GAAP Loss of $(0.71) per share vs.
Diluted EPS of $1.20; Excluding Special Items, Diluted EPS $0.93
vs. $0.78
Sales up 16%; Balance sheet and cash flow
strong; NewMarket complaint settled
Innospec Inc. (Nasdaq:IOSP) today announced its financial results
for the third quarter ended September 30, 2011.
Total net sales for the quarter were $202.1 million, a 16%
increase from $174.0 million in the corresponding period last year,
with continued strong performance from the Company's Fuel
Specialties and Active Chemicals segments. Reported net loss was
$(16.8) million, or $(0.71) per diluted share, compared to net
income of $30.0 million, or $1.20 per diluted share, reported a
year ago. EBITDA (earnings before interest, taxes, depreciation,
amortization and impairment) for the quarter was a loss of $(20.4)
million, versus $36.7 million in the year-ago period.
Reported results for the quarter were heavily impacted by
several special items totaling $39.5 million, or $1.61 per diluted
share, including an after-tax $29.3 million charge relating to the
settlement of litigation with NewMarket Corporation, and other
items which are summarized in the table below. Excluding these
items, diluted earnings per share for the third quarter of 2011
were $0.93, a 19% increase from $0.78 recorded a year ago.
EBITDA and net income excluding special items, and related
per-share amounts, are non-GAAP financial measures that are defined
and reconciled with GAAP results herein and in the schedules
below.
|
Quarter ended
Sept. 30, 2011 |
Quarter ended
Sept. 30, 2010 |
|
After-tax (in millions) |
Per diluted share |
After-tax (in millions) |
Per diluted share |
|
|
|
|
|
Net (loss)/income |
$ (16.8) |
$ (0.68) |
$ 30.0 |
$ 1.20 |
|
|
|
|
|
Civil complaint settlement |
29.3 |
1.19 |
-- |
-- |
Foreign exchange losses/(gains) |
3.4 |
0.14 |
(9.1) |
(0.36) |
Adjustment of income tax provisions |
3.1 |
0.13 |
(4.2) |
(0.17) |
Acquisition-related costs |
2.4 |
0.10 |
-- |
-- |
Civil complaint legal and professional
expenses |
1.2 |
0.05 |
0.8 |
0.03 |
Pension charge |
0.1 |
-- |
2.0 |
0.08 |
|
39.5 |
1.61 |
(10.5) |
(0.42) |
|
|
|
|
|
Net income excluding special
items |
$ 22.7 |
$ 0.93 |
$ 19.5 |
$ 0.78 |
For the first nine months of 2011, total net sales of $573.9
million increased 13% from $505.9 million in the corresponding
period last year. Net income for the nine-month period was $29.3
million, or $1.19 per diluted share, compared with $49.4 million,
or $1.98 per diluted share, a year ago. Excluding special items,
diluted earnings per share for the first nine months of 2011 were
$2.52, a 19% increase from $2.11 a year ago. EBITDA for the first
nine months of 2011 was $47.3 million, compared with $69.9 million
a year ago.
Management Comment on Performance
Patrick Williams, President and Chief Executive Officer, noted,
"Clearly, our results have been impacted by both cash and non-cash
extraordinary events which cloud the fact that our continued strong
operating results and cost-management programs have helped us
weather the storm and end the period in a strong fiscal position.
Innospec is a resilient company, and we are both cautiously
optimistic and confident of our positive momentum moving
forward.
"We see continued potential in the BRIC countries, which is why
we have established sales and marketing operations in both Russia
and Brazil during the quarter. Similarly, there is an obvious need
for stronger service and technological application expertise in the
oilfield chemicals industry, as this is a natural area of
expansion. We continue to look carefully at strategic acquisitions
and other growth options which are supported by our strong balance
sheet.
"We are pleased that both of our growth businesses continue to
perform very well, advancing at above-market rates and establishing
very strong leadership positions in their respective market
segments. We continue to invest in the organic growth of these
businesses, which have significant potential to contribute further
to shareholder value."
Net sales in Fuel Specialties for the third quarter were $136.1
million, up 19% from $113.9 million in last year's third quarter.
By region, sales increased 6% in the Americas, 35% in Europe,
Middle East and Africa (EMEA) and 14% in Asia Pacific. The
segment's gross margin was 28.0% for the quarter, compared with
32.5% a year ago. Operating income for the segment in the quarter
was $19.9 million, compared with $18.7 million a year ago. Gross
profit margins of 28.0% are sequentially improved from 27.4% in the
second quarter, with raw material pricing generally stabilized and
continued margin improvement in the near term is possible.
In Active Chemicals, net sales were $43.9 million for the
quarter, a 15% increase from $38.2 million a year ago. By region,
sales rose 4% in the Americas, 24% in EMEA and 20% in Asia-Pacific.
Active Chemicals' gross margin was 21.9% for the quarter, up from
21.5% a year ago. The segment's operating income was $5.0 million,
up from $4.3 million in last year's third quarter. While Active
Chemicals has been a consistent and solid performer for Innospec,
it is a consumer-driven market, for the most part, and expectations
must be tempered by the continued worldwide economic
difficulties.
Octane Additives' net sales for the third quarter were $22.1
million, up slightly from $21.9 million a year ago. The segment's
gross margin was 45.2%, up from 42.9% a year ago. The segment
recorded a loss for the quarter of $(38.1) million, which included
a $45.0 million pre-tax charge, and $1.5 million associated legal
and professional expenses, related to the settlement of the
company's litigation with NewMarket Corporation. Details of this
action have been previously disclosed. The civil complaint
settlement agreement called for a payment of $25.0 million in cash
and $5.0 million in shares, which were made in the third quarter,
with the remaining $15.0 million to be paid evenly in annual
installments over the next three years.
Corporate costs for the quarter were $6.4 million, compared with
$7.9 million a year ago. The decrease primarily reflects a lower
pension charge and share based compensation accruals partially
offset by $3.0 million in acquisition-related costs. The effective
tax rate for the quarter was 33.3%, reflecting the impact of the
civil settlement and adjustment of income tax provisions.
Net cash generated from operations was $9.4 million, primarily
due to tight working capital control. As of September 30, 2011,
Innospec had $136.9 million in cash and cash equivalents, exceeding
its total debt of $90.0 million by $46.9 million. During the
quarter, the Company repurchased 594,336 common shares for $15.4
million under its $40.0 million share repurchase program.
Use of Non-GAAP Financial Measures
The information presented in this press release includes
financial measures that are not calculated or presented in
accordance with Generally Accepted Accounting Principles in the
United States (GAAP). These non-GAAP financial measures comprise
EBITDA and net income excluding special items, and related per
share amounts. EBITDA is net income per our consolidated financial
statements adjusted for the exclusion of charges for interest
expense (net), income taxes, depreciation, amortization and
impairment of Octane Additives segment goodwill. Net income
excluding special items is net income per our consolidated
financial statements adjusted for the exclusion of civil complaint
settlement, foreign exchange losses/(gains), adjustment of income
tax provisions, acquisition-related costs, civil complaint legal
and professional expenses and pension charge. Reconciliations of
these non-GAAP financial measures to their most directly comparable
GAAP financial measures are provided herein and in the schedules
below. The Company believes that such non-GAAP financial measures
provide useful information to investors and may assist them in
evaluating the Company's underlying performance and identifying
operating trends. In addition, management uses these non-GAAP
financial measures internally to allocate resources and evaluate
the performance of the Company's operations. While the Company
believes that such measures are useful in evaluating the Company's
performance, investors should not consider them to be a substitute
for financial measures prepared in accordance with GAAP. In
addition, these non-GAAP financial measures may differ from
similarly-titled non-GAAP financial measures used by other
companies and do not provide a comparable view of the Company's
performance relative to other companies in similar industries.
Management believes the most directly comparable GAAP financial
measure is GAAP net income and has provided a reconciliation of
EBITDA and net income excluding special items, and related per
share amounts, to GAAP net income herein and in the schedules
below.
About Innospec Inc.
Innospec Inc. is an international specialty chemicals company
with approximately 850 employees in 20 countries. Innospec
manufactures and supplies a wide range of specialty chemicals to
markets in the Americas, Europe, the Middle East, Africa and
Asia-Pacific. Innospec's Fuel Specialties business specializes in
manufacturing and supplying the fuel additives that help improve
fuel efficiency, boost engine performance and reduce harmful
emissions. Innospec's Active Chemicals business provides effective
technology-based solutions for our customers' processes or products
focused in the Personal Care; Household, Industrial &
Institutional; and Fragrance Ingredients markets. Innospec's Octane
Additives business is the world's only producer of tetra ethyl
lead.
Forward-Looking Statements
This press release contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements other than statements of historical facts
included or incorporated herein may constitute forward-looking
statements. Such forward-looking statements include statements
(covered by words like "expects," "anticipates," "may," "believes"
or similar words or expressions), for example, which relate to
operating performance, events or developments that we expect or
anticipate will or may occur in the future (including, without
limitation, any of the Company's guidance in respect of sales,
gross margins, pension liabilities and charges, net income, growth
potential and other measures of financial performance). Although
forward-looking statements are believed by management to be
reasonable when made, caution should be exercised not to place
undue reliance on such statements because they are subject to
certain risks, uncertainties and assumptions, including in respect
of the general business environment, regulatory actions or changes.
If the risks or uncertainties materialize or assumptions prove
incorrect or change, our actual performance or results may differ
materially from those expressed or implied by such forward-looking
statements and assumptions. Additional information regarding risks,
uncertainties and assumptions relating to the Company and affecting
our business operations and prospects are described in the
Company's Annual Report on Form 10-K for the year ended December
31, 2010, and other reports filed with the U.S. Securities and
Exchange Commission. You are urged to carefully review and consider
the cautionary statements and other disclosures made in those
filings, including specifically those under the heading "Risk
Factors". The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
|
|
|
|
|
|
|
|
|
|
INNOSPEC INC. AND
SUBSIDIARIES |
CONSOLIDATED STATEMENTS
OF INCOME |
|
|
|
|
|
|
|
|
|
Schedule 1 |
|
|
|
|
|
|
Three Months Ended September
30 |
Nine Months Ended September
30 |
|
|
|
|
2011 |
2010 |
2011 |
2010 |
(in millions, except share and per
share data) |
|
|
|
|
|
|
|
|
|
Net sales |
$ 202.1 |
$ 174.0 |
$ 573.9 |
$ 505.9 |
Cost of goods sold |
(144.4) |
(119.4) |
(405.3) |
(345.9) |
Gross profit |
57.7 |
54.6 |
168.6 |
160.0 |
|
|
|
|
|
Selling, general and administrative |
(72.6) |
(28.6) |
(127.1) |
(80.0) |
Research and development |
(4.7) |
(4.5) |
(13.7) |
(13.0) |
Restructuring charge |
-- |
-- |
-- |
(8.5) |
Impairment of Octane Additives segment
goodwill |
(0.6) |
(0.6) |
(1.7) |
(1.7) |
Profit on disposal |
-- |
-- |
-- |
0.2 |
Total operating expenses |
(77.9) |
(33.7) |
(142.5) |
(103.0) |
Operating (loss)/income |
(20.2) |
20.9 |
26.1 |
57.0 |
Other net (expense)/income |
(4.3) |
11.6 |
8.9 |
0.7 |
Interest expense (net) |
(0.7) |
(1.2) |
(2.4) |
(3.5) |
(Loss)/income before income taxes |
(25.2) |
31.3 |
32.6 |
54.2 |
Income taxes |
8.4 |
(1.3) |
(3.3) |
(4.8) |
Net (loss)/income |
$ (16.8) |
$ 30.0 |
$ 29.3 |
$ 49.4 |
|
|
|
|
|
(Loss)/earnings per share |
|
|
|
|
Basic |
$ (0.71) |
$ 1.26 |
$ 1.24 |
$ 2.08 |
Diluted |
$ (0.71) |
$ 1.20 |
$ 1.19 |
$ 1.98 |
|
|
|
|
|
Weighted average shares outstanding (in
thousands) |
|
|
|
|
Basic |
23,711 |
23,805 |
23,698 |
23,757 |
Diluted |
23,711 |
25,002 |
24,616 |
24,931 |
|
|
|
|
|
|
|
|
|
|
INNOSPEC INC. AND
SUBSIDIARIES |
SEGMENTAL
ANALYSIS |
|
|
|
|
|
|
|
|
|
Schedule 2A |
SEGMENTAL ANALYSIS OF RESULTS |
|
|
|
|
|
|
|
|
|
|
Three Months Ended September
30 |
Nine Months Ended September
30 |
|
|
|
(in millions) |
2011 |
2010 |
2011 |
2010 |
|
|
|
|
|
Net sales |
|
|
|
|
Fuel Specialties |
$ 136.1 |
$ 113.9 |
$ 376.5 |
$ 330.9 |
Active Chemicals |
43.9 |
38.2 |
139.1 |
113.7 |
Octane Additives |
22.1 |
21.9 |
58.3 |
61.3 |
|
202.1 |
174.0 |
573.9 |
505.9 |
|
|
|
|
|
Gross profit |
|
|
|
|
Fuel Specialties |
38.1 |
37.0 |
105.6 |
106.8 |
Active Chemicals |
9.6 |
8.2 |
35.0 |
24.3 |
Octane Additives |
10.0 |
9.4 |
28.0 |
28.9 |
|
57.7 |
54.6 |
168.6 |
160.0 |
|
|
|
|
|
Operating (loss)/income |
|
|
|
|
Fuel Specialties |
19.9 |
18.7 |
54.5 |
57.9 |
Active Chemicals |
5.0 |
4.3 |
21.7 |
12.0 |
Octane Additives |
(38.1) |
6.4 |
(27.8) |
24.7 |
Pension charge |
(0.1) |
(2.5) |
(0.3) |
(8.4) |
Corporate costs |
(6.3) |
(5.4) |
(20.3) |
(19.2) |
|
(19.6) |
21.5 |
27.8 |
67.0 |
|
|
|
|
|
Restructuring charge |
-- |
-- |
-- |
(8.5) |
Impairment of Octane Additives segment
goodwill |
(0.6) |
(0.6) |
(1.7) |
(1.7) |
Profit on disposal |
-- |
-- |
-- |
0.2 |
Total operating (loss)/income |
$ (20.2) |
$ 20.9 |
$ 26.1 |
$ 57.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule 2B |
NON-GAAP MEASURES |
|
|
|
|
|
|
|
|
|
|
Three Months Ended September
30 |
Nine Months Ended September
30 |
|
|
|
|
2011 |
2010 |
2011 |
2010 |
(in millions) |
|
|
|
|
|
|
|
|
|
Net (loss)/income |
$ (16.8) |
$ 30.0 |
$ 29.3 |
$ 49.4 |
Interest expense (net) |
0.7 |
1.2 |
2.4 |
3.5 |
Income taxes |
(8.4) |
1.3 |
3.3 |
4.8 |
Depreciation and amortization |
3.5 |
3.6 |
10.6 |
10.5 |
Impairment of Octane Additives segment
goodwill |
0.6 |
0.6 |
1.7 |
1.7 |
EBITDA |
(20.4) |
36.7 |
47.3 |
69.9 |
|
|
|
|
|
Fuel Specialties |
21.0 |
19.9 |
57.9 |
61.4 |
Active Chemicals |
6.5 |
5.8 |
26.2 |
16.5 |
Octane Additives |
(37.6) |
6.9 |
(26.4) |
26.1 |
Pension charge |
(0.1) |
(2.5) |
(0.3) |
(8.4) |
Corporate costs |
(5.9) |
(5.0) |
(19.0) |
(18.1) |
|
(16.1) |
25.1 |
38.4 |
77.5 |
Restructuring charge |
-- |
-- |
-- |
(8.5) |
Profit on disposal |
-- |
-- |
-- |
0.2 |
Other net (expense)/income |
(4.3) |
11.6 |
8.9 |
0.7 |
EBITDA |
$ (20.4) |
$ 36.7 |
$ 47.3 |
$ 69.9 |
|
|
|
|
|
|
INNOSPEC INC. AND
SUBSIDIARIES |
CONSOLIDATED BALANCE
SHEETS |
|
|
|
|
|
Schedule 3 |
|
|
|
|
|
|
|
September 30 2011 |
December 31 2010 |
Assets |
(in millions) |
Current assets |
|
|
Cash and cash
equivalents |
$ 136.9 |
$ 111.3 |
Trade and other accounts
receivable (less allowances of $2.0 and $2.1, respectively) |
92.2 |
84.2 |
Inventories |
137.7 |
122.3 |
Prepaid expenses |
5.0 |
4.1 |
Prepaid income taxes |
3.5 |
-- |
Total current assets |
375.3 |
321.9 |
|
|
|
Property, plant and equipment |
47.4 |
48.7 |
Goodwill |
141.9 |
143.6 |
Intangible assets |
15.6 |
19.0 |
Deferred finance costs |
-- |
0.5 |
Deferred income taxes |
16.8 |
12.7 |
Other non-current assets |
0.5 |
1.9 |
Total assets |
$ 597.5 |
$ 548.3 |
|
|
|
Liabilities and Stockholders'
Equity |
|
|
Accounts payable |
$ 53.3 |
$ 45.9 |
Current portion of accrued liabilities |
82.4 |
85.7 |
Accrued income taxes |
-- |
6.1 |
Current portion of long-term debt |
80.0 |
15.0 |
Current portion of plant closure
provisions |
3.5 |
3.9 |
Current portion of unrecognized tax
benefits |
0.8 |
2.2 |
Current portion of deferred income |
1.4 |
0.1 |
Total current liabilities |
221.4 |
158.9 |
|
|
|
Accrued liabilities, net of current
portion |
13.1 |
13.6 |
Long-term debt, net of current portion |
10.0 |
32.0 |
Plant closure provisions, net of current
portion |
23.5 |
23.6 |
Unrecognized tax benefits, net of current
portion |
11.0 |
6.4 |
Pension liability |
5.8 |
11.7 |
Other non-current liabilities |
0.2 |
0.5 |
Deferred income, net of current portion |
1.0 |
0.9 |
Total stockholders' equity |
311.5 |
300.7 |
Total liabilities and stockholders'
equity |
$ 597.5 |
$ 548.3 |
|
|
|
|
|
|
INNOSPEC INC. AND
SUBSIDIARIES |
|
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS |
|
|
|
|
|
|
|
Schedule 4 |
|
|
|
|
Nine Months Ended September
30 |
|
2011 |
2010 |
|
(in millions) |
Cash Flows from Operating
Activities |
|
|
|
|
|
Net income |
$ 29.3 |
$ 49.4 |
Adjustments to reconcile net income to cash
provided by operating activities: |
|
|
Depreciation and
amortization |
11.1 |
11.6 |
Impairment of Octane Additives
segment goodwill |
1.7 |
1.7 |
Deferred income taxes |
(4.0) |
(0.3) |
Profit on disposal of property,
plant and equipment |
-- |
(0.2) |
Non-cash issue of promissory
note in civil complaint settlement |
15.0 |
-- |
Non-cash issue of treasury
stock in civil complaint settlement |
5.0 |
-- |
Changes in working capital |
(24.3) |
(14.8) |
Excess tax benefit from stock
based payment arrangements |
(1.2) |
-- |
Accrued income taxes |
(9.6) |
(3.8) |
Movement on plant closure
provisions |
(0.5) |
(0.6) |
Movement on pension
liability |
(6.6) |
8.4 |
Stock option compensation |
2.3 |
0.5 |
Movements on other non-current
assets and liabilities |
2.7 |
(9.5) |
Net cash provided by operating
activities |
20.9 |
42.4 |
|
|
|
Cash Flows from Investing
Activities |
|
|
|
|
|
Capital expenditures |
(5.9) |
(6.3) |
Proceeds on disposal of property, plant and
equipment |
-- |
0.2 |
Net cash (used in) investing activities |
(5.9) |
(6.1) |
|
|
|
Cash Flows from Financing
Activities |
|
|
|
|
|
Net receipt of revolving credit facility |
43.0 |
7.0 |
Repayment of term loan |
(15.0) |
(10.0) |
Excess tax benefit from stock based payment
arrangements |
1.2 |
-- |
Issue of treasury stock |
0.7 |
0.1 |
Repurchase of common stock |
(19.5) |
(0.2) |
Net cash provided by/(used in) financing
activities |
10.4 |
(3.1) |
Effect of foreign currency exchange rate
changes on cash |
0.2 |
(0.3) |
Net change in cash and cash equivalents |
25.6 |
32.9 |
Cash and cash equivalents at beginning of
period |
111.3 |
68.6 |
Cash and cash equivalents at end of
period |
$ 136.9 |
$ 101.5 |
|
|
|
Amortization of deferred finance
costs of $0.5 million (2010 -- $1.1 million) are included in
depreciation and amortization in the cash flow statement but in
interest expense in the income statement. |
CONTACT: Brian Watt
Innospec Inc.
+44-151-356-6241
Brian.Watt@innospecinc.com
Robert D. Ferris
RF|Binder Partners
+1-212-994-7505
Robert.Ferris@RFBinder.com
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