 22 million 20 million 37 million respectively remediation provision represents fair value company’s liability recognized fas 143 accounting asset retirement obligations company records environmental liabilities probable costs estimated reasonably company anticipate program work required associated future costs comply environmental legislation relevant countries company views costs vacating main uk site contingent liability present intention exit site company determined due uncertain product life octane additives particularly market aviation notes consolidated financial statementscontinued gas exists uncertainty timing cash flows possible estimate flows sufficiently reliably recognize provision note 14 longterm debt longterm debt consists following payments interest longterm debt 76 million 47 million 78 million 2005 2004 2003 respectively net cash outflow respect refinancing costs 20 million 27 million 02 million 2005 2004 2003 respectively financing package agreed january 2004 amended august 2004 comprised term loan 100 million revolving credit facility 110 million term loan repayable annual instalments three one half years revolving facility available throughout loan period july 2007 119 million outstanding terms facility december 31 2004 december 13 2005 company reached agreement syndicate banks new term loan 100 million repayable three one half years additional 671 million revolving credit facility also agreed expire june 12 2009 repayments term loan 100 million due july 31 2006 150 million january 31 2007 200 million july 31 2008 final repayment 550 million june 12 2009 1400 million outstanding terms new facility december 31 2005 facility contains terms breached would result loan becoming repayable demand requires among matters compliance certain financial ratio covenants specifically ratio net debt ebitda nongaap measure liquidity ratio net interest expense ebita another nongaap measure liquidity ebitda ebita defined finance facility new financing facility also requires “look forward” test applied ratio net debt ebitda exceeds 20 “look forward” test applicable company 2005 due ratio exceeded notes consolidated financial statementscontinued management believes company breached covenants throughout 2005 facility secured number fixed floating charges certain assets company subsidiaries acquisition aroma fine chemicals limited august 26 2004 company issued £25 million 43 million loan notes vendors loan notes secured equal amount restricted cash escrow repayable two equal tranches january september 2006 assets held capital leases capitalized 2005 07 million 2004 leases principally respect items computer hardware based uk leases expire two years 02 million capital repayments made 2005 2004 following table presents projected annual maturities next four years 2005 weighted average rate interest short term borrowings 61 december 31 2005 34 december 31 2004 note 15 deferred income movements deferred income summarized follows deferred income 386m relates amounts received ethyl relating prepayment services provided sales marketing agreement oboadler effective january 1 2000 remaining 05m relates post acquisition government grants received leuna polymer gmbh notes consolidated financial statementscontinued note 16 stockholders’ equity note 17 fair value financial instruments following table presents carrying amount fair values company’s financial instruments december 31 2005 2004 following methods assumptions used estimate fair values financial instruments cash equivalents restricted cash carrying amount approximates fair value shortterm maturities instruments longterm debt carrying amount longterm borrowings variable interest rates approximates fair value fair value fixed interest rate debt approximates carrying value derivatives fair value derivatives relates interest rate swaps interest rate swap options estimated based current settlement prices comparable contracts using current assumptions cumulative gains losses interest rate swaps summarized follows notes consolidated financial statementscontinued interest rate swaps designated cash flow hedge 500 million underlying variable rate debt obligations stood 1000 million december 31 2005 200 million swaps mature december 14 2007 remaining 300 million june 12 2009 hedges determined effective consequently unrealized gain 01 million 2005 unrealized gain 01 million 2004 recorded accumulated comprehensive income ineffectiveness determined immaterial 2005 2004 accordingly gain loss recognized earnings either period company expect significant portion gain reclassified earnings next 12 months note 18 financial instruments risk management company limited involvement derivative financial instruments trade company use derivatives manage certain interest rate foreign exchange exposures company uses interest rate swaps floors collars cap agreements reduce impact changes interest rates floating rate debt swap agreements contracts exchange floating rate fixed interest payments periodically life agreements without exchange underlying notional amounts notional amounts interest rate agreements used measure interest paid received represent amount exposure credit loss company determined hedge proportion outstanding variable rate debt obligation december 31 2005 company following interest rate instruments effect notional amounts millions company sells range octane additives fuel additives performance chemicals major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures utilized minimize risk collateral generally required note 19 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected notes consolidated financial statementscontinued renewed replaced normal course business rental expense 24 million 2005 27 million 2004 18 million 2003 future commitments noncancelable operating leases follows table update commitments respect environmental remediation obligations disclosed note 13 contingencies bycosin disposal voluntary disclosure possible violations cuban assets control regulations office foreign assets control given international scope operations company subject laws many different jurisdictions including laws relating imposition restrictions trade investment various entities persons countries laws conflicting 2004 company reviewed periodically aspects operations respect restrictions determined dispose certain noncore nonus subsidiaries bycosin ab engaged since prior acquisition 2001 bycosin ab company transactions activities including sale certain fuel additives entities persons associated cuba consequently november 15 2004 bycosin ab whollyowned subsidiary company organized laws sweden known octel sweden ab “seller” entered business asset purchase agreement “agreement” pesdo swedcap holdings ab “purchaser” håkan byström others purchaser’s guarantors octel petroleum specialties limited seller’s guarantor completed allcash transaction contemplated thereby together related transactions “transaction” agreement provided among things disposal certain noncore fuel specialties business related manufacturing assets seller ii supply distribution certain power products certain geographic regions net consideration paid purchaser approximately us29 million following completion transaction company made voluntary disclosure us office foreign assets control ofac regarding transactions activities notes consolidated financial statementscontinued engaged certain nonus subsidiaries company disclosures amongst items included aggregate monetary value transactions involving cuban persons entities conducted company’s nonus subsidiaries since january 1999 approximately 266 million time however management believes cannot reasonably estimate specific nature amount penalties ofac might eventually assess penalties could assessed different bases ofac assessed penalties company “performance contracts basis” applicable regulations provide penalties case civil violations cuban assets control regulations 31cfr part 515 “cacr” lesser 65000 per violation value contract since january 1999 nonus subsidiaries company entered 43 contracts cuban entities could considered separate violation cacr ofac may take position cacr interpreted applied different manner potentially even permit assessment penalties equal greater value business conducted cuban persons entities company considered range possible outcomes potential penalties payable accordance company’s accounting policies provision made management’s current best estimate potential liability including anticipated legal costs however underlying assumptions prove incorrect actual outcome could differ materially expected management able estimate range additional loss company subsidiaries current former found complied cacr company believes could subject fines civil criminal penalties could material chief office global security risk “ogsr” sec’s division corporate finance sent letter company dated november 22 2005 “sec comment letter” regarding form 10k fiscal year ended december 31 2004 form 10q quarter ended june 30 2005 sec comment letter focused matters arising company’s voluntary disclosure ofac response sec comment letter company submitted letter “response letter” ogsr december 14 2005 date ogsr responded company’s response letter requested additional information company ruled possibility action oil food february 7 2006 securities exchange commission “sec” notified company commenced investigation determine whether violations federal securities law occurred connection transactions conducted company’s wholly owned indirect subsidiary company alcor chemie vertriebs gmbh “alcor” swiss company united nations oil food program notes consolidated financial statementscontinued june 1 1999 december 31 2003 part investigation sec issued subpoena requiring production certain documents concerning transactions company alcor management recorded provision regard matter unable estimate possible range loss related matter federal trade commission matter july 1999 associated octel company limited “aoc” wholly owned indirect subsidiary company allchem industries “allchem” entered consent order “order” us federal trade commission “ftc” among things required aoc sell tel 15 years allchem pursuant certain supply agreement dated july 30 1999 order among things required aoc seek ftc approval changing price terms supply agreement ii file yearly compliance reports thereafter aoc changed price terms without obtaining ftc approval filed compliance reports failed mention changes aoc discovered error june 2005 notified ftc compliance report issues changes supply agreement sought retroactive approval latter request pending however changes supply agreement lowered price tel allchem company believe probable ftc seek impose civil penalties aoc’s possible violation order guarantees company certain consolidated subsidiaries contingently liable december 31 2005 77 million primarily relating performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties terms guarantee arrangements generally company would required perform affiliated company fail fulfil obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets indemnities warranties connection disposal octel waste management limited owm june 26 2003 company indemnified purchaser respect environmental liability arising possible historic contamination leased site ellesmere port uk maximum £20 million 34 million general environmental conditions events subject indemnity must arisen prior june 26 2003 time limit claims must asserted potential liability included company’s remediation provision notes consolidated financial statementscontinued addition company provided certain warranties respect disposal owm company would required perform contingent liabilities respect warranties become actual could required make maximum future payments £37 million 64 million recourse provisions enabling recovery amounts third parties assets held collateral respect indemnity warranties note 20 loss disposals loss disposals 2004 made follows november 2004 french subsidiary disposed former offices paris consideration 49 million offices unoccupied business’s operations moved another site vernon net book value property nil sale incurred costs 02 million november 15 2004 company disposed certain manufacturing assets held swedish subsidiary bycosin ab consideration 22 million net assets disposed 113 million comprised net loss disposal 91 million tax charge credit loss anticipated part sale swedish manufacturing assets bycosin de mexico sa de cv bycosin sa de cv noncore subsidiaries octel sweden ab also disposed entirety ongoing involvement business element transaction included within discontinued operations see note 21 company continue source product support marine power markets sweden sale swedish manufacturing assets meet criteria laid fas 144 accounting impairment disposal longlived assets inclusion within discontinued operations notes consolidated financial statementscontinued note 21 discontinued operations december 31 2005 company disposed two noncore businesses octel performance chemicals inc gamlen industries sa waste water treatment plant consideration received 12 million 19 million respectively net assets disposed 31 million comprised net loss disposal octel performance chemicals inc 16 million includes net loss year 04 million net profit disposal gamlen industries sa waster water treatment 02 million includes net loss year 03 million professional fees 02 million tax charge 05 million november 15 2004 company disposed noncore business bycosin mexico consideration 09 million net assets disposed 48 million comprised net loss disposal 39 million includes net income bycosin mexico 2004 date disposal 04 million professional fees 02 million tax charge 02 million notes consolidated financial statementscontinued note 22 balance sheet information restricted cash 2004 company acquired aroma fine chemicals limited see note 8 consideration £25 million 43 million form loan notes repayable two equal tranches january september 2006 terms loan notes must secured equal amount restricted cash escrow assets included within assets investments consolidated company grounds company controlling financial interest investments held cost less provision impairment principal affiliates follows unconsolidated affiliates privately held companies quoted market prices available dividends received 2005 2004 2003 year company made sales 12 million 15 million deurex micro technologies gmbh deurex december 31 2005 balance owed company deurex 02 million 02 million note 23 asset retirement obligations effective january 1 2003 adopted fas 143 accounting asset retirement obligations applies legal obligations associated construction acquisition operation longlived asset fas 143 amount recorded liability capitalized increasing carrying amount related longlived asset depreciated useful life liability settled amount recorded balance either gain loss recognized settlement amounts recorded liabilities balance sheet unchanged fas 143 qualifying costs fully provided preexisting environmental compliance remediation accounting policy however previously expensed costs full change brought fas 143 retrospective capitalization depreciation costs result total 83 million costs added notes consolidated financial statementscontinued carrying amount property plant equipment since relevant plant nearing end useful life cumulative depreciation uplift 78 million effect income statement reflecting net book value costs previously written capitalized 05 million disclosed separately face income statement “cumulative effect change accounting principle” note 24 recently issued accounting pronouncements april 2005 sec approved new rule delays effective date financial accounting standards board “fasb” statement 123 r “fas 123r” share based payment standard effective public companies annual periods begin june 15 2005 light announcement company decided commence adoption standard january 1 2006 standard requires compensation costs related sharebased payment transactions recognized financial statements company yet evaluated impact adopting standard financial statements march 2005 sec made available fasb interpretation 47 accounting conditional asset retirement obligations interpretation clarifies conditional asset retirement obligations meet definition asset retirement obligation fas 143 accounting asset retirement obligations therefore recognized fair value settlement reasonably estimable company conditional asset retirement obligation relating ellesmere port uk site year ended december 31 2005 company deems fair value reasonably estimable company intentions vacating site deemed fair value reasonably estimable would material impact stated liabilities company november 2004 fasb issued fas 151 inventory costs clarify accounting abnormal amounts idle facility expense freight handling costs wasted material standard requires items recognized current period charges standard also establishes concept “normal capacity” requires allocation fixed production overhead inventory based normal capacity production facilities unallocated overhead must recognized expense period incurred standard effective inventory costs incurred starting january 1 2006 company believe adoption standard material impact financial position results operations cash flows may 2005 fasb issued fas 154 accounting changes error corrections fas 154 replaces apb 20 fas 3 reporting accounting changes interim financial statements effective fiscal years beginning december 15 2005 fas 154 addresses accounting reporting change accounting principle company expect fas154 material impact financial statements unless adopts change accounting principle notes consolidated financial statementscontinued note 25 related party transactions february 24 2005 dennis j kerrison chief executive officer president company arranged transfer gbp 50000 equivalent approximately zar 500000 bank account united kingdom account associated octel company south africa pty limited “aocsa” whollyowned indirect subsidiary innospec inc day initiation mr kerrison aocsa made payment zar 500000 equivalent approximately usd 95000 mr kerrison’s personal use february 28 2005 aocsa received funds transmitted mr kerrison’s uk bank account aocsa later reimbursed associated costs item 9item 8 financial statements supplementary data consolidated financial statements together report pricewaterhousecoopers dated february 7 2002 quarterly financial information pages 22 54 report incorporated herein reference financial highlights page 19 report also incorporated herein reference item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors stockholders innospec inc audited accompanying consolidated balance sheets innospec inc subsidiaries “innospec” december 31 2014 2013 related consolidated statements income comprehensive income accumulated comprehensive loss cash flows stockholders’ equity years threeyear period ended december 31 2014 also audited innospec’s internal control financial reporting december 31 2014 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso innospec’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying “management’s report internal control financial reporting” appearing item 9a form 10k responsibility express opinion consolidated financial statements opinion innospec’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate material weakness deficiency combination deficiencies internal control financial reporting reasonable possibility material misstatement company’s annual interim financial statements prevented detected timely basis material weakness related innospec’s lack effective controls ensure proper application asc 830 foreign currency matters related treatment foreign currency gains losses intercompany loan balances denominated currencies entity’s functional currency identified included management’s assessment material weakness considered determining nature timing extent audit tests applied audit 2014 consolidated financial statements opinion consolidated financial statements referred present fairly material respects financial position innospec december 31 2014 2013 results operations cash flows years threeyear period ended december 31 2014 conformity us generally accepted accounting principles also opinion effect aforementioned material weakness achievement objectives control criteria innospec maintained effective internal control financial reporting december 31 2014 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission innospec acquired independence oilfield chemicals llc “independence” management excluded assessment effectiveness innospec’s internal control financial reporting december 31 2014 independence’s internal control financial reporting associated total assets 2347 million 1508 million represents goodwill intangibles included within scope assessment total revenues 350 million included consolidated financial statements innospec year ended december 31 2014 audit internal control financial reporting innospec also excluded evaluation internal control financial reporting independence kpmg audit plc manchester united kingdom february 17 2015 consolidated statements income millions except share per share data accompanying notes integral part statements consolidated statements comprehensive income millions 1 cumulative translation adjustment adjusted december 31 2011 account 27 million income taxes historical foreign exchange gains losses intercompany loans 2 unrecognized actuarial net gains losses adjusted 49 million december 31 2011 reverse impact deferred taxes change associated tax rate unrecognized actuarial net losses 2010 2011 accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 07 million 2013 04 million 2012 04 million year included depreciation amortization cash flow statement interest expense income statement cash paymentsreceipts respect income taxes interest disclosed note 10 note 11 respectively notes consolidated financial statements accompanying notes integral part statements consolidated statements stockholders’ equity millions 1 adjustment account income taxes historical foreign exchange gains losses intercompany loans cumulative translation adjustment 2 adjustment reverse impact deferred taxes change associated tax rate unrecognized actuarial net losses 2010 2011 accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets supplies fuel additives oilfield chemicals personal care fragrance products specialty chemicals products sold primarily oil gas exploration production companies oil refineries personal care fragrance companies chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions oilfield specialties business supplies drilling production chemicals make exploration production costefficient environmentallyfriendly specialty chemicals provide effective technologybased solutions customers’ processes products focused personal care polymers fragrance ingredients markets octane additives business manufactures products use automotive gasoline provides services respect environmental remediation principal product lines reportable segments fuel specialties performance chemicals octane additives see note 3 notes consolidated financial statements financial information company’s reportable segments note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles united states america include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation acquisitions accounted purchases results operations acquired businesses included consolidated financial statements date acquisition reclassified certain prior period amounts conform current period presentation use estimates preparation consolidated financial statements accordance generally accepted accounting principles united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates cash equivalents investment securities maturities three months less purchased considered cash equivalents shortterm investments investment securities maturities 3 months less 12 months purchased considered shortterm investments trade accounts receivable company records trade accounts receivable net realizable value maintains allowances customers making required notes consolidated financial statementscontinued payments company determines adequacy allowances periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions inventories stated lower cost fifo method market value cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement inventories adjusted estimated obsolescence written market value based estimates future demand market conditions property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method allocated cost goods sold operating expenses cost additions improvements capitalized maintenance repairs charged expenses assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill intangible assets goodwill intangible assets deemed indefinite lives amortized subject least annual impairment tests perform qualitative assessment determine whether likely fair value segment less carrying amount prior performing twostep goodwill impairment test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital annual measurement date impairment testing goodwill relating fuel specialties performance chemicals segments december 31 year date performed annual impairment tests concluded impairment goodwill respect reporting segments company capitalizes software development costs including licenses subsequent establishment technological feasibility intangible assets deemed finite lives including software development costs licenses amortized using straightline method estimated useful lives tested potential impairment events occur circumstances change suggest impairment may occurred deferred finance costs relating debt financing capitalized separately disclosed consolidated balance sheets amortized using effective interest method expected life debt financing facility notes consolidated financial statementscontinued impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result assets compared carrying value assets lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative instruments time company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes company recognizes derivatives either noncurrent assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives designated hedges tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated accruals adjusted information develops circumstances change costs future obligations discounted present values using company’s creditadjusted riskfree rate acquisitionrelated contingent deferred consideration deferred consideration payable cash discounted fair value deferred consideration contingent upon predetermined financial targets estimate fair value likely consideration payable made contingent deferred consideration reassessed annually corresponding adjustment recognized operating income associated liability reflect passage time accretion expense revisions amount timing initial measurement revenue recognition company supplies products customers various manufacturing sites instances containers held customer sites variety standard shipping terms conditions case revenue recognized legal title defined generally accepted standard terms conditions risk loss transfers company customer provisions sales discounts rebates customers based upon terms sales contracts recorded notes consolidated financial statementscontinued period related sales deduction revenue company estimates provision sales discounts rebates based terms agreement time shipping components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads amortization expense certain intangible assets warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions amortization expense certain intangible assets cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal settlement costs litigation company involved made reported administrative expense line item research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy foreign exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur gains losses monetary assets relating currencies us dollar taken income statement net incomeexpense gains losses intercompany foreign currency loans longterm nature company intend settle foreseeable future also recorded accumulated comprehensive loss foreign exchange gains losses also included net incomeexpense income statement notes consolidated financial statementscontinued stockbased compensation plans company accounts employee stock options stock equivalent units fair value method stock options fair valued grant date fair value recognized straightline vesting period option stock equivalent units fair valued balance sheet date fair value spread remaining vesting period unit pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend service costs recognized employees render services necessary earn postemployment benefits prior service costs credits actuarial gains losses amortized average remaining life expectancy inactive participants using corridor method income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities appropriate company evaluates need valuation allowance reduce deferred tax assets effect deferred taxes change tax rates recognized period includes enactment date company recognizes tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements positions measured based largest benefit greater 50 likelihood realized upon settlement changes recognition measurement reflected period change judgment occurs company recognizes accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income note 3 segmental reporting geographical area data innospec divides business three segments management reporting purposes fuel specialties performance chemicals octane additives fuel specialties performance chemicals segments operate markets actively seek growth opportunities although ultimate customers different octane additives segment generally characterized volatile declining demand 2014 company significant customer fuel specialties segment royal dutch shell plc affiliates “shell” accounted 819 million 85 net group sales 2013 2012 shell accounted 831 million 10 829 million 11 net group sales respectively notes consolidated financial statementscontinued company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments restructuring charges separately disclosed prior periods reclassified corporate costs reclassified prior period amounts conform current period presentation pension charge relates united kingdom defined benefit pension plan closed future service accrual charges related much smaller pension arrangements us overseas included segment income statement captions consistent related employees’ costs notes consolidated financial statementscontinued company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources group legal compliance counsel investor relations • running corporate offices us europe • corporate development function since relate current trading activities reporting segments • corporate share information technology accounting human resources departments sales geographical area reported source transactions originated intercompany sales priced using appropriate pricing methodology eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable notes consolidated financial statementscontinued notes consolidated financial statementscontinued note 4 earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2014 2013 2012 average number antidilutive options excluded calculation diluted earnings per share 36775 nil 1380 respectively note 5 property plant equipment property plant equipment consists following total net book value equipment december 31 2014 22 million respect assets held finance leases december 31 2013 amounts respect assets held finance leases depreciation charges 106 million 89 million 70 million 2014 2013 2012 respectively estimated additional cost complete work progress 14 million 2013 22 million notes consolidated financial statementscontinued note 6 goodwill following table analyzes goodwill 2014 2013 1 gross cost net 87 million 03 million 2895 million historical accumulated amortization respect fuel specialties performance chemicals octane additives reporting segments respectively company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties performance chemicals octane additives components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows clearly distinguished operationally financial reporting purposes rest company tests goodwill annually impairment years events occur circumstances change suggests impairment may occurred december 31 2014 fair value fuel specialties performance chemicals segments substantially exceeds carrying value notes consolidated financial statementscontinued determine fair value segments utilize discounted cash flow methodology based forecast future aftertax cash flows operations since believe provides best approximation fair value methodology requires us make assumptions estimates including respect future revenue growth gross margins based upon long range plans company’s weighted average cost capital long range plans regularly updated part planning processes reviewed approved management board directors assume terminal values fuel specialties performance chemicals reporting units added present value relevant forecast future cash flows assume terminal value octane additives reporting unit beyond estimated future life discounted cash flow methodology assume control premium use discount rate equivalent company’s weighted average cost capital estimated reference overall aftertax rate return required equity debt market participants company assign assets liabilities including deferred taxes goodwill reporting units asset liability relates operations reporting unit included determining fair value reporting unit cash debt obligations excluded carrying value reporting units 2014 assumptions estimates underpinning discounted cash flows revised part planning processes although methodology unchanged significant revisions company’s weighted average cost capital changed reflect changing proportion debt equity funding company elected perform annual tests respect fuel specialties performance chemicals goodwill december 31 year december 31 2014 2294 million 467 million goodwill relating fuel specialties performance chemicals segments respectively date performed annual impairment tests concluded impairment goodwill respect reporting segments believe assumptions used annual quarterly impairment tests reasonable judgmental variations assumptions may result materially different calculations impairment charges independence acquisition october 27 2014 company acquired 100 membership interests independence oilfield chemicals llc “independence” independence based houston texas services oil gas industry focus completion stimulation production chemicals purchased independence total discounted consideration 1918 million initial payment closing 990 million funded existing cash debt facilities independence phase rapid growth remaining payments performance related contingently payable next two years based notes consolidated financial statementscontinued multiple independence’s annualized earnings interest taxes depreciation amortization plus percentage free cash flow based current forecasts independence’s performance innospec make two deferred consideration payments first one 457 million payable approximately one year closing second one 495 million payable approximately two years closing portion deferred payments payable innospec’s election shares innospec’s common stock acquired business order move forward strategy building new market leader oilfield specialties sector forms part fuel specialties segment included consolidated income statement company since acquisition date following revenue earnings independence including accretion charge 24 million following table summarizes calculations total purchase price estimated allocation purchase price assets acquired liabilities assumed independence purchase price allocation yet complete process finalising valuation assets acquired final determination fair values may result adjustments amounts presented independence associated goodwill included within fuel specialties segment management reporting purposes see note 7 notes consolidated financial statements information intangible assets currently goodwill amortizable tax purposes supplemental unaudited pro forma information illustrative purposes pro forma information enlarged group provided necessarily indicative financial position results operations would company’s acquisitions including independence completed january 1 2013 addition unaudited pro forma financial information indicative purport project future financial position operating results enlarged group notes consolidated financial statementscontinued adjustments unaudited pro forma financial information includes amortization respect acquired intangible assets acquisitions acquisitionrelated costs incurred respect transactions note 7 intangible assets intangible assets comprise following product rights following acquisition chemsil august 30 2013 company recognized intangible asset 340 million respect chemsil’s product rights portfolio asset expected life 9 years amortized straightline basis period residual value anticipated notes consolidated financial statementscontinued amortization expense 37 million recognized 2014 2013 13 million cost goods sold brand names following acquisition independence october 27 2014 company recognized intangible asset 60 million respect independence’s brand name asset expected life 10 years amortized straightline basis period residual value anticipated following acquisition bachman november 4 2013 company recognized intangible asset 29 million respect bachman’s brand names asset expected life 5 years amortized straightline basis period residual value anticipated amortization expense 07 million recognized 2014 2013 01 million selling general administrative expenses technology following acquisition independence october 27 2014 company recognized intangible asset 260 million respect independence’s product formulations asset expected life 15 years amortized straightline basis period residual value anticipated following acquisition bachman november 4 2013 company recognized intangible asset 85 million respect bachman’s core chemistry knowhow oilfield chemicals asset expected life 15 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 183 million respect technological knowhow mixing manufacturing process patents protect technology associated product branding asset expected life 165 years amortized straightline basis period residual value anticipated amortization expense 24 million recognized 2014 2013 19 million cost goods sold customer relationships following acquisition independence october 27 2014 company recognized intangible asset 292 million respect independence’s longterm customer relationships asset weighted average expected life 10 years amortized straightline basis period residual value anticipated notes consolidated financial statementscontinued following acquisition bachman november 4 2013 company recognized intangible asset 145 million respect bachman’s longterm customer relationships asset weighted average expected life 145 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 282 million respect longterm customer relationships asset expected life 115 years amortized straightline basis period residual value anticipated following acquisition finetex merged innospec active chemicals llc january 2005 company recognized intangible asset 42 million relation customer lists acquired asset expected life 13 years amortized straightline basis period residual value anticipated amortization expense 50 million recognized 2014 2013 41 million selling general administrative expenses internally developed software costs 2014 continued process developing new companywide information system platform following successful deployment majority us sites third quarter 2013 next phase implementation includes majority reporting units outside us december 31 2014 capitalized 278 million 2013 195 million relation internally developed software asset expected life 5 years amortized straightline basis period residual value anticipated amortization expense 38 million recognized 2014 2013 10 million selling general administrative expenses noncompete agreements following acquisition independence october 27 2014 company recognized intangible asset 26 million respect noncompete agreement asset expected life 3 years amortized straightline basis period residual value anticipated following acquisition strata december 24 2012 company recognized intangible asset 15 million respect noncompete agreement asset expected life 2 years fully amortized amortization expense 09 million recognized 2014 2013 07 million selling general administrative expenses notes consolidated financial statementscontinued marketing related formerly ethyl intangible asset 284 million recognized second quarter 2007 respect ethyl corporation foregoing entitlement effective april 1 2007 share future income stream sales marketing agreements market sell tel 2008 contract provisions longer deemed necessary 63 million offset intangible asset amount attributed octane additives reporting segment amortized straightline december 31 2012 amount attributed fuel specialties reporting segment amortized straightline december 31 2017 effective october 1 2011 company extended estimate future life octane additives segment december 31 2012 december 31 2013 therefore prospectively adjusted amortization period amount attributed octane additives segment amortization expense 10 million recognized 2014 2013 17 million cost goods sold amortization expense aggregate intangible asset amortization expense 178 million 111 million 41 million 2014 2013 2012 respectively 74 million 38 million 26 million respectively recognized cost goods sold remainder recognized selling general administrative expenses future amortization expense estimated follows next five years note 8 deferred finance costs august 28 2013 amended fiveyear revolving credit facility “the facility” result 09 million refinancing costs capitalized 2013 amortized expected life facility using effective interest method line costs capitalized original facility december 2011 amortization expense 07 million 04 million 04 million 2014 2013 2012 respectively charge included interest expense see note 2 notes consolidated financial statements notes consolidated financial statementscontinued note 9 pension plans united kingdom plan company maintains defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested several investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater longterm monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company second quarter 2010 company implemented pension increase exchange “pie” program current pensioners effective april 1 2010 reduced pbo 171 million reduction pbo resulted prior service credit amortized using straightline method remaining life expectancy plan pensioners 15 years commencing april 1 2010 plan closed future accrual 2010 employees became inactive gaap requires average remaining life expectancy inactive participants used instead average remaining service spread future amortization actuarial net losses average remaining life expectancy inactive participants approximately 24 years since plan closed 2010 2014 company contributed approximately 114 million cash plan accordance actuarial deficit recovery plan agreed trustees notes consolidated financial statementscontinued discount rate used represents annualized yield based cash flow matched methodology reference aa corporate bond spot curve regard duration plan’s liabilities inflation rate derived using similar cash flow matched methodology used discount rate regard difference yields fixed interest index linked united kingdom government gilts 025 change discount rate assumption would change pbo approximately 29 million net pension credit 2015 approximately 03 million 025 change level price inflation assumption would change pbo approximately 22 million net pension credit 2015 would unchanged current investment strategy plan obtain asset allocation 65 debt securities 35 equity securities order achieve predictable return assets december 31 2014 approximately 50 december 31 2013 55 plan’s assets held indextracking funds one investment management company approximately 40 december 31 2013 25 plan’s assets invested united kingdom government gilts 5 plan’s assets invested one individual company’s investment funds notes consolidated financial statementscontinued movements pbo fair value plan assets follows accumulated benefit obligation plan 8171 million 8198 million december 31 2014 2013 respectively vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund level 3 assets ready market indicative dealer prices available fund assets independently evaluated use agreed upon procedures conducted audit firm provide independent confirmation proper valuation procedures followed plan assets invested comingled funds valued using unit price net asset value based underlying investments fund level 3 assets include investments private equities valued using significant unobservable inputs notes consolidated financial statementscontinued fair values pension assets level input follows notes consolidated financial statementscontinued reconciliation fair value plan assets using significant unobservable inputs level 3 follows projected net pension credit year ending december 31 2015 follows following benefit payments expected made german plan company also maintains unfunded defined benefit pension plan covering number current former employees germany “german plan” german plan closed new entrants assets notes consolidated financial statementscontinued movements pbo german plan follows amount unrecognized actuarial net losses comprehensive loss respect german plan 27 million net tax 07 million plans company contributions defined contribution schemes 2014 82 million 2013 77 million notes consolidated financial statementscontinued note 10 income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 62 million unrecognized tax benefits interest penalties would impact effective tax rate recognized recognize accrued interest penalties associated uncertain tax positions part income taxes consolidated statements income company one subsidiaries files income tax returns us federal government various state foreign jurisdictions previously disclosed december 31 2013 company us subsidiaries subject tax audits us march 6 2014 federal income tax examination irs 2009 effectively settled additional tax cost nominal resulted reduction notes consolidated financial statementscontinued 36 million unrecognized tax benefits reduction 04 million associated interest penalties first quarter 2014 third quarter 2014 company recorded reduction 29 million unrecognized tax benefits 02 million associated interest penalties due expiration applicable statutes limitations 03 million addition unrecognized tax benefits recorded fourth quarter 2014 company us subsidiaries remain open examination irs years 2011 onwards company’s subsidiaries foreign tax jurisdictions open examination including france 2013 onwards germany 2010 onwards switzerland 2013 onwards united kingdom 2013 onwards sources income taxes follows components income tax charges summarized follows cash payments income taxes 116 million 211 million 131 million 2014 2013 2012 respectively notes consolidated financial statementscontinued effective tax rate varies us federal statutory rate factors indicated significant factors affecting variation statutory rate set include foreign income inclusions net foreign tax credits mix taxable profits generated different geographical localities group operates significant positive impact effective tax rate 2014 notes consolidated financial statementscontinued details deferred tax assets liabilities analyzed follows details deferred tax asset valuation allowance follows notes consolidated financial statementscontinued result company’s assessment net deferred tax assets december 31 2014 company considers likely valuation allowance required 06 million 2013 03 million net operating loss carry forwards valuation allowance required foreign tax credit carry forwards 2013 00 million net operating loss carry forwards arose us one company’s foreign subsidiaries net operating loss carry forwards us arose prior periods result state tax losses expected sufficient taxable profits generated us net operating loss carry forwards relieved prior expiration 2021 foreign tax credit carry forwards arose us prior periods company determined future foreign income inclusions sufficient utilize 08 million 2013 45 million foreign tax credit carry forwards prior expiration 2021 therefore valuation allowance required net operating loss carry forwards one company’s foreign subsidiaries arose current period expected sufficient taxable profits generated net operating loss carry forwards relieved determined future longer likely assets realized valuation allowance would required company’s operating results would adversely affected period determination would made company position control whether repatriate foreign earnings intend permanently reinvest earnings overseas fund overseas subsidiaries taxes provided unremitted earnings overseas subsidiaries tax basis differences relating investments overseas subsidiaries considered permanent duration amount unremitted earnings december 31 2014 2013 approximately 743 million 605 million respectively earnings remitted additional taxes could result offsetting foreign income taxes paid although calculation additional taxes practicable compute time note 11 longterm debt longterm debt consists following notes consolidated financial statementscontinued december 14 2011 entered fiveyear revolving credit facility provides borrowings us 1000 million facility carries interest rate based us dollar libor plus margin 150 225 dependent company’s ratio net debt ebitda nongaap measure liquidity defined credit facility drawn expires december 14 2016 repaid previous finance facility due expire february 6 2012 upon entering new credit facility august 28 2013 amended existing fiveyear revolving credit facility “the facility” amendment provides increase facility available company certain subsidiaries company 1000 million 1500 million retains term conditions original facility december 2016 addition amendment allowed company request additional amount 500 million committed lenders 300 million committed fourth quarter 2013 july 31 2014 company increased borrowing capacity 200 million credit facility provides borrowings us 2000 million expires december 14 2016 may drawn full us company’s credit facility contains restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined credit facility include material adverse change assets operations financial condition facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda shall greater 251 2 ratio ebitda net interest shall less 401 management determined company breached covenants throughout period december 31 2014 expects breach covenants next 12 months credit facility secured number fixed floating charges certain assets include key operating sites company subsidiaries september 13 2011 company settled newmarket corporation civil complaint settlement agreement included company issuing 150 million promissory note newmarket corporation payable three equal annual installments carrying simple interest 1 per annum final installment paid september 9 2014 notes consolidated financial statementscontinued weighted average rate interest borrowings 17 december 31 2014 16 december 31 2013 payments interest longterm debt 23 million 10 million 05 million 2014 2013 2012 respectively net cash outflows respect refinancing costs 01 million 09 million 00 million 2014 2013 2012 respectively note 12 plant closure provisions principal site giving rise environmental remediation liabilities manufacturing site ellesmere port united kingdom management believes last ongoing manufacturer tel also environmental remediation liabilities much smaller scale respect manufacturing sites us europe liability estimated closure costs innospec’s manufacturing facilities includes costs decontamination environmental remediation activities remediation demand tel diminishes severance provisions made relation corporate personnel three reporting segments movements provisions summarized follows notes consolidated financial statementscontinued amounts due within one year refer provisions expenditure expected arise within one year balance sheet date severance charges recognized income statement selling general administrative expenses remediation costs recognized cost goods sold remediation provision represents company’s liability environmental liabilities asset retirement obligations charge period 2014 represents accretion expense recognized 28 million 22 million primarily respect changes expected cost scope future remediation activities discount rate 892 used valuing remediation provision recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated company views costs vacating ellesmere port site contingent upon vacates site present intention company determined due uncertain product life tel particularly market aviation gasoline products manufactured site uncertainties probability timing expected costs uncertainties considered estimating provision remediation expenditure utilized provisions 20 million 19 million 21 million 2014 2013 2012 respectively note 13 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value notes consolidated financial statementscontinued measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels 2014 company evaluated fair value hierarchy levels assigned assets liabilities concluded transfers levels 1 2 3 following table presents carrying amount fair values company’s assets liabilities measured recurring basis following methods assumptions used estimate fair values financial instruments cash equivalents shortterm investments carrying amount approximates fair value shortterm maturities instruments longterm debt longterm debt principally comprises revolving credit facility entered december 2011 term loans recently acquired independence business carrying amount longterm debt approximates fair value acquisitionrelated contingent consideration deferred consideration payable cash discounted fair value deferred consideration contingent upon predetermined financial targets estimate fair value likely consideration payable made notes consolidated financial statementscontinued derivatives fair value derivatives relating interest rate swaps foreign currency forward exchange contracts commodity swaps derived current settlement prices comparable contracts using current assumptions foreign currency forward exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying amounts fair values contracts largely due changes exchange rates us dollar stock equivalent units fair values stock equivalent units calculated balance sheet date using either blackscholes monte carlo method note 14 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign currency exchange rate raw material cost exposures need arises december 31 2014 december 31 2013 company hold interest rate raw material derivatives company enters various foreign currency forward exchange contracts minimize currency exchange rate exposure expected future cash flows december 31 2014 contracts maturity dates one year date inception foreign currency forward exchange contracts designated hedging instruments impact income statement 2014 gain 34 million company sells range fuel specialties performance chemicals octane additives major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures intended minimize bad debt risk collateral generally required notes consolidated financial statementscontinued note 15 commitments contingencies operating leases company commitments operating leases primarily office space motor vehicles various items computer office equipment leases expected renewed replaced normal course business rental expense 37 million 2014 31 million 2013 29 million 2012 future commitments noncancelable operating leases follows environmental remediation obligations commitments respect environmental remediation obligations disclosed note 12 notes consolidated financial statements contingencies legal matters involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims material pending legal proceedings company subsidiaries party property subject possible however adverse resolution unexpectedly large number individual items could aggregate material adverse effect results operations particular year quarter guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties december 31 2014 guarantees recognized liabilities consolidated financial statements amounted 30 million notes consolidated financial statementscontinued terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company note 16 stockholders’ equity december 31 2014 company authorized common stock 40000000 shares 2013 40000000 issued shares december 31 2014 29554500 2013 29554500 treasury stock amounted 5263481 shares 2013 5207947 note 17 stockbased compensation plans stock option plans company five active stock option plans two provide grant stock options employees one provides grant stock options nonemployee directors another provides grant stock options key executives matching basis provided use proportion annual bonus purchase common stock company open market company fifth plan savings plan provides grant stock options company employees provided commit make regular savings predefined period used purchase common stock upon vesting options stock options vesting periods ranging 24 months 6 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount aggregate number shares common stock reserved issuance granted plans 2640000 notes consolidated financial statementscontinued fair value stock options measured grant date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following weighted average assumptions used determine grantdate fair value options following table summarizes transactions company’s stock option plans year ended december 31 2014 december 31 2014 134921 stock options exercisable 51001 performance conditions attached company’s policy issue shares treasury stock holders stock options exercise options sufficient treasury stock available company issue previously unissued shares stock holders stock options exercise options stock option compensation cost 2014 2013 2012 26 million 25 million 31 million respectively total intrinsic value options exercised 2014 2013 2012 09 million 47 million 15 million respectively total compensation cost related nonvested stock options yet recognized december 31 2014 47 million cost expected recognized weightedaverage period 230 years cash tax benefit realized stock option exercises totaled 09 million 57 million 27 million 2014 2013 2012 respectively excess tax benefit classified financing activities 04 million 38 million 22 million 2014 2013 2012 respectively notes consolidated financial statementscontinued stock options awards modified 2014 2013 2012 stock equivalent units company awards stock equivalent units “seus” time longterm performance incentive seus cash settled equity instruments conditional certain performance criteria linked innospec inc share price seus vesting periods ranging 11 months 4 years cases seus granted expire within 10 years date grant grants may priced market value premium discount limit number seus granted december 31 2014 liability seus 72 million located accrued liabilities consolidated balance sheets cash settled fair value seus measured balance sheet date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following assumptions used determine fair value seus balance sheet dates following table summarizes transactions company’s seus year ended december 31 2014 december 31 2014 91226 seus exercisable 79868 performance conditions attached charges seus spread life award subject revaluation fair value quarter revaluation may result charge credit income statement quarter dependent upon share price performance criteria notes consolidated financial statementscontinued seu compensation cost 2014 2013 2012 20 million 71 million 68 million respectively total intrinsic value seus exercised 2014 2013 2012 37 million 22 million 13 million respectively weightedaverage remaining vesting period nonvested seus 117 years additional exceptional longterm incentive plan first quarter 2014 innospec implemented additional exceptional longterm incentive plan reward selected executives cash bonus delivering exceptional performance one elements plan payable innospec share performance matches outperforms competitors measured russell 2000 index performance period january 1 2014 december 31 2016 maximum cash bonus payable element plan 3 million accounted sharebased compensation fair value liability cashsettled longterm incentives calculated quarterly basis fair value calculated using monte carlo model summarized follows following assumptions used monte carlo model december 31 2014 note 18 reclassifications accumulated comprehensive loss reclassifications accumulated comprehensive loss 2014 1 items included computation net periodic pension cost see note 9 notes consolidated financial statements additional information notes consolidated financial statementscontinued changes accumulated comprehensive loss 2014 net tax note 19 recently issued accounting pronouncements may 2014 fasb issued asu 201409 revenue contracts customers “asu 201409” requires entity recognize amount revenue expects entitled transfer promised goods services customers asu replace existing revenue recognition guidance us gaap becomes effective asu 201409 effective annual periods interim periods within years beginning december 15 2016 early application permitted standard permits use either retrospective cumulative effect transition method company evaluating effect asu 201409 consolidated financial statements related disclosures company yet selected transition method determined effect standard ongoing financial reporting note 20 related party transactions mr robert paller nonexecutive director company since november 1 2009 company retained continues retain smith gambrell russell llp “sgr” law firm mr paller holds position 2014 2013 2012 company incurred fees payable sgr 11 million 10 million 08 million respectively december 31 2014 amount due sgr company 01 million december 31 2013 02 million note 21 subsequent events company evaluated subsequent events date consolidated financial statements issued concluded additional disclosures required relation events subsequent balance sheet date item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders innospec inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheet innospec inc subsidiaries “company” december 31 2019 related consolidated statements income comprehensive income equity cash flows year ended including related notes collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2019 results operations cash flows year ended conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued coso change accounting principle discussed note 2 consolidated financial statements company changed manner accounts leases 2019 basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audit public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audit consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audit also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee relates accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates plant closure provision described notes 2 12 consolidated financial statements december 31 2019 provision place 493 million relating company’s legal responsibility remediation hazardous substances wastes currently formerly owned operated properties principal site giving rise environmental remediation liabilities manufacturing site ellesmere port united kingdom company must comply environmental legislation countries operates operated annually reassesses program work required included management developing estimates assumptions relating cost timing performing remediation work management used specialists develop estimates costs future obligations discounted present values using company’s creditadjusted riskfree rate principal considerations determination performing procedures relating plant closure provision critical audit matter significant estimates assumptions made management valuation plant closure provision turn led high degree auditor judgment subjectivity effort evaluating management’s assumptions including program work required costs performing work ii timing performing remediation work iii creditadjusted riskfree rate used discount future obligations professionals specialized skill knowledge used assist performing procedures ii evaluating audit evidence obtained addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating valuation plant closure provision procedures also included among others use professionals specialized skill knowledge assist testing management’s process determining plant closure provision included evaluating appropriateness valuation method reasonableness significant assumptions including assessment program work required cost timing assumptions developed management’s specialists ii evaluating scope competency objectivity management’s specialists based work engaged perform iii evaluating creditadjusted riskfree rate applied calculate present value future obligations pricewaterhousecoopers llp signed manchester united kingdom february 19 2020 served company’s auditor since 2019 report independent registered public accounting firm board directors stockholders innospec inc opinion consolidated financial statements audited accompanying consolidated balance sheet innospec inc subsidiaries company december 31 2018 related consolidated statements income comprehensive income accumulated comprehensive loss cash flows equity year ended related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2018 results operations cash flows year ended conformity us generally accepted accounting principles basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audit public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audit included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audit also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audit provides reasonable basis opinion kpmg llp manchester united kingdom february 20 2019 served company’s auditor 2011 2019 report independent registered public accounting firm board directors stockholders innospec inc opinion consolidated financial statements audited accompanying consolidated statements income comprehensive income accumulated comprehensive loss cash flows equity innospec inc subsidiaries company year ended december 31 2017 related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects results operations company cash flows year ended december 31 2017 conformity us generally accepted accounting principles basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audit public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audit included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audit also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audit provides reasonable basis opinion kpmg audit plc manchester united kingdom february 15 2018 served company’s auditor 2011 2018 consolidated statements income millions except share per share data accompanying notes integral part statements consolidated statements comprehensive income millions accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions amortization deferred finance costs 10 million 2018 07 million 2017 06 million year included depreciation amortization cash flow statement interest expense income statement cash paymentsreceipts respect income taxes interest disclosed note 10 note 11 respectively notes consolidated financial statements accompanying notes integral part statements consolidated statements equity millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets supplies fuel additives oilfield chemicals personal care products specialty chemicals products sold primarily oil gas exploration production companies oil refineries personal care home care companies formulators agrochemical metal extraction preparations chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions performance chemicals business provides effective technologybased solutions customers’ processes products focused personal care home care agrochemical metal extraction markets oilfield services business supplies drilling production chemicals make exploration production costefficient environmentally friendly octane additives business manufactures fuel additive use automotive gasoline provides services respect environmental remediation principal reportable segments fuel specialties performance chemicals oilfield services octane additives note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles “gaap” united states america going concern basis include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation accordance gaap united states america results operations acquired disposed business included excluded consolidated financial statements date acquisition disposal use estimates preparation consolidated financial statements accordance gaap united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates revenue recognition revenues primarily derived manufacture sale specialty chemicals recognize revenue control product transferred customer amount reflects consideration expect collect customer control generally transferred customer title transfers may include physical possession customer right payment customer accepted product customer assumed risks rewards ownership supplier managed inventory arrangements customers facilitate ondemand product availability cases inventory resides customer site although title transferred entitled payment invoiced product evaluated contract terms arrangements determined control transfers customer uses product time notes consolidated financial statementscontinued revenue recognized contracts generally include one performance obligation providing specialty chemicals performance obligation satisfied point time products shipped delivered consumed customer depending underlying contracts customers payment terms beyond 30 days provide extended payment terms year contracts include financing component contracts include variable consideration form rebates record rebates point sale reduction sales reasonably estimate amount rebate estimates based best judgment time sale includes anticipated well historical performance taxes assessed governmental authority concurrent sales customers including sales use valueadded revenuerelated excise taxes collected us customer included net sales reflected accrued liabilities remitted appropriate governmental authority responsible shipping handling costs title transferred account fulfilment costs include cost goods sold components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads amortization expense certain intangible assets warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions amortization expense certain intangible assets cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal settlement costs litigation company involved accounted administrative expense line item research development expenses research development testing costs expensed income statement incurred notes consolidated financial statementscontinued earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy foreign exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur gains losses monetary assets relating currencies us dollar taken income statement incomeexpense net gains losses intercompany foreign currency loans longterm nature company intend settle foreseeable future also recorded accumulated comprehensive loss foreign exchange gains losses also included income net income statement stockbased compensation plans company accounts employee stock options stock equivalent units fair value method stock options fair valued grant date fair value recognized straightline vesting period option stock equivalent units fair valued balance sheet date fair value spread remaining vesting period unit business combinations acquisition method accounting requires recognize assets acquired liabilities assumed acquisition date fair values goodwill measured excess consideration transferred acquisition date net fair values assets acquired liabilities assumed determination fair values certain assets liabilities usually based significant estimates provided management forecast revenue profit determining fair value intangible assets income approach generally used may incorporate use discounted cash flow method applying discounted cash flow method estimated future cash flows residual values intangible asset discounted present value using discount rate appropriate business acquired cash flow projections based management’s estimates economic market conditions including revenue growth rates operating margins capital expenditures working capital requirements cash equivalents investment securities maturities three months less purchased considered cash equivalents trade accounts receivable company records trade accounts receivable net realizable value maintains allowances customers making required payments company determines adequacy allowances periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions notes consolidated financial statementscontinued inventories stated lower cost fifo method market value cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement inventories adjusted estimated obsolescence written market value based estimates future demand market conditions property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method allocated cost goods sold operating expenses cost additions improvements capitalized maintenance repairs charged expenses incurred assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill deemed indefinite life subject least annual impairment assessments reporting unit level company considers reporting units consistent reportable segments components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows sufficiently distinguished operationally financial reporting purposes rest company initially perform qualitative assessment determine whether likely likelihood 50 percent fair value segment less carrying amount prior performing quantitative goodwill impairment test annual measurement date impairment assessment goodwill relating fuel specialties performance chemicals oilfield services segments december 31 year factors utilized qualitative assessment process include macroeconomic conditions industry market considerations cost factors overall financial performance company specific events quantitative test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital fair value techniques require management judgment estimates including revenue growth rates projected operating margins changes working capital discount rates would develop assumptions considering recent financial performance industry growth estimates notes consolidated financial statementscontinued intangible assets intangible assets deemed finite lives amortized using straightline method estimated useful lives company capitalizes software development costs intangible assets including licenses subsequent establishment technological feasibility assets tested potential impairment events occur circumstances change suggest impairment may occurred order facilitate testing potential impairment company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value assets cash flows lower impairment loss may recognized amount impairment loss difference fair value carrying value assets fair values determined using posttax cash flows discounted company’s weighted average cost capital events occur circumstances change may cause reduction periods assets amortized result noncash impairment carrying value reduction amortization periods would impact cash flows estimated useful lives major classes assets follows leases effective date january 1 2019 applied accounting standards update asu 201602 revision lease accounting asc topic 842 replaces asc topic 840 leases asu 201602 requires lessees recognize rightofuse “rou” asset lease liability leases meet definition shortterm lease standard adopted using modified retrospective transition method company electing adjust comparative periods taken election apply requirements shortterm leases taken election separate related nonlease components lease components standard material impact consolidated balance sheet december 31 2019 impact consolidated income statements significant impact recognition rou assets lease liabilities related deferred taxes thereon operating leases accounting finance leases remained substantially unchanged operating lease liabilities recognized new standard considered debt notes consolidated financial statementscontinued determine arrangement lease inception present value future lease payments operating leases included operating lease rou assets operating lease liabilities current noncurrent consolidated balance sheet december 31 2019 carrying value assets finance leases included property plant equipment finance lease liabilities current noncurrent consolidated balance sheet december 31 2019 operating lease rou assets operating lease liabilities recognized based present value future lease payments remaining lease term leases renewal options early termination break clauses assessed term lease based options exercised reasonably certain leases provide implicit interest rate use incremental borrowing rate based information available point recognition determining present value future payments operating lease rou asset excludes lease incentives initial direct costs incurred lease expense lease payments recognized straightline basis lease term unless payments variable per agreement lease payments linked index inflationary rate used value asset liability inception lease payments linked specific index inflationary rate vary term agreement included actual value future period circumstances future expected payments may dependent factors example production volumes case used minimum future expected payments value asset recognize rou asset operating lease liability shortterm leases length one year less associated cost recognized incurred income statement deferred finance costs relating debt financing capitalized offset longterm debt consolidated balance sheets amortized using effective interest method expected life debt financing facility amortization charge included interest expense income statement see note 11 notes consolidated financial statements impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value asset groups lower impairment loss may recognized amount impairment loss difference fair value carrying value asset groups fair values determined using posttax cash flows discounted company’s weighted average cost capital notes consolidated financial statementscontinued derivative instruments time company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes company recognizes derivatives either current noncurrent assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives designated hedges tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated vast majority plant closure provision relates ellesmere port site united kingdom company must comply environmental legislation countries operates operated annually reassesses program work required includes estimating creditadjusted risk free rate timing cost performing remediation work management use specialists develop estimates assumptions utilizing latest information available together experience recent costs believe assumptions environmental liabilities reasonable subjective judgements possible variations assumptions result materially different calculations liabilities reported costs future obligations discounted present values using company’s creditadjusted riskfree rate pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend service costs recognized employees render services necessary earn postemployment benefits prior service costs credits actuarial gains losses amortized average remaining life expectancy inactive participants using corridor method movements underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future inflation income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences notes consolidated financial statementscontinued financial statement carrying amounts relevant tax bases assets liabilities company evaluates need valuation allowance reduce deferred tax assets amount likely realized effect deferred taxes change tax rates recognized period includes enactment date company recognizes tax benefit tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements positions measured based largest benefit greater 50 likelihood realized upon settlement changes recognition measurement reflected period change judgment occurs company recognizes accrued interest penalties associated unrecognized tax benefits part income taxes consolidated statements income note 3 segment reporting geographical area data fuel specialties performance chemicals oilfield services segments operate markets actively seek growth opportunities although ultimate customers different octane additives segment revenues may conclude early part 2020 one remaining refinery customer transitions unleaded fuel specialties segment develops manufactures blends markets supplies range specialty chemicals products used additives wide range fuels performance chemicals segment provides effective technologybased solutions customers’ processes products focused personal care home care agrochemical metal extraction markets oilfield services segment develops markets products prevent loss mud drilling operations chemical solutions fracturing stimulation operations products oil gas production aid flow assurance asset integrity octane additives segment believe world’s producer tetra ethyl lead “tel” comprises sales tel use automotive gasoline provides services respect environmental remediation significant customers sales greater 10 net group sales last three financial years notes consolidated financial statementscontinued company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments identifiable assets relating tel operations included within octane additives segment table cannot separately reported periods shown tel operations produce tel automotive gasoline reported octane additives segment produce tel avtel product line reported fuel specialties segment notes consolidated financial statementscontinued company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources group legal compliance counsel investor relations • running corporate offices us europe • corporate development function since relate current trading activities reporting segments • corporate share information technology production technology safety health environment accounting human resources departments following tables analyze sales financial information location notes consolidated financial statementscontinued sales geographical area reported source transactions originated intercompany sales priced using appropriate pricing methodology eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable note 4 earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2019 2018 2017 average number antidilutive options excluded calculation diluted earnings per share 6270 0 9422 respectively note 5 property plant equipment property plant equipment consists following total net book value equipment december 31 2019 18 million 2018 36 million respect assets held finance leases depreciation charges 236 million 226 million 214 million 2019 2018 2017 respectively notes consolidated financial statementscontinued note 6 leases operating finance leases toll manufacturing facilities warehouse storage land buildings plant equipment leases remaining lease terms 11 years include options terminate leases within 1 year components lease expense follows supplemental cash flow information related leases follows notes consolidated financial statementscontinued supplemental balance sheet information related leases follows maturities lease liabilities follows december 31 2019 december 31 2019 additional operating finance leases yet commenced 00 million notes consolidated financial statementscontinued future lease payment non cancell able operating finance leases december 31 2018 follows accounted previous lease standard asc 840 amounts directly comparable included note 7 goodwill following table analyzes goodwill movement 2019 2018 1 gross cost net 87 million 03 million 2895 million historical accumulated amortization respect fuel specialties performance chemicals octane additives reporting segments respectively company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties performance chemicals oilfield notes consolidated financial statementscontinued services octane additives components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows clearly distinguished operationally financial reporting purposes rest company assesses goodwill impairment least annual basis initially based qualitative assessment determine whether likely fair value segment less carrying amount potential impairment identified impairment test performed company performed annual impairment assessment respect goodwill december 31 2019 2018 2017 impairment assessment concluded impairment goodwill respect reporting units believe appropriate assumptions used impairment assessments reasonable judgmental variations assumptions may result materially different calculations potential impairment charges notes consolidated financial statementscontinued note 8 intangible assets intangible assets comprise following amortization expense aggregate intangible asset amortization expense 230 million excluding impact foreign exchange translation balance sheet 263 million 283 million 2019 2018 2017 respectively 34 million 34 million 43 million respectively recognized cost goods sold remainder recognized selling general administrative expenses future amortization expense estimated follows next five years notes consolidated financial statementscontinued note 9 pension postemployment benefits united kingdom plan company maintains defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested several investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater longterm monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company 2019 company contributed 04 million 2018 10 million cash plan accordance agreement trustees notes consolidated financial statementscontinued net service cost twelve months ended december 31 2019 09 million twelve months ended december 31 2018 12 million twelve months ended december 31 2017 09 million recognized selling general administrative expenses within corporate costs following table shows income statement effect recognized within income net discount rate used represents annualized yield based cash flow matched methodology reference aa corporate bond spot curve regard duration plan’s liabilities inflation rate derived using similar cash flow matched methodology used discount rate regard difference yields fixed interest index linked united kingdom government gilts 025 change discount rate assumption would change pbo approximately 24 million net pension credit 2019 would change approximately 01 million 025 change level price inflation assumption would change pbo approximately 18 million net pension credit 2019 approximately 11 million notes consolidated financial statementscontinued movements pbo fair value plan assets follows current investment strategy plan obtain asset allocation approximately 85 debt securities insurance contracts 15 equity securities real estate order achieve predictable return assets due change plan’s investment strategy 2018 plan’s assets longer include indextracking funds december 31 2018 nil plan holds approximately 12 december 31 2018 9 plan’s assets debt securities issued nonus governments government agencies 5 plan’s assets invested one individual company’s investment funds vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund debt securities fixed income securities valued based quotations received independent pricing services dealers make markets securities classified level 1 corporate debt securities classified level 2 line industry standard equity backed securities common preferred stock market prices readily available measurement date valued last reported sale price official closing price primary market exchange actively traded financial derivatives classified level 2 certain investments measured fair value using net asset value per share equivalent categorized hierarchy notes consolidated financial statementscontinued asset backed securities company invested insurance contracts known buyin contracts value insurance contract based significant unobservable inputs including plan participant medical data addition observable inputs include expected return assets estimated value premium therefore classified contracts level 3 investments fair value estimates provided external parties subsequently reviewed approved management company also invests real estate low risk asset backed security classified level 1 fair values pension assets level input follows 1 certain investments measured fair value using net asset value per share equivalent categorized fair value table hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented statement financial position notes consolidated financial statementscontinued reconciliation fair value plan assets measured using significant unobservable inputs follows projected net service cost year ending december 31 2020 12 million recognized selling general administrative expenses following net pension credit recognized income expense total net pension credit 56 million innospec’s net income year ending december 31 2020 following benefit payments expected made notes consolidated financial statementscontinued german plan company also maintains unfunded defined benefit pension plan covering number current former employees germany “german plan” german plan closed new entrants assets net service cost german plan twelve months ended december 31 2019 01 million twelve months ended december 31 2018 02 million twelve months ended december 31 2017 02 million following table shows income statement effect recognized within income expense movements pbo german plan follows plans december 31 2019 postemployment obligations european businesses liability 45 million december 31 2018 44 million year ended december 31 2019 recognized actuarial loss 02 million comprehensive loss relation performance chemicals pension france company contributions defined contribution schemes 2019 104 million 2018 86 million notes consolidated financial statementscontinued note 10 income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 144 million unrecognised tax benefits would impact effective tax rate recognised ax audits opened italian tax authorities respect innospec performance chemicals italia srl acquired part huntsman business relation period 2011 2013 inclusive uring third quarter 2019 italian tax authorities opened tax audit 2014 company believes additional tax approximately 05 million together associated interest 02 million may arise result 2011 audit amount recorded december 31 2017 2018 company determined additional tax approximately 09 million together associated interest 03 million may arise result 2012 2013 audits collectively 2019 company recorded additional tax 10 million relation 2014 together additional interest 05 million relating years additional tax arising consequence tax audit would reimbursed previous owner terms sale purchase agreement unrecognized tax benefit 34 million recorded together notes consolidated financial statementscontinued indemnification asset amount reflect fact final liability would reimbursed previous owner n fourth quarter 2018 company recorded uncertain tax position 108 million portion primarily related potential adjustment could arise consequence tax act retrospective adjustment filed 2017 us federal income tax returns permissible additional interest 09 million recorded period ending december 31 2019 innospec performance chemicals france sas innospec saintmihiel sas currently subject corporate income tax audit france respect 2016 2018 company currently anticipates adjustments arising tax audit would result material change company’s financial position december 31 2019 additional tax arising consequence 2016 tax audit would reimbursed previous owner terms sale purchase agreement company us subsidiaries remain open examination irs years 2016 onwards company’s subsidiaries foreign tax jurisdictions open examination including spain 2015 onwards france 2016 onwards germany 2016 onwards switzerland 2017 onwards united kingdom 2018 onwards sources income taxes follows components income tax expense summarized follows notes consolidated financial statementscontinued cash payments income taxes 376 million 354 million 242 million 2019 2018 2017 respectively effective tax rate varies us federal statutory rate factors indicated 2019 effective tax rate negatively impacted change tax estimates 2018 compared actual filed returns including impact final us fdii regulations released first quarter 2019 company recorded additional tax interest arising consequence tax audit innospec performance chemicals italia srl negative impact tax rate 2019 although finally determined tax liabilities would reimbursed previous owner terms sale purchase agreement additional interest arising uncertain tax position relating potential adjustment could arise consequence tax act negative impact effective tax rate 2019 united kingdom tax legislation prohibits tax deduction relation certain intercompany interest expense arising also negative impact effective tax rate 2019 items material impact effective tax rate notes consolidated financial statementscontinued details deferred tax assets liabilities analyzed follows company assesses available positive negative evidence estimate whether sufficient future taxable income generated permit use existing deferred tax assets significant piece objective negative evidence evaluated cumulative losses incurred certain jurisdictions threeyear period ended december 31 2019 objective evidence limits ability consider subjective evidence projections future growth basis evaluation december 31 2019 valuation allowance 08 million recorded recognise portion deferred tax asset likely realized amount deferred tax asset considered realizable however could adjusted estimates future taxable income carry forward period reduced increased objective negative evidence form cumulative losses longer present additional weight given subjective evidence projections growth notes consolidated financial statementscontinued gross net operating loss carry forwards 337 million result deferred tax asset 73 million net valuation allowances net operating loss carry forwards arose us five company’s foreign subsidiaries net operating loss carry forwards 39 million arose state tax losses prior periods certain company’s us subsidiaries expected sufficient taxable profits generated us state net operating loss carry forwards 38 million relieved expiration period 2031 2038 remaining 01 million us net operating losses carried forward indefinitely without expiration net operating loss carry forwards 298 million arose five company’s foreign subsidiaries expected sufficient taxable profits generated 264 million net operating loss carry forwards relieved losses carried forward indefinitely without expiration note 11 longterm debt longterm debt consists following september 26 2019 innospec certain subsidiaries entered new agreement 2500 million revolving credit facility september 25 2023 option request extension facility year facility also contains accordion feature whereby company may elect increase total available borrowings aggregate amount 1250 million september 30 2019 company repaid preexisting term loan revolving credit facility amended restated december 14 2016 replaced borrowing new credit facility result refinancing costs 15 million capitalized amortized expected life facility notes consolidated financial statementscontinued amortization expense 10 million 07 million 06 million 2019 2018 2017 respectively charge included interest expense see note 2 notes consolidated financial statements obligations company credit facility secured obligations guaranteed certain subsidiaries company amounts available revolving facility may borrowed us dollars euros british pounds freely convertible currencies company’s credit facility contains restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined credit facility include material adverse change assets operations financial condition facility contains number restrictions limit ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda shall greater 301 2 ratio ebitda net interest shall less 401 management determined company breached covenants throughout period december 31 2019 expect breach covenants next 12 months weighted average rate interest borrowings 314 december 31 2019 332 december 31 2018 payments interest longterm debt 48 million 65 million 72 million 2019 2018 2017 respectively notes consolidated financial statementscontinued net cash outflows respect refinancing costs 15 million 00 million 00 million 2019 2018 2017 respectively note 12 plant closure provisions company continuing plans close manufacturing facilities sites around world operations expected decommissioned liability estimated closure costs lnnospec’s manufacturing facilities includes costs decontamination environmental remediation activities “remediation” result principal site giving rise remediation liabilities manufacturing site ellesmere port united kingdom management believes last ongoing manufacturer tel also remediation liabilities much smaller scale respect manufacturing sites us europe movements provisions summarized follows amounts due within one year refer provisions expenditure expected arise within one year balance sheet date remediation costs recognized cost goods sold provisions remediation represent company’s liability environmental liabilities asset retirement obligations charge period 2019 represents accretion expense recognized 43 million 01 million primarily respect changes expected cost scope future remediation activities 2017 recognized 28 million asset retirement obligations relation acquisition european performance chemicals business increase value tangible assets acquired depreciated remaining useful economic life assets recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required notes consolidated financial statementscontinued associated future expected costs comply environmental legislation countries operates operated remediation expenditure utilized provisions 44 million 31 million 24 million 2019 2018 2017 respectively note 13 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels 2018 company evaluated fair value hierarchy levels assigned assets liabilities concluded transfers levels 1 2 3 notes consolidated financial statementscontinued following table presents carrying amount fair values company’s assets liabilities measured recurring basis following methods assumptions used estimate fair values financial instruments cash equivalents carrying amount approximates fair value shortterm maturities instruments longterm debt finance leases longterm debt principally comprises revolving credit facility shown net deferred finance costs capitalized fair value longterm debt approximates carrying value finance leases relate certain fixed assets fuel specialties oilfield services segments carrying amount longterm debt finance leases approximates fair value derivatives fair value derivatives relating foreign currency forward exchange contracts interest rate swaps derived current settlement prices comparable contracts using current assumptions foreign currency forward exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net notes consolidated financial statementscontinued cash positions movements carrying amounts fair values contracts largely due changes exchange rates us dollar interest rate swaps prior year related contracts taken hedge interest rate risk portion longterm debt stock equivalent units fair values stock equivalent units calculated balance sheet date using either blackscholes monte carlo method note 14 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign currency exchange rate raw material cost exposures need arises company previously entered interest rate swap contracts reduce interest rate risk core debt december 31 2019 interest rate swaps place swaps settled year decem ber 31 2018 interest rate swaps notional value 1325 million place interest rate swaps place hedge interest rate risk term loan notional value matched repayment profile term loan interest rate swaps designated hedging instruments impact comprehensive loss 2019 loss 19 million 2018 gain 04 million company enters various foreign currency forward exchange contracts minimize currency exchange rate exposure expected future cash flows december 31 2019 foreign currency forward exchange contracts notional value 1089 million place december 31 2018 1087 million maturity dates one year date inception foreign currency forward exchange contracts designated hedging instruments impact income statement 2019 gain 15 million 2018 loss 18 million december 31 2019 december 31 2018 company hold raw material derivatives company sells range specialty chemicals major oil refineries chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures intended minimize bad debt risk collateral generally required note 15 commitments contingencies environmental remediation obligations commitments respect environmental remediation obligations disclosed note 12 notes consolidated financial statements notes consolidated financial statementscontinued capital commitments estimated additional cost complete work progress december 31 2019 40 million 2018 60 million contingencies legal matters involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims material pending legal proceedings company subsidiaries party property subject possible however adverse resolution unexpectedly large number individual items could aggregate material adverse effect results operations particular year quarter guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties december 31 2019 guarantees recognized liabilities consolidated financial statements amounted 47 million december 31 2018 50 million remaining terms fixed maturity guarantees vary 1 month 4 years guarantees fixed expiry date terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company note 16 stockholders’ equity notes consolidated financial statementscontinued december 31 2019 company authorized common stock 40000000 shares 2018 40000000 note 17 stockbased compensation plans stock option plans company two stock option plans omnibus longterm incentive plan shares ave plan 2008 currently grants awards stock options vesting periods ranging 24 months 5 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount aggregate number shares common stock reserved issuance granted plans 2550000 fair value stock options measured grant date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following weighted average assumptions used determine grantdate fair value options following table summarizes transactions company’s stock option plans year ended december 31 2019 december 31 2019 41525 stock options exercisable 8530 performance conditions attached company’s policy issue shares treasury stock holders stock options exercise options sufficient treasury stock available company issue previously unissued shares stock holders stock options exercise options notes consolidated financial statementscontinued stock option compensation cost 2019 2018 2017 66 million 49 million 42 million respectively total intrinsic value options exercised 2019 2018 2017 35 million 32 million 29 million respectively total compensation cost related nonvested stock options yet recognized december 31 2019 86 million cost expected recognized weightedaverage period 176 years 2019 company recorded current tax benefit 15 million respect stock option compensation 2018 12 million amount inclusive excess tax benefits forfeits accounted adjustment charge period forfeits occur stock equivalent units company awards stock equivalent units “seus” time longterm performance incentive seus cash settled equity instruments conditional certain performance criteria linked innospec inc share price seus vesting periods ranging 11 months 4 years cases seus granted expire within 10 years date grant grants may priced market value premium discount limit number seus granted december 31 2019 liability seus 246 million included accrued liabilities consolidated balance sheets cash settled fair value seus measured balance sheet date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following assumptions used determine fair value seus balance sheet dates notes consolidated financial statementscontinued following table summarizes transactions company’s seus year ended december 31 2019 december 31 2019 31649 seus exercisable 28881 performance conditions attached charges seus spread life award subject revaluation fair value quarter revaluation may result charge credit income statement quarter dependent upon share price performance criteria seu compensation cost 2019 2018 2017 201 million 57 million 66 million respectively total intrinsic value seus exercised 2019 2018 2017 73 million 27 million 17 million respectively weightedaverage remaining vesting period nonvested seus 188 years forfeits accounted adjustment charge period forfeits occur note 18 reclassifications accumulated comprehensive loss reclassifications accumulated comprehensive loss 2019 1 items included computation net periodic pension cost see note 9 notes consolidated financial statements additional information notes consolidated financial statementscontinued changes accumulated comprehensive loss 2019 net tax note 19 recently issued accounting pronouncements june 2016 financial accounting standards board issued accounting standards update asu 201613 financial instruments credit losses asc topic 326 replaces incurred loss impairment methodology current gaap methodology reflects expected credit losses requires consideration broader range reasonable supportable information inform credit loss estimates required use forwardlooking expected credit loss model accounts receivables loans financial instruments credit losses relating availableforsale debt securities also recorded allowance credit losses rather reduction amortized cost basis securities standard effective company beginning january 1 2020 adoption standard applied using modified retrospective approach cumulativeeffect adjustment retained earnings effective date align credit loss methodology new standard evaluated impact standard consolidated financial statements including accounting policies processes systems expec impact financial statements adopting standard minimal note 20 related party transactions mr robert paller nonexecutive director company since november 1 2009 company retained continues retain smith gambrell russell llp “sgr” law firm mr paller holds position 2019 2018 2017 company incurred fees payable sgr 05 million 03 million 04 million respectively december 31 2019 december 31 2018 company amounts outstanding due sgr notes consolidated financial statementscontinued mr david f landless nonexecutive director company since january 1 2016 nonexecutive director ausurus group limited owns european metal recycling limited “emr” company sold scrap metal emr 2019 value 04 million 2018 03 million 2017 00 million tendering process operated periodically select best buyer sale scrap metal company december 31 2019 emr owed 00 million december 31 2018 01 million note 21 subsequent events company evaluated subsequent events date consolidated financial statements issued concluded additional disclosures required relation events subsequent balance sheet date item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders innospec inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets innospec inc subsidiaries “company” december 31 2020 2019 related consolidated statements income comprehensive income equity cash flows two years period ended december 31 2020 including related notes collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2020 2019 results operations cash flows two years period ended december 31 2020 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued coso change accounting principle discussed note 2 consolidated financial statements company changed manner accounts leases 2019 basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee relates accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates plant closure provision described notes 2 13 consolidated financial statements december 31 2020 provision place 585 million relating company’s legal responsibility remediation hazardous substances wastes currently formerly owned operated properties principal site giving rise environmental remediation liabilities manufacturing site ellesmere port united kingdom company must comply environmental legislation countries operates operated annually reassesses program work required included management developing estimates assumptions relating cost timing performing remediation work management used specialists develop estimates costs future obligations discounted present values using company’s creditadjusted riskfree rate principal considerations determination performing procedures relating plant closure provision critical audit matter significant estimates assumptions made management valuation plant closure provision turn led high degree auditor judgment subjectivity effort evaluating management’s assumptions including program work required costs performing work ii timing performing remediation work iii creditadjusted riskfree rate used discount future obligations professionals specialized skill knowledge used assist performing procedures ii evaluating audit evidence obtained addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating valuation plant closure provision procedures also included among others use professionals specialized skill knowledge assist testing management’s process determining plant closure provision included evaluating appropriateness valuation method reasonableness significant assumptions including assessment program work required cost timing assumptions developed management’s specialists ii evaluating scope competency objectivity management’s specialists based work engaged perform iii evaluating creditadjusted riskfree rate applied calculate present value future obligations pricewaterhousecoopers llp signed manchester united kingdom february 17 2021 served company’s auditor since 2019 report independent registered public accounting firm board directors shareholders innospec inc opinion consolidated financial statements audited accompanying consolidated statements income comprehensive income cash flows equity innospec inc subsidiaries company year ended december 31 2018 related notes collectively consolidated financial statements opinion consolidated financial statements present fairly material respects results operations company cash flows year ended december 31 2018 conformity us generally accepted accounting principles basis opinion consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audit public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud audit included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audit also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audit provides reasonable basis opinion kpmg llp served company’s auditor 2011 2019 manchester united kingdom february 20 2019 consolidated statements income millions except share per share data accompanying notes integral part statements consolidated statements comprehensive income millions accompanying notes integral part statements consolidated balance sheets millions except share per share data accompanying notes integral part statements consolidated statements cash flows millions accompanying notes integral part statements consolidated statements equity millions accompanying notes integral part statements notes consolidated financial statements note 1 nature operations innospec develops manufactures blends markets supplies fuel additives oilfield chemicals personal care products specialty chemicals products sold primarily oil gas exploration production companies oil refiners personal care home care companies formulators agrochemical metal extraction preparations chemical industrial companies throughout world fuel additives help improve fuel efficiency boost engine performance reduce harmful emissions performance chemicals business provides effective technologybased solutions customers’ processes products focused personal care home care agrochemical metal extraction markets oilfield services business supplies drilling production chemicals make exploration production costefficient environmentally friendly octane additives business manufactures fuel additive use automotive gasoline provides services respect environmental remediation principal reportable segments fuel specialties performance chemicals oilfield services octane additives ceased trading june 30 2020 note 2 accounting policies basis preparation consolidated financial statements prepared accordance generally accepted accounting principles “gaap” united states america going concern basis include subsidiaries company controlling financial interest significant intercompany accounts balances eliminated upon consolidation accordance gaap united states america results operations acquired disposed business included excluded consolidated financial statements date acquisition disposal use estimates preparation consolidated financial statements accordance gaap united states america requires management make estimates assumptions affect amounts reported consolidated financial statements accompanying notes actual results could differ estimates revenue recognition revenues primarily derived manufacture sale specialty chemicals recognize revenue control product transferred customer amount reflects consideration expect collect customer control generally transferred customer title transfers may include physical possession customer right payment customer accepted product customer assumed risks rewards ownership supplier managed inventory arrangements customers facilitate ondemand product availability cases inventory resides customer site although title transferred entitled payment invoiced product evaluated contract terms arrangements determined control transfers customer uses product time notes consolidated financial statementscontinued revenue recognized contracts generally include one performance obligation providing specialty chemicals performance obligation satisfied point time products shipped delivered consumed customer depending underlying contracts customers payment terms beyond 30 days provide extended payment terms year contracts include financing component contracts include variable consideration form rebates record rebates point sale reduction sales reasonably estimate amount rebate estimates based best judgment time sale includes anticipated well historical performance taxes assessed governmental authority concurrent sales customers including sales use valueadded revenuerelated excise taxes collected us customer included net sales reflected accrued liabilities remitted appropriate governmental authority responsible shipping handling costs title transferred account fulfilment costs include cost goods sold components net sales amounts billed customers relating shipping handling classified net sales shipping handling costs incurred company classified cost goods sold components cost goods sold cost goods sold comprised raw material costs including inbound freight duty nonrecoverable taxes inbound handling costs associated receipt raw materials packaging materials manufacturing costs including labor costs maintenance utility costs plant engineering overheads amortization expense certain intangible assets warehousing outbound shipping costs handling costs inventory losses provisions costs customer claims also recognized cost goods line item components selling general administrative expenses selling expenses comprise costs direct sales force sales management customer service departments required support also comprises commission charges costs sales conferences trade shows cost advertising promotions amortization expense certain intangible assets cost bad doubtful debts general administrative expenses comprise cost support functions including accounting human resources information technology cost group functions including corporate management finance tax treasury investor relations legal departments provision management’s best estimate legal settlement costs litigation company involved accounted administrative expense line item notes consolidated financial statementscontinued research development expenses research development testing costs expensed income statement incurred earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period foreign currencies company’s policy foreign exchange differences arising translation balance sheets entities functional currencies us dollar taken separate equity reserve cumulative translation adjustment entities us dollar functional currency gains losses translation occur gains losses monetary assets relating currencies us dollar taken income statement incomeexpense net gains losses intercompany foreign currency loans longterm nature company intend settle foreseeable future also recorded accumulated comprehensive loss foreign exchange gains losses also included income net income statement stockbased compensation plans company accounts employee stock options stock equivalent units fair value method stock options fair valued grant date fair value recognized straightline vesting period option stock equivalent units fair valued balance sheet date fair value spread remaining vesting period unit business combinations acquisition method accounting requires recognize assets acquired liabilities assumed acquisition date fair values goodwill measured excess consideration transferred acquisition date net fair values assets acquired liabilities assumed determination fair values certain assets liabilities usually based significant estimates provided management forecast revenue profit determining fair value intangible assets income approach generally used may incorporate use discounted cash flow method applying discounted cash flow method estimated future cash flows residual values intangible asset discounted present value using discount rate appropriate business acquired cash flow projections based management’s estimates economic market conditions including revenue growth rates operating margins capital expenditures working capital requirements cash equivalents investment securities maturities three months less purchased considered cash equivalents trade accounts receivable company records trade accounts receivable net realizable value maintains allowances customers making required notes consolidated financial statementscontinued payments company determines adequacy allowances periodically evaluating customer receivable considering customer’s financial condition credit history current economic conditions credit losses effective date january 1 2020 applied accounting standards update asu 201613 financial instruments credit losses asc topic 326 replaces incurred loss impairment methodology previous gaap methodology reflects expected credit losses requires consideration broader range reasonable supportable information inform credit loss estimates standard adopted using prospective application principally impacts allowance trade accounts receivables upon adoption adjustment made opening retained earnings january 1 2020 result implementing standard company recognize material change allowance within trade accounts receivable january 1 2020 trade accounts receivable shown net 45 million allowance december 31 2020 allowance remains immaterial financial statements company exposed credit losses primarily sales products company’s expected loss allowance methodology trade accounts receivable developed using historical collection experience current future economic market conditions review current status customers’ receivables due shortterm nature receivables estimate accounts receivable amounts may collected based aging accounts receivable balances financial condition customers additionally allowance included account company’s historic track record credit losses balances aged sufficiently considered aging based approach company considered current expected future economic market conditions surrounding covid19 pandemic determined estimate credit losses significantly impacted inventories stated lower cost fifo method market value cost includes materials labor appropriate proportion plant overheads company accrues volume discounts probable required volume attained amount reasonably estimated discounts recorded reduction cost materials based projected purchases period agreement inventories adjusted estimated obsolescence written market value based estimates future demand market conditions property plant equipment property plant equipment stated cost less accumulated depreciation provided estimated useful lives assets using straightline method allocated cost goods sold operating notes consolidated financial statementscontinued expenses cost additions improvements capitalized maintenance repairs charged expenses incurred assets sold retired associated cost accumulated depreciation removed consolidated financial statements related gain loss included earnings estimated useful lives major classes depreciable assets follows goodwill deemed indefinite life subject least annual impairment assessments reporting unit level company considers reporting units consistent reportable segments components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows sufficiently distinguished operationally financial reporting purposes rest company initially perform qualitative assessment determine whether likely likelihood 50 percent fair value segment less carrying amount prior performing quantitative goodwill impairment test annual measurement date impairment assessment goodwill relating fuel specialties performance chemicals oilfield services segments december 31 year factors utilized qualitative assessment process include macroeconomic conditions industry market considerations cost factors overall financial performance company specific events quantitative test required assess fair value based projected posttax cash flows discounted company’s weighted average cost capital fair value techniques require management judgment estimates including revenue growth rates projected operating margins changes working capital discount rates would develop assumptions considering recent financial performance industry growth estimates intangible assets intangible assets deemed finite lives amortized using straightline method estimated useful lives company capitalizes software development costs intangible assets including licenses subsequent establishment technological feasibility assets tested potential impairment events occur circumstances change suggest impairment may occurred order facilitate testing potential impairment company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value assets cash flows lower impairment loss may recognized amount impairment loss difference fair value carrying value notes consolidated financial statementscontinued assets fair values determined using posttax cash flows discounted company’s weighted average cost capital events occur circumstances change may cause reduction periods assets amortized result noncash impairment carrying value reduction amortization periods would impact cash flows estimated useful lives major classes assets follows leases effective date january 1 2019 applied accounting standards update asu 201602 revision lease accounting asc topic 842 replaces asc topic 840 leases asu 201602 requires lessees recognize rightofuse “rou” asset lease liability leases meet definition shortterm lease standard adopted using modified retrospective transition method company electing adjust comparative periods taken election apply requirements shortterm leases taken election separate related nonlease components lease components standard material impact consolidated balance sheet december 31 2019 impact consolidated income statements significant impact recognition rou assets lease liabilities related deferred taxes thereon operating leases accounting finance leases remained substantially unchanged operating lease liabilities recognized new standard considered debt determine arrangement lease inception present value future lease payments operating leases included operating lease rou assets operating lease liabilities current noncurrent consolidated balance sheet december 31 2020 carrying value assets finance leases included property plant equipment finance lease liabilities current noncurrent consolidated balance sheet december 31 2020 operating lease rou assets operating lease liabilities recognized based present value future lease payments remaining lease term leases renewal options early termination break clauses assessed notes consolidated financial statementscontinued term lease based options exercised reasonably certain leases provide implicit interest rate use incremental borrowing rate based information available point recognition determining present value future payments operating lease rou asset excludes lease incentives initial direct costs incurred lease expense lease payments recognized straightline basis lease term unless payments variable per agreement lease payments linked index inflationary rate used value asset liability inception lease payments linked specific index inflationary rate vary term agreement included actual value future period circumstances future expected payments may dependent factors example production volumes case used minimum future expected payments value asset recognize rou asset operating lease liability shortterm leases length one year less associated cost recognized incurred income statement deferred finance costs relating debt financing capitalized amortized using effective interest method expected life debt financing facility amortization charge included interest expense income statement impairment longlived assets company reviews carrying value longlived assets including buildings equipment whenever changes circumstances suggest carrying values may impaired order facilitate test company groups together assets lowest possible level cash flow information available undiscounted future cash flows expected result asset groups compared carrying value asset groups lower impairment loss may recognized amount impairment loss difference fair value carrying value asset groups fair values determined using posttax cash flows discounted company’s weighted average cost capital derivative instruments time company uses various derivative instruments including forward currency contracts options interest rate swaps commodity swaps manage certain exposures instruments entered company’s corporate risk management policy minimize exposure speculative trading purposes company recognizes derivatives either current noncurrent assets liabilities consolidated balance sheet measures instruments fair value changes fair value derivatives designated hedges meet requirements hedge accounting recognized earnings derivatives designated hedges tested effectiveness quarterly basis marked market ineffective portion derivative’s change value recognized earnings effective portion recognized comprehensive income hedged item recognized earnings notes consolidated financial statementscontinued environmental compliance remediation environmental compliance costs include ongoing maintenance monitoring similar costs recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated vast majority plant closure provision relates ellesmere port site united kingdom company must comply environmental legislation countries operates operated annually reassesses program work required includes estimating creditadjusted risk free rate timing cost performing remediation work management use specialists develop estimates assumptions utilizing latest information available together experience recent costs believe assumptions environmental liabilities reasonable subjective judgements possible variations assumptions result materially different calculations liabilities reported costs future obligations discounted present values using company’s creditadjusted riskfree rate pension plans postemployment benefits company recognizes funded status defined benefit postretirement plans consolidated balance sheets changes funded status comprehensive income measurement date plan’s funded status company’s fiscal yearend service costs recognized employees render services necessary earn postemployment benefits prior service costs credits actuarial gains losses amortized average remaining life expectancy inactive participants using corridor method movements underlying plan asset value projected benefit obligation “pbo” dependent actual return investments well assumptions respect discount rate annual member mortality rates future return assets future inflation income taxes company provides income taxes recognizing deferred tax assets liabilities expected future tax consequences temporary differences financial statement carrying amounts relevant tax bases assets liabilities company evaluates need valuation allowance reduce deferred tax assets amount likely realized effect deferred taxes change tax rates recognized period includes enactment date company recognizes tax benefit tax position likely tax position sustained examination taxing authorities based technical merits position tax benefits recognized financial statements positions measured based largest benefit greater 50 likelihood realized upon settlement changes recognition measurement reflected period change judgment occurs company recognizes accrued interest penalties associated unrecognized tax benefits part income taxes consolidated statements income notes consolidated financial statementscontinued note 3 segment reporting geographical area data fuel specialties performance chemicals oilfield services segments operate markets actively seek growth opportunities although ultimate customers different octane additives segment ceased trading longer reporting segment july 1 2020 reported quarterly report form 10q quarter ended june 30 2020 fuel specialties segment develops manufactures blends markets supplies range specialty chemicals products used additives wide range fuels performance chemicals segment provides effective technologybased solutions customers’ processes products focused personal care home care agrochemical metal extraction markets oilfield services segment develops markets chemical solutions fracturing stimulation operations products oil gas production aid flow assurance maintain asset integrity products prevent loss mud drilling operations octane additives business ceased trading longer reporting segment july 1 2020 production tel use motor gasoline finished legacy costs related operations recorded operating expenses within corporate costs significant customers sales greater 10 net group sales last three financial years notes consolidated financial statementscontinued company evaluates performance segments based operating income following table analyzes sales financial information company’s reportable segments notes consolidated financial statementscontinued identifiable assets relating tetra ethyl lead “tel” operations included within fuel specialties segment 2020 octane additives segment 2019 2018 shown table octane additives ceased trading june 30 2020 longer reporting segment date result appropriate report identifiable assets relating remaining tel production within fuel specialties july 1 2020 tel operations historically produced tel automotive gasoline reported octane additives segment years presented avtel product line reported fuel specialties segment company includes within corporate costs line item costs • managing group company securities listed nasdaq registered sec • presidentceo’s office group finance group human resources group legal compliance counsel investor relations • running corporate offices us europe • corporate development function since relate current trading activities reporting segments • corporate share information technology product technology safety health environment accounting human resources departments following tables analyze sales financial information location notes consolidated financial statementscontinued sales geographical area reported source transactions originated intercompany sales priced using appropriate pricing methodology eliminated consolidated financial statements identifiable assets directly associated operations geographical area goodwill allocated geographical location grounds would impracticable note 4 earnings per share basic earnings per share based weighted average number common shares outstanding period diluted earnings per share includes effect options dilutive outstanding period per share amounts computed follows 2020 2019 2018 average number antidilutive options excluded calculation diluted earnings per share 17980 6270 0 respectively note 5 restructuring 2020 company recorded charge 213 million restructuring octane additives segment line end manufacturing sale tel use notes consolidated financial statementscontinued motor gasoline result octane additives segment ceased trading longer reporting segment july 1 2020 production tel continue sales aviation market “avtel” reported within fuel specialties segment restructuring charge comprises future committed costs environmental monitoring 20 million remediation facilities 75 million contract termination costs 72 million impairment tangible assets 20 million costs redundancy due downsizing tel operations 26 million year ended december 31 2020 utilization unwinding discounting material note 6 property plant equipment property plant equipment consists following total net book value equipment december 31 2020 10 million 2019 18 million respect assets held finance leases depreciation charges 247 million 236 million 226 million 2020 2019 2018 respectively impairment charge 20 million incurred 2020 result octane additives segment ceasing trade june 30 2020 note 7 leases operating finance leases toll manufacturing facilities warehouse storage land buildings plant equipment leases remaining lease terms 10 years include options terminate leases within 1 year notes consolidated financial statementscontinued components lease expense follows supplemental cash flow information related leases follows notes consolidated financial statementscontinued supplemental balance sheet information related leases follows maturities lease liabilities follows december 31 2020 notes consolidated financial statementscontinued december 31 2020 additional operating finance leases yet commenced 00 million future lease payment noncancellable operating finance leases december 31 2019 follows december 31 2019 additional operating finance leases yet commenced 00 million note 8 goodwill following table analyzes goodwill movement 2020 2019 notes consolidated financial statementscontinued 1 gross cost net 87 million 03 million 2895 million historical accumulated amortization respect fuel specialties performance chemicals octane additives reporting segments respectively company’s reporting units level goodwill tested impairment consistent reportable segments fuel specialties performance chemicals oilfield services octane additives segment ceased trading longer reporting segment july 1 2020 reported quarterly report form 10q quarter ended june 30 2020 result gross cost accumulated impairment losses written nil components segment including products markets competitors similar economic characteristics segments therefore reflect lowest level operations cash flows clearly distinguished operationally financial reporting purposes rest company assesses goodwill impairment least annual basis initially based qualitative assessment determine whether likely fair value segment less carrying amount potential impairment identified impairment test performed company performed annual impairment assessment respect goodwill december 31 2020 2019 2018 impairment assessment concluded impairment goodwill respect reporting units due triggering events covid19 pandemic reduction oil prices impact business performed step one impairment review june 30 2020 impairment assessment indicated fair values substantially exceeded carrying values operating segments believe appropriate assumptions used impairment assessments reasonable judgmental variations assumptions may result materially different calculations potential impairment charges notes consolidated financial statementscontinued note 9 intangible assets intangible assets comprise following amortization expense amortization expense 209 million 230 million 263 million 2020 2019 2018 respectively excluding impact foreign exchange translation balance sheet 29 million 34 million 34 million amortization respectively recognized cost goods sold remainder recognized selling general administrative expenses quarter ended june 30 2020 company performed impairment review assets operating segment indicated fair values substantially exceeded carrying values operating segments company also performed impairment review businesses within oilfield services segment result reduction demand drilling related products discounted cash flow analysis performed determine fair value assets indicated intangible assets arising acquisition strata control services inc impaired assets relate technology 100 million customer relationships 98 million impairment indicated businesses within oilfield services operating segment notes consolidated financial statementscontinued net book amount category intangible assets shown following table future amortization expense estimated follows next five years note 10 pension postemployment benefits united kingdom plan company maintains defined benefit pension plan “plan” covering number current former employees united kingdom although also much smaller pension arrangements us overseas plan closed future service accrual large number deferred current pensioners projected benefit obligation “pbo” based final salary years credited service reduced social security benefits according plan formula normal retirement age 65 provisions made early retirement plan’s assets invested several investment management companies funds holding united kingdom overseas equities united kingdom overseas fixed interest securities index linked securities property unit trusts cash equivalents trustees’ investment policy seek achieve specified objectives investing suitable mixture real monetary assets trustees recognize returns real assets expected greater longterm monetary assets likely volatile mixture across asset classes nevertheless provide level returns required plan meet liabilities acceptable level risk trustees acceptable level cost company 2020 company contributed 00 million 2019 04 million cash plan accordance agreement trustees notes consolidated financial statementscontinued net service cost twelve months ended december 31 2020 12 million twelve months ended december 31 2019 09 million twelve months ended december 31 2018 12 million recognized selling general administrative expenses within corporate costs following table shows income statement effect recognized within income net discount rate used represents annualized yield based cash flow matched methodology reference aa corporate bond spot curve regard duration plan’s liabilities model used develop discount rate year ending december 31 2019 updated year ending december 31 2020 management’s experts used data source prior year bond rate used determine discount rate however data source uses inputs different range categories bonds impact change resulted increase 013 discount rate assumption resulted reduction pension benefit obligation around 14 million inflation rate derived using similar cash flow matched methodology used discount rate regard difference yields fixed interest index linked united kingdom government gilts 025 change discount rate assumption would change pbo december 31 2020 approximately 26 million net pension credit 2021 would change approximately 04 million 025 change level price inflation assumption would change pbo december 31 2020 approximately 19 million net pension credit 2021 approximately 12 million notes consolidated financial statementscontinued movements pbo fair value plan assets follows current investment strategy plan obtain asset allocation approximately 85 debt securities insurance contracts 15 equity securities real estate order achieve predictable return assets plan holds approximately 11 december 31 2019 12 plan’s assets debt securities issued nonus governments government agencies 5 plan’s assets invested one individual company’s investment funds vast majority assets market approach adopted assess fair value assets inputs quoted market prices actual securities held relevant fund debt securities fixed income securities valued based quotations received independent pricing services dealers make markets securities classified level 1 corporate debt securities classified level 2 line industry standard equity backed securities common preferred stock market prices readily available measurement date valued last reported sale price official closing price primary market notes consolidated financial statementscontinued exchange actively traded financial derivatives classified level 2 certain investments measured fair value using net asset value per share equivalent categorized hierarchy asset backed securities company invested insurance contracts known buyin contracts value insurance contract based significant unobservable inputs including plan participant medical data addition observable inputs include expected return assets estimated value premium therefore classified contracts level 3 investments fair value estimates provided external parties subsequently reviewed approved management company also invests real estate low risk asset backed security classified level 1 fair values pension assets level input follows notes consolidated financial statementscontinued 1 certain investments measured fair value using net asset value per share equivalent categorized fair value table hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented statement financial position reconciliation fair value plan assets measured using significant unobservable inputs follows notes consolidated financial statementscontinued projected net service cost year ending december 31 2021 16 million recognized selling general administrative expenses following net pension credit recognized income expense total net pension credit 44 million innospec’s net income year ending december 31 2021 following benefit payments expected made german plan company also maintains unfunded defined benefit pension plan covering number current former employees germany “german plan” german plan closed new entrants assets net service cost german plan twelve months ended december 31 2020 01 million twelve months ended december 31 2019 01 million twelve months ended december 31 2018 02 million following table shows income statement effect recognized within income expense notes consolidated financial statementscontinued movements pbo german plan follows plans december 31 2020 postemployment obligations european businesses liability 53 million december 31 2019 45 million year ended december 31 2020 recognized actuarial loss 02 million comprehensive loss relation performance chemicals pension france company contributions defined contribution schemes 2020 103 million 2019 104 million notes consolidated financial statementscontinued note 11 income taxes rollforward unrecognized tax benefits associated accrued interest penalties follows 160 million unrecognised tax benefits would impact effective tax rate recognised previously disclosed nonus subsidiary innospec performance chemicals italia srl subject ongoing tax audit relation period 2011 2014 inclusive company determined additional tax interest penalties totaling 34 million may arise consequence tax audit includes reduction interest accrued 02 million increase foreign exchange movements 02 million recorded 2020 additional tax arising consequence tax audit would reimbursed previous owner terms sale purchase agreement indemnification asset amount recorded financial statements reflect arrangement previously disclosed 2018 company recorded unrecognized tax benefit relation potential adjustment could arise consequence tax act notes consolidated financial statementscontinued retrospective adjustment filed 2017 us federal income tax returns permissible company determined additional tax interest penalties totaling 124 million may arise relation item includes increase interest accrued 07 million 2020 previously disclosed 2015 company recorded unrecognized tax benefit 12 million relation additional tax could arisen historical impairment value certain company’s nonus subsidiaries reversed upon challenge tax authorities 2020 company released provision 12 million full together accrued interest 02 million thereon following review value company’s investments confirmed historical impairment value undertaken 2005 appropriate nonsignificant items inclusive interest penalties total 02 million company us subsidiaries remain open examination irs years 2017 onwards statute limitations company’s subsidiaries foreign tax jurisdictions open examination including spain 2016 onwards france 2017 onwards germany 2018 onwards switzerland 2018 onwards uk 2018 onwards sources income taxes follows components income tax expense summarized follows notes consolidated financial statementscontinued cash payments income taxes 234 million 376 million 354 million 2020 2019 2018 respectively effective tax rate varies us federal statutory rate factors indicated mix taxable profits generated different geographical jurisdictions group operates continues significant impact effective tax rate 2020 significant proportion group’s profits generated nonus subsidiaries located higher tax jurisdictions negatively impacted tax rate foreign income inclusions arise year certain types income earned overseas taxable us tax regulations foreign tax credits fully partially offset incremental us taxes foreign income inclusions utilization foreign tax credits varies year dependent number variable factors difficult predict may prevent offset effective tax rate negatively impacted net impact foreign inclusions post foreign tax credit usage 2020 effective tax rate negatively impacted change tax estimates 2019 compared finalized positions determined purpose filing tax returns notes consolidated financial statementscontinued increase enacted income tax rate uk company’s deferred tax liabilities increased 2020 tax charge 27 million negative impact effective tax rate effective tax also positively impacted increased claims innovation reliefs uk us reduced tax charge 2020 40 million consequence company operations outside us exposed foreign currency fluctuations positive effect effective tax rate 2020 items material impact effective tax rate details deferred tax assets liabilities analyzed follows notes consolidated financial statementscontinued company assesses available positive negative evidence estimate whether sufficient future taxable income generated permit use existing deferred tax assets significant piece objective negative evidence evaluated cumulative losses incurred certain jurisdictions threeyear period ended december 31 2020 objective evidence limits ability consider subjective evidence projections future growth basis evaluation december 31 2020 valuation allowance 11 million recorded recognise portion deferred tax asset likely realized amount deferred tax asset considered realizable however could adjusted estimates future taxable income carry forward period reduced increased objective negative evidence form cumulative losses longer present additional weight given subjective evidence projections growth gross net operating loss carry forwards 671 million result deferred tax asset 87 million net valuation allowances net operating loss carry forwards arose us five company’s foreign subsidiaries net operating loss carry forwards 365 million arose us expected sufficient taxable profits generated us 107 million state net operating loss carry forwards relieved expiration period 2031 2040 remaining us state net operating losses us federal net operating losses carried forward indefinitely without expiration net operating loss carry forwards 306 million arose five company’s foreign subsidiaries 13 million generated 2020 expected sufficient taxable profits generated 244 million net operating loss carry forwards relieved losses carried forward indefinitely without expiration note 12 longterm debt longterm debt consists following december 31 2020 company repaid borrowings revolving credit facility result related deferred finance costs 13 million included within current noncurrent assets balance sheet date notes consolidated financial statementscontinued september 16 2020 innospec certain subsidiaries agreed extend term revolving credit facility described september 25 2024 costs 03 million extending term capitalized balance sheet amortized expected life facility september 30 2019 company repaid preexisting term loan revolving credit facility amended restated december 14 2016 replaced borrowing current credit facility described result refinancing costs 15 million capitalized amortized expected life facility september 26 2019 innospec certain subsidiaries entered new agreement 2500 million revolving credit facility september 25 2023 option request extension facility year facility also contains accordion feature whereby company may elect increase total available borrowings aggregate amount 1250 million amortization expense 04 million 10 million 07 million 2020 2019 2018 respectively charge included interest expense see note 2 notes consolidated financial statements obligations company credit facility secured obligations guaranteed certain subsidiaries company amounts available revolving facility may borrowed us dollars euros british pounds freely convertible currencies company’s credit facility contains restrictive clauses may constrain activities limit operational financial flexibility facility obliges lenders comply request utilization finance unless event default outstanding events default defined credit facility include material adverse change assets operations financial condition facility contains number restrictions limit notes consolidated financial statementscontinued ability amongst things subject certain limited exceptions incur additional indebtedness pledge assets security guarantee obligations third parties make investments undergo merger consolidation dispose assets materially change line business addition credit facility contains terms breached would result becoming repayable demand requires among matters compliance following financial covenant ratios measured quarterly basis 1 ratio net debt ebitda shall greater 301 2 ratio ebitda net interest shall less 401 management determined company breached covenants throughout period december 31 2020 expect breach covenants next 12 months weighted average rate interest borrowings 220 december 31 2020 314 december 31 2019 payments interest longterm debt 08 million 48 million 65 million 2020 2019 2018 respectively net cash outflows respect refinancing costs 03 million 15 million 00 million 2020 2019 2018 respectively note 13 plant closure provisions company continuing plans close manufacturing facilities sites around world operations expected decommissioned liability estimated closure costs innospec’s manufacturing facilities includes costs decontamination environmental remediation activities “remediation” result principal site giving rise remediation liabilities manufacturing site ellesmere port united kingdom management believes last ongoing manufacturer tel also remediation liabilities much smaller scale respect manufacturing sites us europe movements provisions summarized follows notes consolidated financial statementscontinued amounts due within one year refer provisions expenditure expected arise within one year balance sheet date remediation costs recognized cost goods sold provisions remediation represent company’s liability environmental liabilities asset retirement obligations charge period 2020 represents accretion expense recognized 37 million 14 million primarily respect changes expected cost scope future remediation activities octane additives segment ceased trading longer reporting segment july 1 2020 result oneoff charge 75 million restructuring activities related legacy production tel use motor gasoline recognize environmental liabilities probable costs reasonably estimated asset retirement obligations legal obligation costs reasonably estimated company anticipate program work required associated future expected costs comply environmental legislation countries operates operated remediation expenditure utilized provisions 41 million 44 million 31 million 2020 2019 2018 respectively note 14 fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date exit price company utilizes midmarket pricing convention valuing majority assets liabilities measured reported fair value company utilizes market data assumptions market participants would use pricing asset liability including assumptions risk risks inherent inputs valuation technique inputs readily observable market corroborated generally unobservable company primarily applies market approach recurring fair value measurements endeavors utilize best available information accordingly company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs company able classify fair value balances based observability inputs company gives highest priority unadjusted quoted prices active markets identical assets liabilities level 1 measurement lowest priority unobservable inputs level 3 measurement financial assets liabilities classified entirety based lowest level input significant fair value measurement company’s assessment significance particular input fair value measurement requires judgment may affect valuation fair value assets liabilities placement within fair value hierarchy levels 2019 company evaluated fair value hierarchy levels assigned assets liabilities concluded transfers levels 1 2 3 notes consolidated financial statementscontinued following table presents carrying amount fair values company’s assets liabilities measured recurring basis following methods assumptions used estimate fair values cash equivalents carrying amount approximates fair value shortterm maturities instruments longterm debt finance leases longterm debt principally comprises revolving credit facility shown net deferred finance costs capitalized fair value longterm debt approximates carrying value finance leases relate certain fixed assets fuel specialties oilfield services segments carrying amount longterm debt finance leases approximates fair value derivatives fair value derivatives relating foreign currency forward exchange contracts interest rate swaps derived current settlement prices comparable contracts using current assumptions foreign currency forward exchange contracts primarily relate contracts entered hedge future known transactions hedge balance sheet net cash positions movements carrying amounts fair values contracts largely due changes exchange rates us dollar interest rate swaps prior year related contracts taken hedge interest rate risk portion longterm debt notes consolidated financial statementscontinued stock equivalent units fair values stock equivalent units calculated balance sheet date using either blackscholes monte carlo method note 15 derivative instruments risk management company limited involvement derivative instruments trade company use derivatives manage certain interest rate foreign currency exchange rate raw material cost exposures need arises company previously entered interest rate swap contracts reduce interest rate risk core debt december 31 2020 december 31 2019 interest rate swaps place swaps settled 2019 interest rate swaps previously place hedge interest rate risk term loan notional value matched repayment profile term loan interest rate swaps prior years designated hedging instruments impact comprehensive loss 2019 loss 19 million company enters various foreign currency forward exchange contracts minimize currency exchange rate exposure expected future cash flows december 31 2020 foreign currency forward exchange contracts notional value 1272 million place december 31 2019 1089 million maturity dates one year date inception foreign currency forward exchange contracts designated hedging instruments impact income statement 2020 loss 15 million 2019 gain 15 million december 31 2020 december 31 2019 company hold raw material derivatives company sells range specialty chemicals major oil refiners chemical companies throughout world credit limits ongoing credit evaluation account monitoring procedures intended minimize bad debt risk collateral generally required note 16 commitments contingencies environmental remediation obligations commitments respect environmental remediation obligations disclosed note 13 notes consolidated financial statements capital commitments estimated additional cost complete work progress december 31 2020 147 million 2019 40 million notes consolidated financial statementscontinued contingencies legal matters involved time claims legal proceedings result incidental conduct business including business commercial litigation employee product liability claims material pending legal proceedings company subsidiaries party property subject possible however adverse resolution unexpectedly large number individual items could aggregate material adverse effect results operations particular year quarter guarantees company certain company’s consolidated subsidiaries contingently liable certain obligations affiliated companies primarily form guarantees debt performance contracts entered normal business practice includes guarantees nonus excise taxes customs duties december 31 2020 guarantees recognized liabilities consolidated financial statements amounted 99 million december 31 2019 47 million remaining terms fixed maturity guarantees vary 1 month 3 years guarantees fixed expiry date terms guarantee arrangements generally company would required perform affiliated company fail fulfill obligations arrangements cases guarantee arrangements recourse provisions would enable company recover payments made terms guarantees securities held guaranteed parties’ assets company affiliates numerous longterm sales purchase commitments various business activities expected fulfilled adverse consequences material company note 17 stockholders’ equity notes consolidated financial statementscontinued december 31 2020 company authorized common stock 40000000 shares 2019 40000000 note 18 stockbased compensation plans stock option plans company two stock option plans omnibus longterm incentive plan sharesave plan 2008 currently grants awards stock options vesting periods ranging 2 5 years cases stock options granted expire within 10 years date grant grants sole discretion compensation committee board directors grants may priced market value premium discount aggregate number shares common stock reserved issuance granted plans 2550000 fourth quarter 2020 number stock options granted 14 employees february 2018 modified extend vesting period two years incremental compensation cost resulting modifications 24 million resulting performance targets achieved 2020 extended future period fair value stock options measured grant date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following weighted average assumptions used determine grantdate fair value options following table summarizes transactions company’s stock option plans year ended december 31 2020 notes consolidated financial statementscontinued december 31 2020 42657 stock options exercisable 15611 performance conditions attached company’s policy issue shares treasury stock holders stock options exercise options sufficient treasury stock available company issue previously unissued shares stock holders stock options exercise options stock option compensation cost 2020 2019 2018 58 million 66 million 49 million respectively total intrinsic value options exercised 2020 2019 2018 49 million 35 million 32 million respectively total compensation cost related nonvested stock options yet recognized december 31 2020 68 million cost expected recognized weightedaverage period 159 years 2020 company recorded current tax benefit 16 million respect stock option compensation 2019 15 million amount inclusive excess tax benefits forfeits accounted adjustment charge period forfeits occur stock equivalent units company awards stock equivalent units “seus” time longterm performance incentive seus cash settled equity instruments conditional certain performance criteria linked innospec inc share price seus vesting periods ranging 2 5 years cases seus granted expire within 10 years date grant grants may priced market value premium discount limit number seus granted december 31 2020 liability seus 172 million included accrued liabilities consolidated balance sheets cash settled fourth quarter 2020 number seus granted 61 employees february 2018 modified extend vesting period two years adjusted compensation cost resulting modifications recognised fair valuation balance sheet date based extended vesting period fair value seus measured balance sheet date using either blackscholes model cases performance criteria dependent upon external factors company’s stock price using monte carlo model following assumptions used determine fair value seus balance sheet dates notes consolidated financial statementscontinued following table summarizes transactions company’s seus year ended december 31 2020 december 31 2020 53146 seus exercisable 46614 performance conditions attached charges seus spread life award subject revaluation fair value quarter revaluation may result charge credit income statement quarter dependent upon share price performance criteria seu compensation cost 2020 2019 2018 19 million 201 million 57 million respectively total intrinsic value seus exercised 2020 2019 2018 63 million 73 million 27 million respectively weightedaverage remaining vesting period nonvested seus 198 years forfeits accounted adjustment charge period forfeits occur note 19 reclassifications accumulated comprehensive loss reclassifications accumulated comprehensive loss 2020 notes consolidated financial statementscontinued 1 items included computation net periodic pension cost see note 9 notes consolidated financial statements additional information changes accumulated comprehensive loss 2020 net tax note 20 recently issued accounting pronouncements december 2019 financial accounting standards board issued accounting standards update asu 201912 simplifying accounting income taxes topic 740 removes certain exceptions general principles topic 740 improves consistent application simplifies gaap areas topic 740 clarifying amending existing guidance asu effective fiscal years beginning december 15 2020 interim periods within fiscal years early adoption permitted company applying asu january 1 2021 currently evaluating impact adopting new accounting guidance consolidated financial statements including accounting policies processes systems expect adoption material impact company’s disclosures note 21 related party transactions mr patrick williams executive director company since april 2009 nonexecutive director advansix chemicals manufacturer since february 2020 company purchased product advansix 03 million december 31 2020 company owed 00 million advansix mr robert paller nonexecutive director company since november 1 2009 company retained continues retain smith gambrell russell llp “sgr” law firm mr paller holds position 2020 2019 2018 company incurred fees payable sgr 08 million 05 million 03 million respectively december 31 2020 company owed 01 million sgr december 31 2019 00 million notes consolidated financial statementscontinued mr david f landless nonexecutive director company since january 1 2016 nonexecutive director ausurus group limited owns european metal recycling limited “emr” company sold scrap metal emr 2020 value 02 million 2019 04 million 2018 03 million tendering process operated periodically select best buyer sale scrap metal company december 31 2020 emr owed 00 million december 31 2019 00 million note 22 subsequent events company evaluated subsequent events date consolidated financial statements issued concluded additional disclosures required relation events subsequent balance sheet date item 9 nannanitem 15 exhibits financial statement schedules reports form 8k 1 financial statements consolidated financial statements octel corp subsidiaries related notes thereto together report thereon pricewaterhousecoopers llp dated february 10 2003 appearing pages 18 46 2002 annual report stockholders incorporated reference item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulations sx 3 exhibits 21 transfer distribution agreement dated april 24 1998 great lakes chemical corporation glcc registrant 3 31 amended restated certificate incorporation registrant 1 32 amended restated bylaws registrant 1 41 form common stock certificate 2 42 form rights agreement registrant first chicago trust company new york rights agent 2 43 form certificate designations rights preferences series junior participating preferred stock registrant 2 44 indenture dated may 1 1998 among registrant octel developments plc ibj schroder bank trust company trustee 4 45 form 10 senior notes contained exhibit 44 exhibit 4 46 registration rights agreement dated april 30 1998 among registrant octel developments plc initial purchasers 1 47 purchase agreement dated april 30 1998 among initial purchasers octel developments plc registrant 4 71 share purchase agreement oboadler holdings limited associated octel company limited relating sale purchase whole issued share capital oboadler company limited dated june 1 1999 6 72 100000000 term loan agreement octel corp octel associates barclays capital barclays bank plc others dated june 3 1999 6 73 us250000000 facilities agreement dated 29 october 2001 octel corp barclays capital acting mandated lead arranger barclays bank plc acting agent security agent11 101 tax disaffiliation agreement glcc registrant 1 102 corporate services transition agreement glcc registrant 1 103 supply agreement glcc registrant supply ethylene dibromide 1 104 supply agreement glcc registrant supply anhydrous hydrogen bromide 1 105 supply agreement supply 10 sodium hydroxide solution 1 106 ethyl corporation market sales agreement 4 107 octel corp non employee directors stock option plan 4 108 employment agreement associated octel limited steve w williams geoff j hignett graham leathes robert lee 1 109 employment agreement associated octel limited dennis j kerrison 1 1010 agreement glcc registrant toll manufacturing stadis product 4 1011 octel corp time restricted stock option plan 3 1012 octel corp performance related stock option plan 3 1013 associated octel savingsrelated stock option plan 3 1014 form octel corp approved company share option plan 8 1015 form octel corp profit sharing share scheme 8 1016 employment agreement associated octel company limited alan g jarvis 9 1017 employment offer letter associated octel company limited john p tayler 9 1018 consultancy agreement octel corp robert e bew 9 1019 employment offer letter associated octel company limited ian watling10 1020 employment offer letter associated octel company limited philip j boon10 1021 executive services agreement richard shone 1022 contract employment sharon todd 1023 contract employment ian mcrobbie 1024 contract employment paul jennings 1025 contract employment alexander dobbie 121 statement regarding computation financial ratios 131 2002 annual report octel corp 132 opinion ernst young llp 1997 combined financial statements 9 211 subsidiaries registrant 241 powers attorney directors officers registrant 4 991 consolidated financial statements oboadler company limited june 30 1999 year ended 7 992 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 dennis kerrison 993 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 paul jennings notes 1 incorporated reference companys amendment dated april 21 1998 previously filed form 10a 2 incorporated reference companys form 10a previously filed april 10 1998 3 incorporated reference companys amendment dated may 4 1998 previously filed form 10a 4 incorporated reference companys form s4 previously filed october 1 1998 5 filed companys form 10q november 10 1998 6 filed companys form 8k november 12 1999 7 filed companys form 8ka january 20 2000 8 filed companys form 10k march 26 1999 9 filed companys form 10k march 27 2000 10 filed companys form 10k march 26 2001 11 filed companys form 10k march 25 2002 b reports form 8k august 13 2002 company filed form 8k regarding adoption semiannual dividend policy signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized octel corp dennis j kerrison registrant dennis j kerrison date president chief executive march 28 2003 officer director pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated march 28 2003 paul w jennings paul w jennings vice president chief financial officer march 28 2003 robert e bew dr robert e bew chairman director march 28 2003 dennis j kerrison dennis j kerrison president chief executive officer director march 28 2003 martin hale martin hale director march 28 2003 samuel haubold samuel haubold director march 28 2003 james puckridge james puckridge director march 28 2003 benito fiore dr benito fiore director march 28 2003 charles hale charles hale director certification dennis j kerrison pursuant securities exchange act 1934 rule 13a 14 15d14 dennis j kerrison certify 1 reviewed annual report form 10k octel corp 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officer disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 28 2003 dennis j kerrison dennis j kerrison president chief executive officer certification paul w jennings pursuant securities exchange act 1934 rule 13a 14 15d14 paul w jennings certify 1 reviewed annual report form 10k octel corp 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared e evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date f presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officer disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function c significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 28 2003 paul w jennings paul w jennings vice president chief financial officeritem 15 exhibits financial statement schedules reports form 8k b reports form 8k october 8 2003 company filed form 8k announcing financial results three nine months ended september 30 2003 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized octel corp dennis j kerrison registrant dennis j kerrison date march 15 2004 president chief executive officer director pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicateditem 15 exhibits financial statement schedules reports form 8k 1 financial statements consolidated financial statements octel corp subsidiaries related notes thereto together report thereon pricewaterhousecoopers llp dated march 31 2005 appearing pages 39 61 2004 annual report stockholders incorporated reference item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulations sx 3 exhibits notes 1 incorporated reference company’s amendment dated april 21 1998 previously filed form 10a 2 incorporated reference company’s form 10a previously filed april 10 1998 3 incorporated reference company’s amendment dated may 4 1998 previously filed form 10a 4 incorporated reference company’s form s4 previously filed october 1 1998 5 filed company’s form 10q november 10 1998 6 filed company’s form 8k november 12 1999 7 filed company’s form 8ka january 20 2000 8 filed company’s form 10k march 26 1999 9 filed company’s form 10k march 27 2000 10 filed company’s form 8k july 21 2000 11 filed company’s form 10k march 26 2001 12 filed company’s form 10k march 25 2002 13 filed company’s form 10k march 28 2003 14 filed company’s form 8k february 9 2004 15 filed company’s proxy statement march 15 2004 16 filed company’s form 8k november 19 2004 b reports form 8k october 26 2004 company filed form 8k announcing financial results three nine months ended september 30 2003 company also announced form 8k board directors octel corp authorized additional 150 million repurchase octel’s shares pursuant buyback program november 18 2004 company filed form 8k announcing appointment andrew hartley vice president general counsel november 19 2004 company filed form 8k announcing disposal certain noncore petroleum specialties businesses certain manufacturing assets swedish subsidiary bycosin ab known octel sweden ab december 22 2004 company filed form 8k announcing entered agreement purchase finetex inc consideration 200 million signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized octel corp dennis j kerrison registrant dennis j kerrison date president chief executive officer march 31 2005 director pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicateditem 15 exhibits financial statement schedules 1 financial statements consolidated financial statements innospec inc subsidiaries related notes thereto together report thereon pricewaterhousecoopers llp dated march 16 2007 appear pages 50 95 2006 form 10k stockholders incorporated item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulations sx 3 exhibits notes 1 incorporated reference company’s amendment dated april 21 1998 previously filed form 10a 2 incorporated reference company’s form 10a previously filed april 10 1998 3 incorporated reference company’s amendment dated may 4 1998 previously filed form 10a 4 incorporated reference company’s form s4 previously filed october 1 1998 5 filed company’s form 10q november 10 1998 6 filed company’s form 8k november 12 1999 7 filed company’s form 8ka january 20 2000 8 filed company’s form 10k march 26 1999 9 filed company’s form 10k march 27 2000 10 filed company’s form 8k july 21 2000 11 filed company’s form 10k march 26 2001 12 filed company’s form 10k march 25 2002 13 filed company’s form 10k march 28 2003 14 filed company’s form 8k february 9 2004 15 filed company’s proxy statement march 15 2004 16 filed company’s form 8k november 19 2004 17 filed company’s form 10k march 31 2005 18 filed company’s form 8k april 12 2005 19 filed company’s form 8k september 27 2005 20 filed company’s form 8k october 12 2005 21 filed company’s form 8k december 7 2005 22 filed company’s form 8k december 19 2005 23 filed company’s form 8k february 17 2006 24 filed company’s form 8k june 30 2006 25 filed company’s form 8k august 21 2006 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc paul w jennings registrant paul w jennings date president chief executive officer march 16 2007 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 16 2007 ian p cleminson ian p cleminson executive vice president chief financial officer robert e bew dr robert e bew chairman director hugh g c aldous hugh aldous director charles hale charles hale director martin hale martin hale director samuel haubold samuel haubold director james puckridge james puckridge directoritem 15 exhibits financial statement schedules 1 financial statements consolidated financial statements innospec inc subsidiaries related notes thereto together report thereon pricewaterhousecoopers llp dated february 25 2008 appear pages 49 94 2007 form 10k stockholders incorporated item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulations sx 3 exhibits notes 1 incorporated reference company’s amendment dated april 21 1998 previously filed form 1012ba 2 incorporated reference company’s form 1012ba previously filed april 10 1998 3 incorporated reference company’s amendment dated may 4 1998 previously filed form 1012ba 4 incorporated reference company’s form s4 previously filed october 1 1998 5 filed company’s form 10q november 10 1998 6 filed company’s form 8k november 12 1999 7 filed company’s form 8ka january 20 2000 8 filed company’s form 10k march 26 1999 9 filed company’s form 10k march 27 2000 10 filed company’s form 8k july 21 2000 11 filed company’s form 10k march 26 2001 12 filed company’s form 10k march 25 2002 13 filed company’s form 10k march 28 2003 14 filed company’s form 8k february 9 2004 15 filed company’s proxy statement march 15 2004 16 filed company’s form 8k november 19 2004 17 filed company’s form 10k march 31 2005 18 filed company’s form 8k april 12 2005 19 filed company’s form 8k september 27 2005 20 filed company’s form 8k october 12 2005 21 filed company’s form 8k december 7 2005 22 filed company’s form 8k december 19 2005 23 filed company’s form 8k february 17 2006 24 filed company’s form 8k june 30 2006 25 filed company’s form 8k august 21 2006 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc paul w jennings registrant paul w jennings date president chief executive officer february 25 2008 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 25 2008 ian p cleminson ian p cleminson executive vice president chief financial officer robert e bew dr robert e bew chairman director hugh g c aldous hugh aldous director peter fearn peter fearn director charles hale charles hale director martin hale martin hale director samuel haubold samuel haubold director james puckridge james puckridge director joachim roeser joachim roeser directoritem 15 exhibits financial statement schedules 1 financial statements consolidated financial statements innospec inc subsidiaries related notes thereto together report thereon pricewaterhousecoopers llp dated february 20 2009 appear pages 52 97 2008 form 10k stockholders incorporated item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulations sx 3 exhibits notes 1 incorporated reference company’s amendment dated april 21 1998 previously filed form 1012ba 2 incorporated reference company’s form 1012ba previously filed april 10 1998 3 incorporated reference company’s amendment dated may 4 1998 previously filed form 1012ba 4 incorporated reference company’s form s4 previously filed october 1 1998 5 filed company’s form 8k november 12 1999 6 filed company’s form 8k march 3 2008 7 filed company’s form 10k march 26 2001 8 filed company’s form 10k march 28 2003 9 filed company’s proxy statement march 15 2004 10 filed company’s form 8k november 19 2004 11 filed company’s form 10k march 31 2005 12 filed company’s form 8k september 27 2005 13 filed company’s form 8k october 12 2005 14 filed company’s form 8k june 30 2006 15 filed company’s proxy statement march 31 2008 16 filed company’s 8k february 10 2009 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc paul w jennings registrant paul w jennings date president chief executive officer february 20 2009 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 20 2009item 15 exhibits financial statement schedules 1 financial statements consolidated financial statements innospec inc subsidiaries related notes thereto together report thereon pricewaterhousecoopers llp dated february 19 2010 appear pages 53 102 2009 form 10k stockholders incorporated item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulations sx 3 exhibits notes 1 incorporated reference company’s amendment dated april 21 1998 previously filed form 1012ba 2 incorporated reference company’s form 1012ba previously filed april 10 1998 3 incorporated reference company’s amendment dated may 4 1998 previously filed form 1012ba 4 incorporated reference company’s form s4 previously filed october 1 1998 5 filed company’s form 8k november 12 1999 6 filed company’s form 8k march 3 2008 7 filed company’s form 10k march 26 2001 8 filed company’s form 10k march 28 2003 9 filed company’s proxy statement march 15 2004 10 filed company’s form 8k november 19 2004 11 filed company’s form 10k march 31 2005 12 filed company’s form 8k september 27 2005 13 filed company’s form 8k october 12 2005 14 filed company’s form 8k june 30 2006 15 filed company’s proxy statement march 31 2008 16 filed company’s 8k february 10 2009 17 filed company’s 8k march 24 2009 18 filed company’s 8k april 3 2009 19 filed company’s 8k may 27 2009 20 filed company’s 8k june 12 2009 21 filed company’s 8k september 14 2009 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant patrick williams date president chief executive officer february 19 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 19 2010 robert e bew dr robert e bew chairman director ian p cleminson ian p cleminson executive vice president chief financial officer mark bracewell mark bracewell group financial controller principal accounting officer hugh g c aldous hugh aldous director martin hale martin hale director robert paller robert paller director james c puckridge james puckridge director joachim roeser joachim roeser directoritem 15 exhibits financial statement schedules 1 financial statements consolidated financial statements innospec inc subsidiaries related notes thereto together report thereon pricewaterhousecoopers llp dated february 18 2011 appear pages 51 94 2010 form 10k stockholders incorporated item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulations sx 3 exhibits notes 1 incorporated reference company’s amendment dated april 21 1998 previously filed form 1012ba 2 filed company’s form 10k march 26 2001 3 filed company’s form 10k march 28 2003 4 filed company’s proxy statement march 15 2004 5 filed company’s form 10k march 31 2005 6 filed company’s form 8k october 12 2005 7 filed company’s form 8k june 30 2006 8 filed company’s proxy statement march 31 2008 9 filed company’s 8k february 10 2009 10 filed company’s 8k april 3 2009 11 filed company’s 8k may 27 2009 12 filed company’s 8k june 12 2009 13 filed company’s 8k september 14 2009 management contract compensatory plan signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant patrick williams date president chief executive officer february 18 2011 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 18 2011item 15 exhibits financial statement schedules notes 1 incorporated reference company’s amendment dated april 21 1998 previously filed form 1012ba 2 filed company’s form 10k march 26 2001 3 filed company’s form 10k march 28 2003 4 filed company’s proxy statement march 15 2004 5 filed company’s form 10k march 31 2005 6 filed company’s form 8k october 12 2005 7 filed company’s form 8k june 30 2006 8 filed company’s proxy statement march 31 2008 9 filed company’s 8k december 19 2011 10 filed company’s 8k april 3 2009 11 filed company’s 8k may 27 2009 12 filed company’s 8k june 12 2009 13 filed company’s 8k september 14 2009 14 filed company’s 10k february 18 2011 15 filed company’s 10k march 31 2005 16 filed company’s 8k june 17 2011 management contract compensatory plan signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant patrick williams date president chief executive officer february 17 2012 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 17 2012item 15 exhibits financial statement schedules notes 1 filed company’s form 10k march 16 2006 2 filed company’s form 10q may 10 2011 3 filed company’s form 8k may 27 2009 4 filed company’s form 10k march 28 2003 5 filed company’s form 10k march 31 2005 6 filed company’s form 8k october 12 2005 7 filed company’s form 8k april 3 2009 8 filed company’s form 8k june 30 2006 9 filed company’s proxy statement april 1 2011 10 filed company’s proxy statement march 31 2008 11 filed company’s form 10k february 17 2012 12 filed company’s form 8k december 19 2011 13 filed company’s form 8k september 14 2009 14 filed company’s form 10k february 18 2011 15 filed company’s form 10q november 1 2012 16 filed company’s form 8k june 17 2011 denotes management contract compensatory plan signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant patrick williams date president chief executive officer february 13 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 13 2013 milton c blackmore milton c blackmore chairman director ian p cleminson ian p cleminson executive vice president chief financial officer mark bracewell mark bracewell group financial controller principal accounting officer hugh g c aldous hugh g c aldous director martin hale martin hale director lawrence j padfield lawrence j padfield director robert paller robert paller director joachim roeser joachim roeser directoritem 15 exhibits financial statement schedules notes 1 filed company’s form 10k march 16 2006 2 filed company’s form 10q may 10 2011 3 filed company’s form 8k may 27 2009 4 filed company’s form 10k march 28 2003 5 filed company’s form 10k march 31 2005 6 filed company’s form 8k october 12 2005 7 filed company’s form 8k april 3 2009 8 filed company’s form 8k june 30 2006 9 filed company’s proxy statement april 1 2011 10 filed company’s proxy statement march 31 2008 11 filed company’s form 10k february 17 2012 12 filed company’s form 8k december 19 2011 13 filed company’s form 8k september 14 2009 14 filed company’s form 10k february 18 2011 15 filed company’s form 10q november 1 2012 16 filed company’s form 8k june 17 2011 17 filed company’s form 8k august 29 2013 denotes management contract compensatory plan signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant date patrick williams president chief executive officer february 13 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 13 2014 milton c blackmore milton c blackmore chairman director ian p cleminson ian p cleminson executive vice president chief financial officer philip curran philip curran group financial controller principal accounting officer hugh g c aldous hugh g c aldous director martin hale martin hale director lawrence j padfield lawrence j padfield director robert paller robert paller director joachim roeser joachim roeser directoritem 15 exhibits financial statement schedules denotes management contract compensatory plan signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant patrick williams date president chief executive officer february 17 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 17 2016 milton c blackmore milton c blackmore chairman director patrick williams patrick williams president chief executive officer principal executive officer director ian p cleminson ian p cleminson executive vice president chief financial officer philip curran philip curran group financial controller principal accounting officer hugh g c aldous hugh g c aldous director martin hale martin hale director david landless david landless director lawrence j padfield lawrence j padfield director robert paller robert paller director joachim roeser joachim roeser directoritem 15 exhibits financial statement schedules denotes management contract compensatory plan item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant patrick williams date president chief executive officer february 15 2017 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 15 2017 milton c blackmore milton c blackmore chairman director patrick williams patrick williams president chief executive officer principal executive officer director ian p cleminson ian p cleminson executive vice president chief financial officer christopher j parsons christopher j parsons head group finance principal accounting officer hugh g c aldous hugh g c aldous director david f landless david f landless director lawrence j padfield lawrence j padfield director robert paller robert paller director joachim roeser joachim roeser directoritem 15 exhibits financial statement schedules denotes management contract compensatory plan item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant patrick williams date president chief executive officer february 15 2018 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 15 2018 milton c blackmore milton c blackmore chairman director patrick williams patrick williams president chief executive officer principal executive officer director ian p cleminson ian p cleminson executive vice president chief financial officer christopher j parsons christopher j parsons head group finance principal accounting officer hugh g c aldous hugh g c aldous director david f landless david f landless director lawrence j padfield lawrence j padfield director robert paller robert paller director joachim roeser joachim roeser directoritem 15 exhibits financial statement schedules denotes management contract compensatory plan item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant patrick williams date president chief executive officer february 20 2019 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 20 2019 milton c blackmore milton c blackmore chairman director patrick williams patrick williams president chief executive officer principal executive officer director ian p cleminson ian p cleminson executive vice president chief financial officer christopher j parsons christopher j parsons head group finance principal accounting officer hugh g c aldous hugh g c aldous director david f landless david f landless director lawrence j padfield lawrence j padfield director robert paller robert paller director joachim roeser joachim roeser directornanitem 15 exhibits financial statement schedules 1 financial statements consolidated financial statements innospec inc subsidiaries related notes thereto together report thereon pricewaterhousecoopers llp dated march 16 2006 appear pages 49 90 2005 form 10 k stockholders incorporated item 8 2 financial statement schedules financial statement schedules omitted since information required submitted included financial statements either applicable required rules regulations sx 3 exhibits notes 1 incorporated reference company’s amendment dated april 21 1998 previously filed form 10a 2 incorporated reference company’s form 10a previously filed april 10 1998 3 incorporated reference company’s amendment dated may 4 1998 previously filed form 10a 4 incorporated reference company’s form s4 previously filed october 1 1998 5 filed company’s form 10q november 10 1998 6 filed company’s form 8k november 12 1999 7 filed company’s form 8ka january 20 2000 8 filed company’s form 10k march 26 1999 9 filed company’s form 10k march 27 2000 10 filed company’s form 8k july 21 2000 11 filed company’s form 10k march 26 2001 12 filed company’s form 10k march 25 2002 13 filed company’s form 10k march 28 2003 14 filed company’s form 8k february 9 2004 15 filed company’s proxy statement march 15 2004 16 filed company’s form 8k november 19 2004 17 filed company’s form 10k march 31 2005 18 filed company’s form 8k april 12 2005 19 filed company’s form 8k september 27 2005 20 filed company’s form 8k october 12 2005 21 filed company’s form 8k december 7 2005 22 filed company’s form 8k december 19 2005 b reports form 8k report form 8k furnished october 12 2005 relating letter appointment president petroleum specialties business report form 8k furnished october 25 2005 relating third quarter results press release december 7 2005 company filed form 8k announcing appointment james f lawler executive vice president chief financial officer december 19 2005 company filed form 8k announcing refinancing arrangements january 30 2005 company filed form 8k announcing name change innospec inc february 7 2006 company filed form 8k announcing financial results three twelve months ended december 31 2005 february 8 2006 company filed form 8k regarding subpoena documents relation oil food program february 10 2006 company filed form 8k regarding press release announcing prepared presentation investors february 17 2006 company filed form 8k announcing board directors innospec inc authorized acceleration company’s stock repurchase program repurchase 300000 common stock april 26 2006 company also announced form 8k board directors innospec inc declared final dividend full year 2005 008 per share common stock march 15 2006 company filed form 8k regarding press release announcing switch listing nasdaq signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc paul w jennings registrant paul w jennings date president chief executive officer march 16 2006 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicatednanitem 15 exhibits financial statement schedules denotes management contract compensatory plan signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant patrick williams date president chief executive officer february 17 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 17 2015 milton c blackmore milton c blackmore chairman director ian p cleminson ian p cleminson executive vice president chief financial officer philip curran philip curran group financial controller principal accounting officer hugh g c aldous hugh g c aldous director martin hale martin hale director lawrence j padfield lawrence j padfield director robert paller robert paller director joachim roeser joachim roeser directoritem 15 exhibits financial statement schedules 104 contract employment mr patrick williams dated october 11 2005 incorporated reference exhibit 991 company’s form 8k october 12 2005 executive service agreement dated april 2 2009 incorporated reference exhibit 101 company’s form 8k april 3 2009 105 contract employment mr ian cleminson dated june 30 2006 incorporated reference exhibit 992 company’s form 8k june 30 2006 106 innospec inc performance related stock option plan 2008 incorporated reference appendix company’s proxy statement april 1 2011 107 innospec inc company share option plan 2008 incorporated reference appendix b company’s proxy statement april 1 2011 108 innospec inc nonemployee directors’ stock option plan 2008 incorporated reference appendix c company’s proxy statement april 1 2011 109 innospec inc sharesave plan 2008 incorporated reference appendix company’s proxy statement march 31 2008 1010 innospec inc executive coinvestment stock plan 2004 amended first amendment 2006 incorporated reference exhibit 1010 company’s form 10k february 17 2012 1011 contract employment mr david e williams dated september 17 2009 incorporated reference exhibit 101 company’s form 8k september 14 2009 1012 form indemnification agreement individual officer incorporated reference exhibit 101 company’s form 8k filed february 27 2014 1013 form indemnification agreement individual director incorporated reference exhibit 102 company’s form 8k filed february 27 2014 1014 form indemnification agreement individual officer director incorporated reference exhibit 103 company’s form 8k filed february 27 2014 1015 employment contract brian watt incorporated reference exhibit 104 company’s form 10q filed may 7 2014 1016 innospec inc 2014 longterm incentive plan incorporated reference exhibit 105 company’s form 10q filed may 7 2014 1017 executive service letter mr philip j boon dated october 15 2015 incorporated reference exhibit 1024 company’s form 10k february 17 2016 1018 250000000 multicurrency revolving facility agreement various lenders dated september 26 2019 incorporated reference exhibit 101 company’s form 8k september 30 2019 1019 innospec inc 2018 omnibus longterm incentive plan incorporated reference exhibit 101 registrant’s form 8k filed may 10 2018 1020 innospec inc sharesave plan 2008 amended restated incorporated reference exhibit 102 registrant’s form 8k filed may 10 2018 letter regarding change certifying accountant dated april 10 2019 incorporated reference exhibit 161 company’s form 8k filed april 11 2019 211 principal subsidiaries registrant filed herewith 231 consent independent registered public accounting firm pricewaterhousecoopers llp filed herewith 232 consent independent registered public accounting firm kpmg llp filed herewith 233 consent independent registered public accounting firm kpmg audit plc filed herewith 311 certification chief executive officer pursuant section 302 sarbanesoxley act 2002 filed herewith 312 certification chief financial officer pursuant section 302 sarbanesoxley act 2002 filed herewith 321 certification chief executive officer pursuant section 906 sarbanesoxley act 2002 filed herewith 322 certification chief financial officer pursuant section 906 sarbanesoxley act 2002 filed herewith xbrl instance document related items cover page interactive data file cover page xbrl tags embedded within inline xbrl document denotes management contract compensatory plan item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant patrick williams date president chief executive officer february 19 2020 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 19 2020 milton c blackmore milton c blackmore chairman director patrick williams patrick williams president chief executive officer principal executive officer director ian p cleminson ian p cleminson executive vice president chief financial officer christopher j parsons christopher j parsons head group finance principal accounting officer hugh g c aldous hugh g c aldous director david f landless david f landless director lawrence j padfield lawrence j padfield director robert paller robert paller director claudia poccia claudia poccia director joachim roeser joachim roeser directoritem 15 exhibits financial statement schedules 1 financial statements consolidated financial statements including notes innospec inc subsidiaries together report pricewaterhousecoopers llp dated february 17 2021 set forth item 8 2 financial statement schedules financial statement schedules omitted since either included financial statements applicable required 3 exhibits 21 amended restated share asset purchase agreement dated december 22 2016 huntsman investments netherlands bv innospec international ltd incorporated reference exhibit 21 company’s form 8k january 3 2017 31 amended restated certificate incorporation company incorporated reference exhibit 31 company’s form 10k february 19 2020 32 amended restated bylaws company incorporated reference exhibit 31 company’s form 8k november 13 2015 33 innospec inc 2018 omnibus longterm incentive plan incorporated reference exhibit 101 registrant’s form 8k filed may 10 2018 34 innospec inc sharesave plan 2008 amended restated incorporated reference exhibit 102 registrant’s form 8k filed may 10 2018 41 description common stock incorporated reference exhibit 41 company’s form 10k february 19 2020 101 executive service agreement mr philip j boon dated june 1 2009 incorporated reference exhibit 101 company’s form 8k may 27 2009 102 contract employment mr ian mcrobbie incorporated reference exhibit 1023 company’s form 10k march 28 2003 103 contract employment dr catherine hessner incorporated reference exhibit 1026 company’s form 10k march 31 2005 104 contract employment mr patrick williams dated october 11 2005 incorporated reference exhibit 991 company’s form 8k october 12 2005 executive service agreement dated april 2 2009 incorporated reference exhibit 101 company’s form 8k april 3 2009 105 contract employment mr ian cleminson dated june 30 2006 incorporated reference exhibit 992 company’s form 8k june 30 2006 106 innospec inc performance related stock option plan 2008 incorporated reference appendix company’s proxy statement april 1 2011 107 innospec inc company share option plan 2008 incorporated reference appendix b company’s proxy statement april 1 2011 108 innospec inc nonemployee directors’ stock option plan 2008 incorporated reference appendix c company’s proxy statement april 1 2011 109 innospec inc sharesave plan 2008 incorporated reference appendix company’s proxy statement march 31 2008 1010 innospec inc executive coinvestment stock plan 2004 amended first amendment 2006 incorporated reference exhibit 1010 company’s form 10k february 17 2012 1011 contract employment mr david e williams dated september 17 2009 incorporated reference exhibit 101 company’s form 8k september 14 2009 1012 form indemnification agreement individual officer incorporated reference exhibit 101 company’s form 8k filed february 27 2014 1013 form indemnification agreement individual director incorporated reference exhibit 102 company’s form 8k filed february 27 2014 1014 form indemnification agreement individual officer director incorporated reference exhibit 103 company’s form 8k filed february 27 2014 1015 employment contract brian watt incorporated reference exhibit 104 company’s form 10q filed may 7 2014 1016 innospec inc 2014 longterm incentive plan incorporated reference exhibit 105 company’s form 10q filed may 7 2014 1017 executive service letter mr philip j boon dated october 15 2015 incorporated reference exhibit 1024 company’s form 10k february 17 2016 1018 250000000 multicurrency revolving facility agreement various lenders dated september 26 2019 incorporated reference exhibit 101 company’s form 8k september 30 2019 1019 innospec inc 2018 omnibus longterm incentive plan incorporated reference exhibit 101 registrant’s form 8k filed may 10 2018 1020 innospec inc sharesave plan 2008 amended restated incorporated reference exhibit 102 registrant’s form 8k filed may 10 2018 1021 extension request multicurrency revolving facility agreement confirmation incorporated reference exhibit 101 company’s form 8k filed october 6 2020 letter regarding change certifying accountant dated april 10 2019 incorporated reference exhibit 161 company’s form 8k filed april 11 2019 211 principal subsidiaries registrant filed herewith 231 consent independent registered public accounting firm pricewaterhousecoopers llp filed herewith 232 consent independent registered public accounting firm kpmg llp filed herewith 311 certification chief executive officer pursuant section 302 sarbanesoxley act 2002 filed herewith 312 certification chief financial officer pursuant section 302 sarbanesoxley act 2002 filed herewith 321 certification chief executive officer pursuant section 906 sarbanesoxley act 2002 filed herewith 322 certification chief financial officer pursuant section 906 sarbanesoxley act 2002 filed herewith xbrl instance document related items cover page interactive data file cover page xbrl tags embedded within inline xbrl document denotes management contract compensatory plan item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized innospec inc patrick williams registrant patrick williams date president chief executive officer february 17 2021 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 17 2021 milton c blackmore milton c blackmore chairman director patrick williams patrick williams president chief executive officer principal executive officer director ian p cleminson ian p cleminson executive vice president chief financial officer graeme blair graeme blair head group finance principal accounting officer keller arnold keller arnold director david f landless david f landless director lawrence j padfield lawrence j padfield director robert paller robert paller director claudia poccia claudia poccia director