INNOSPEC INC. (Form: 10-Q, Received: 05/07/2014 11:55:18)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2014

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

For the transition period from to

Commission file number 1-13879

INNOSPEC INC.

(Exact name of registrant as specified in its charter)


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

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

Registrant’s telephone number, including area code: (303) 792 5554

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

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


Class		Outstanding as of April 30, 2014
Common Stock, par value $0.01		24,386,463

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION		4

Item 1	Financial Statements	4
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Balance Sheets	6
	Consolidated Balance Sheets (continued)	7
	Consolidated Statements of Cash Flows	8
	Consolidated Statements of Stockholders’ Equity	9
	Notes to the Unaudited Interim Consolidated Financial Statements	10
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended March 31, 2014	23
	Critical Accounting Estimates	23
	Results of Operations	23
	Liquidity and Financial Condition	27
Item 3	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4	Controls and Procedures	29

PART II OTHER INFORMATION		29

Item 1	Legal Proceedings	29
Item 1A	Risk Factors	30
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3	Defaults Upon Senior Securities	30
Item 4	Mine Safety Disclosures	30
Item 5	Other Information	30
Item 6	Exhibits	30

SIGNATURES		32

CAUTIONARY STATEMENT RELATIVE TO FORWARD-LOOKING STATEMENTS

This Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements. Such forward-looking statements include statements (covered by words like “expects,” “estimates,” “anticipates,” “may,” “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, they are subject to certain risks, uncertainties and assumptions, and our actual performance or results may differ materially from these forward-looking statements. 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, 2013, and other reports filed with the U.S. Securities and Exchange Commission. You are urged to review our discussion of risks and uncertainties that could cause actual results to differ from forward-looking statements under the heading “Risk Factors” in such reports. 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.

PART I FINANCIAL INFORMATION

Item 1

Financial Statements

INNOSPEC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended March 31
(in millions, except share and per share data)	2014			2013
Net sales	$	220.7		$	199.4
Cost of goods sold		(155.0	)		(135.6	)

Gross profit		65.7			63.8
Operating expenses:
Selling, general and administrative		(41.8	)		(35.7	)
Research and development		(5.7	)		(5.6	)
Restructuring charge		(0.2	)		0.0
Impairment of Octane Additives segment goodwill		0.0			(0.3	)

Total operating expenses		(47.7	)		(41.6	)

Operating income		18.0			22.2
Other net income/(expense)		1.9			1.0
Interest expense		(1.0	)		(0.4	)
Interest income		0.1			0.1

Income before income taxes		19.0			22.9
Income taxes		(2.1	)		(4.9	)

Net income	$	16.9		$	18.0

Earnings per share:
Basic	$	0.69		$	0.77

Diluted	$	0.69		$	0.75

Weighted average shares outstanding (in thousands):
Basic		24,362			23,404

Diluted		24,635			24,015

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

INNOSPEC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31
(in millions)	2014			2013
Net income	$	16.9		$	18.0

Other comprehensive income/(loss):
Changes in cumulative translation adjustment		(1.2	)		(3.6	)
Changes in unrealized gains/(losses) on derivative instruments, net of tax of $0.0 and $0.0, respectively		0.0			(0.1	)
Amortization of prior service credit, net of tax of $0.1 and $0.1, respectively		(0.3	)		(0.2	)
Amortization of actuarial net losses, net of tax of $(0.3) and $(0.4), respectively		1.1			1.3

Total other comprehensive income/(loss)		(0.4	)		(2.6	)

Total comprehensive income	$	16.5		$	15.4

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

INNOSPEC INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


(in millions, except share and per share data)	March 31, 2014			December 31, 2013
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	90.1		$	80.2
Short-term investments		5.8			6.6
Trade and other accounts receivable (less allowances of $2.0 and $2.0, respectively)		122.0			135.8
Inventories (less allowances of $9.1 and $9.5, respectively):
Finished goods		101.7			95.3
Work in progress		2.7			1.9
Raw materials		55.8			61.7

Total inventories		160.2			158.9
Current portion of deferred tax assets		8.7			8.7
Prepaid expenses		4.4			5.8
Prepaid income taxes		3.4			11.4

Total current assets		394.6			407.4
Property, plant and equipment:
Gross cost		157.5			175.1
Less accumulated depreciation		(97.4	)		(114.7	)

Net property, plant and equipment		60.1			60.4
Goodwill		187.9			187.9
Other intangible assets		124.0			126.8
Deferred finance costs		1.6			1.8
Deferred tax assets, net of current portion		8.0			8.6
Other non-current assets		1.4			1.8

Total assets	$	777.6		$	794.7

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

INNOSPEC INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS—(Continued)


(in millions, except share and per share data)	March 31, 2014			December 31, 2013
	(Unaudited)
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	53.9		$	63.3
Accrued liabilities		61.8			73.5
Current portion of long-term debt		5.4			5.3
Current portion of plant closure provisions		5.4			6.2
Current portion of unrecognized tax benefits		0.0			6.8
Current portion of deferred tax liabilities		0.2			0.2
Current portion of deferred income		0.3			0.3

Total current liabilities		127.0			155.6
Long-term debt, net of current portion		134.3			142.7
Plant closure provisions, net of current portion		27.3			26.2
Unrecognized tax benefits, net of current portion		9.0			6.2
Deferred tax liabilities, net of current portion		11.1			9.5
Pension liabilities		36.1			39.0
Acquisition-related contingent consideration		4.7			4.6
Other non-current liabilities		0.1			0.3
Deferred income, net of current portion		1.2			1.2
Stockholders’ equity:
Common stock, $0.01 par value, authorized 40,000,000 shares, issued 29,554,500 shares		0.3			0.3
Additional paid-in capital		309.3			308.8
Treasury stock (5,168,037 and 5,207,947 shares at cost, respectively)		(72.9	)		(73.3	)
Retained earnings		344.4			327.5
Accumulated other comprehensive loss		(154.3	)		(153.9	)

Total stockholders’ equity		426.8			409.4

Total liabilities and stockholders’ equity	$	777.6		$	794.7

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

INNOSPEC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31
(in millions)	2014			2013
Cash Flows from Operating Activities
Net income	$	16.9		$	18.0
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7.4			4.5
Impairment of Octane Additives segment goodwill		0.0			0.3
Deferred taxes		0.4			(0.2	)
Excess tax benefit from stock-based payment arrangements		(0.2	)		(1.5	)
Cash contributions to defined benefit pension plans		(2.9	)		(2.8	)
Non-cash expense of defined benefit pension plans		1.0			0.9
Stock option compensation		0.6			0.7
Changes in assets and liabilities, net of effects of acquired and divested companies:
Trade and other accounts receivable		14.2			16.8
Inventories		(1.1	)		(4.6	)
Prepaid expenses		1.5			(0.4	)
Accounts payable and accrued liabilities		(21.4	)		(13.8	)
Accrued income taxes		8.0			(0.6	)
Plant closure provisions		0.3			0.1
Unrecognized tax benefits		(4.0	)		(0.4	)
Other non-current assets and liabilities		0.2			0.9

Net cash provided by operating activities		20.9			17.9
Cash Flows from Investing Activities
Capital expenditures		(2.4	)		(2.2	)
Internally developed software and other costs		(1.5	)		(2.1	)
Proceeds on disposal of property, plant and equipment		0.1			0.0
Purchase of short-term investments		(1.2	)		(1.1	)
Sale of short-term investments		2.0			0.9

Net cash provided by/(used in) investing activities		(3.0	)		(4.5	)
Cash Flows from Financing Activities
Proceeds from revolving credit facility		0.0			21.0
Repayments of revolving credit facility		(8.0	)		(14.0	)
Repayments of term loans		(0.3	)		0.0
Excess tax benefit from stock-based payment arrangements		0.2			1.5
Issue of treasury stock		0.3			0.4
Repurchase of common stock		(0.2	)		(1.3	)

Net cash provided by/(used in) financing activities		(8.0	)		7.6
Effect of foreign currency exchange rate changes on cash		0.0			(0.2	)

Net change in cash and cash equivalents		9.9			20.8
Cash and cash equivalents at beginning of period		80.2			22.4

Cash and cash equivalents at end of period	$	90.1		$	43.2

Amortization of deferred finance costs of $0.2 million (2013 – $0.1 million) are included in depreciation and amortization in the cash flow statement but in interest expense in the income statement.

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

INNOSPEC INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)


(in millions)	Common Stock		Additional Paid-In Capital			Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance at December 31, 2013	$	0.3	$	308.8		$	(73.3	)	$	327.5	$	(153.9	)	$	409.4
Net income										16.9					16.9
Changes in cumulative translation adjustment												(1.2	)		(1.2	)
Treasury stock re-issued				(0.3	)		0.6								0.3
Treasury stock repurchased							(0.2	)							(0.2	)
Excess tax benefit from stock-based payment arrangements				0.2											0.2
Stock option compensation				0.6											0.6
Amortization of prior service credit, net of tax												(0.3	)		(0.3	)
Amortization of actuarial net losses, net of tax												1.1			1.1

Balance at March 31, 2014	$	0.3	$	309.3		$	(72.9	)	$	344.4	$	(154.3	)	$	426.8

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

INNOSPEC INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934. Accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial position, results of operations and cash flows.

It is our opinion, however, that all adjustments (consisting of normal, recurring adjustments, unless otherwise disclosed) have been made which are necessary for the financial statements to be fairly stated. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed on February 13, 2014.

The results for the interim period covered by this report are not necessarily indicative of the results to be expected for the full year.

When we use the terms the “Corporation,” “Company,” “Registrant,” “we,” “us” and “our,” we are referring to Innospec Inc. and its consolidated subsidiaries (“Innospec”) unless otherwise indicated or the context otherwise requires.

NOTE 2 – SEGMENTAL REPORTING

Innospec divides its business into three segments for management and reporting purposes: Fuel Specialties, Performance Chemicals and Octane Additives. The Fuel Specialties and Performance Chemicals segments operate in markets where we actively seek growth opportunities although their ultimate customers are different. The Octane Additives segment is generally characterized by volatile and declining demand.

The Company evaluates the performance of its segments based on operating income. The following table analyzes sales and other financial information by the Company’s reportable segments:


	Three Months Ended March 31
(in millions)	2014			2013
Net sales:
Fuel Specialties	$	164.2		$	140.0
Performance Chemicals		56.1			47.8
Octane Additives		0.4			11.6

	$	220.7		$	199.4

Gross profit:
Fuel Specialties	$	52.0		$	47.0
Performance Chemicals		13.6			10.5
Octane Additives		0.1			6.3

	$	65.7		$	63.8

Operating income:
Fuel Specialties	$	25.8		$	24.9
Performance Chemicals		6.5			5.0
Octane Additives		(1.2	)		4.8
Pension credit/(charge)		(0.8	)		(0.7	)
Corporate costs		(12.1	)		(11.5	)
Restructuring charge		(0.2	)		0.0
Impairment of Octane Additives segment goodwill		0.0			(0.3	)

Total operating income	$	18.0		$	22.2

The pension credit/(charge) relates to the United Kingdom defined benefit pension plan which is closed to future service accrual. The charges related to our other much smaller pension arrangements in the U.S. and overseas are included in the segment and income statement captions consistent with the related employees’ costs.

The following table presents a summary of the depreciation and amortization charges incurred by the Company’s reportable segments:


	Three Months Ended March 31
(in millions)	2014		2013
Depreciation:
Fuel Specialties	$	1.2	$	0.6
Performance Chemicals		0.9		0.9
Octane Additives		0.1		0.2
Corporate		0.6		0.6

	$	2.8	$	2.3

Amortization:
Fuel Specialties	$	2.2	$	1.6
Performance Chemicals		1.3		0.4
Octane Additives		0.0		0.1
Corporate		0.9		0.0

	$	4.4	$	2.1

NOTE 3 – EARNINGS PER SHARE

Basic earnings per share is based on the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the effect of options that are dilutive and outstanding during the period. Per share amounts are computed as follows:


	Three Months Ended March 31
	2014		2013
Numerator (in millions):
Net income available to common stockholders	$	16.9	$	18.0

Denominator (in thousands):
Weighted average common shares outstanding		24,362		23,404
Dilutive effect of stock options and awards		273		611

Denominator for diluted earnings per share		24,635		24,015

Net income per share, basic:	$	0.69	$	0.77

Net income per share, diluted:	$	0.69	$	0.75

In the three months ended March 31, 2014 and 2013, the average number of anti-dilutive options excluded from the calculation of diluted earnings per share were 8,049 and 10,527, respectively.

NOTE 4 – GOODWILL

The following table summarizes the goodwill movement year on year:


	Three Months Ended March 31
(in millions)	2014			2013
At January 1:
Gross cost ⁽¹⁾	$	424.4		$	384.2
Accumulated impairment losses		(236.5	)		(235.2	)

Net book amount		187.9			149.0

Exchange effect		0.0			(0.1	)
Impairment losses		0.0			(0.3	)

At March 31:
Gross cost ⁽¹⁾		424.4			384.1
Accumulated impairment losses		(236.5	)		(235.5	)

Net book amount	$	187.9		$	148.6

⁽¹⁾	Gross cost for 2014 and 2013 is net of $298.5 million of historical accumulated amortization.

The Bachman Group Companies Acquisition

On November 4, 2013, the Company acquired 100% of the voting equity interests in Bachman Services, Inc., Specialty Intermediates, Inc., Bachman Production Specialties, Inc. and Bachman Drilling & Production Specialties, Inc. (collectively “Bachman”). Bachman provide chemicals and services to the oil and gas industry and are based in Oklahoma City, Oklahoma. We purchased Bachman for a cash consideration of $45.8 million and by the issuance of 319,953 shares of unregistered Innospec Inc. common stock to the previous owners with a fair value of approximately $15 million, based on the Innospec share price on the closing date. We acquired the businesses in order to move us towards critical mass, and bring both good technology and market positioning in the oilfield specialties sector which forms part of our Fuel Specialties segment.

The following table summarizes the calculations of the total purchase price and the estimated allocation of the purchase price to the assets acquired and liabilities assumed for Bachman. The purchase price allocation is not yet complete as we are in the process of finalising the valuation of the assets acquired. We expect to complete the valuations in the second quarter of 2014 following agreement with the previous owners. Final determination of the fair values may result in adjustments to the amounts presented below:


(in millions)	Bachman
Other intangible assets	$	25.9
Goodwill		22.9
Deferred tax on intangibles		(7.6	)
Other net assets acquired, excluding cash of $2.0m		17.6

Purchase price, net of cash acquired	$	58.8

Bachman, and the associated goodwill, are included within our Fuel Specialties segment for management and reporting purposes.

NOTE 5 – OTHER INTANGIBLE ASSETS

The following table summarizes the other intangible assets movement year on year:


	Three Months Ended March 31
(in millions)	2014			2013
Gross cost at January 1	$	175.5		$	106.2
Capitalization of internally developed software and other costs		1.5			2.1
Exchange effect		0.0			0.0

Gross cost at March 31		177.0			108.3

Accumulated amortization at January 1		(48.7	)		(37.6	)
Amortization expense		(4.4	)		(2.1	)
Exchange effect		0.1			(0.1	)

Accumulated amortization at March 31		(53.0	)		(39.8	)

Net book amount at March 31	$	124.0		$	68.5

Capitalization of internally developed software and other costs

We are continuing with the implementation of a new, company-wide, information system platform. At March 31, 2014, we had capitalized $20.1 million (2013 – $12.2 million) in relation to this internally developed software.

Amortization expense


	Three Months Ended March 31
(in millions)	2014			2013
Product rights	$	(1.0	)	$	0.0
Brand names		(0.1	)		0.0
Technology		(0.6	)		(0.5	)
Customer relationships		(1.3	)		(0.9	)
Patents		(0.1	)		(0.1	)
Internally developed software		(0.9	)		0.0
Non-compete agreements		(0.2	)		(0.2	)
Marketing related		(0.2	)		(0.4	)

Total	$	(4.4	)	$	(2.1	)

NOTE 6 – PENSION PLANS

The Company maintains a defined benefit pension plan (the “Plan”) covering a number of its current and former employees in the United Kingdom, although it does also have other much smaller pension arrangements in the U.S. and overseas. The Plan is closed to future service accrual but has a large number of deferred and current pensioners.


	Three Months Ended March 31
(in millions)	2014			2013
Plan net pension credit/(charge):
Service cost	$	(0.4	)	$	(0.4	)
Interest cost on projected benefit obligation		(8.7	)		(7.9	)
Expected return on plan assets		9.3			9.0
Amortization of prior service credit		0.4			0.3
Amortization of actuarial net losses		(1.4	)		(1.7	)

	$	(0.8	)	$	(0.7	)

The amortization of prior service credit and actuarial net losses is a reclassification out of accumulated other comprehensive income/(loss) into selling, general and administrative expenses.

NOTE 7 – INCOME TAXES

A roll-forward of unrecognized tax benefits and associated accrued interest and penalties is as follows:


(in millions)	Interest and Penalties			Unrecognized Tax Benefits			Total
Opening balance at January 1, 2014	$	1.1		$	11.9		$	13.0
Reductions for tax positions of prior periods		(0.4	)		(3.6	)		(4.0	)

Closing balance at March 31, 2014		0.7			8.3			9.0
Current		0.0			0.0			0.0

Non-current	$	0.7		$	8.3		$	9.0

All of the unrecognized tax benefits, interest and penalties, would impact our effective tax rate if recognized.

We recognize accrued interest and penalties associated with uncertain tax positions as part of income taxes in our consolidated statements of income.

The Company or one of its subsidiaries files income tax returns with the U.S. federal government, and various state and foreign jurisdictions. As previously disclosed, as at December 31, 2013, the Company and its U.S. subsidiaries were subject to tax audits in the U.S.. On March 6, 2014, the federal income tax examination by the IRS for 2009 was effectively settled. The additional tax cost was nominal and resulted in a reduction of $3.6 million in unrecognized tax benefits and a reduction of $0.4 million in associated interest and penalties in the first quarter of 2014.

The Company and its U.S. subsidiaries remain open to examination by the IRS for years 2010 onwards. The Company’s subsidiaries in foreign tax jurisdictions are open to examination including France (2012 onwards), Germany (2010 onwards), Switzerland (2012 onwards) and the United Kingdom (2012 onwards).

The Company is in a position to control whether or not to repatriate foreign earnings and we intend to permanently reinvest earnings overseas to fund overseas subsidiaries. No taxes have been provided for on the unremitted earnings of our overseas subsidiaries as any tax basis differences relating to investments in these overseas subsidiaries are considered to be permanent in duration. The amount of unremitted earnings at December 31, 2013 and 2012 was approximately $605 million and $717 million, respectively. If these earnings are remitted, additional taxes could result after offsetting foreign income taxes paid although the calculation of the additional taxes is not practical at this time.

NOTE 8 – LONG-TERM DEBT

Long-term debt consists of the following:


(in millions)	March 31, 2014			December 31, 2013
Revolving credit facility	$	134.0		$	142.0
Promissory note		5.0			5.0
Other long-term debt		0.7			1.0

		139.7			148.0
Less current portion		(5.4	)		(5.3	)

	$	134.3		$	142.7

The credit facility provides for borrowings by us of up to $180 million until it expires on December 14, 2016 and may be drawn down in full in the U.S.. In addition, the Company can request an additional amount of up to $20 million to be committed by the lenders.

NOTE 9 – PLANT CLOSURE PROVISIONS

The liability for estimated closure costs of Innospec’s manufacturing facilities includes costs for decontamination and environmental remediation activities (“remediation”). The principal site giving rise to remediation liabilities is the manufacturing site at Ellesmere Port in the United Kingdom. There are also remediation liabilities on a much smaller scale in respect of our other manufacturing sites in the U.S. and Europe.

Movements in the provisions for the three months ended March 31 are summarized as follows:


	2014								2013
(in millions)	Severance		Remediation			Total			Total
Total at January 1	$	1.0	$	31.4		$	32.4		$	30.4
Charge for the period		0.0		0.7			0.7			0.6
Utilized in the period		0.0		(0.4	)		(0.4	)		(0.6	)
Exchange effect		0.0		0.0			0.0			0.0

Total at March 31		1.0		31.7			32.7			30.4
Due within one year		0.0		(5.4	)		(5.4	)		(4.2	)

Due after one year	$	1.0	$	26.3		$	27.3		$	26.2

Amounts due within one year refer to provisions where expenditure is expected to arise within one year of the balance sheet date. Severance charges are recognized in the income statement as restructuring costs along with other restructuring costs. Remediation costs are recognized in cost of goods sold.

Remediation

The remediation provision represents the Company’s liability for environmental liabilities and asset retirement obligations. The charge for the period represents the accretion expense recognized in the first three months of 2014.

We recognize environmental liabilities when they are probable and costs can be reasonably estimated, and asset retirement obligations when there is a legal obligation and costs can be reasonably estimated. The Company has to anticipate the program of work required and the associated future expected costs, and comply with environmental legislation in the countries in which it operates or has operated in. The Company views the costs of vacating our Ellesmere Port site as contingent upon if and when it vacates the site because there is no present intention to do so. The Company has further determined that, due to the uncertain product life of TEL particularly in the market for aviation gasoline and other products being manufactured on the site, there are uncertainties as to the probability and timing of the expected costs. Such uncertainties have been considered in estimating the provision.

NOTE 10 – FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes a mid-market pricing convention for valuing the majority of its assets and liabilities measured and reported at fair value. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs. The Company gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. In the first three months of 2014, the Company evaluated the fair value hierarchy levels assigned to its assets and liabilities, and concluded that there should be no transfers into or out of Levels 1, 2 and 3.

The following table presents the carrying amount and fair values of the Company’s assets and liabilities measured on a recurring basis:


	March 31, 2014				December 31, 2013
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Non-derivatives:
Cash and cash equivalents	$	90.1	$	90.1	$	80.2	$	80.2
Short-term investments		5.8		5.8		6.6		6.6
Derivatives (Level 1 measurement):
Other non-current assets:
Foreign currency forward exchange contracts		0.7		0.7		1.0		1.0
Liabilities
Non-derivatives:
Long-term debt (including current portion)	$	139.7	$	139.7	$	148.0	$	148.0
Non-financial liabilities (Level 3 measurement):
Stock equivalent units		7.1		7.1		12.1		12.1
Acquisition-related contingent consideration		4.7		4.7		4.6		4.6

Foreign currency forward exchange contracts primarily relate to contracts entered into to hedge future known transactions or hedge balance sheet net cash positions. The movements in the carrying amounts and fair values of these contracts are largely due to changes in exchange rates against the U.S. dollar.

NOTE 11 – DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT

The Company has limited involvement with derivative instruments and does not trade them. The Company does use derivatives to manage certain interest rate, foreign currency exchange rate and raw material cost exposures, as the need arises. As at March 31, 2014 and December 31, 2013 the Company did not hold any interest rate or raw material derivatives.

The Company enters into various foreign currency forward exchange contracts to minimize currency exchange rate exposure from expected future cash flows. As at March 31, 2014 the contracts have maturity dates of up to one year at the date of inception. These foreign currency forward exchange contracts have not been designated as hedging instruments, and their impact on the income statement for the first three months of 2014 was $0.0 million.

The Company sells a range of Fuel Specialties, Performance Chemicals and Octane Additives products to major oil refineries, oil & gas exploration and production companies and chemical companies throughout the world. Credit limits, ongoing credit evaluation and account monitoring procedures are intended to minimize bad debt risk. Collateral is not generally required.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Jalal Bezee Mejel Al-Gaood & Partner litigation

On September 19, 2012, a claim was filed in the High Court of Justice in the United Kingdom by Jalal Bezee Mejel Al-Gaood & Partner and Future Agencies Company Limited (collectively “JAG”) against the Company, Innospec Limited and a former employee of Innospec Limited. The Company believes JAG was the former Iraq distributor for Afton Chemicals Limited, a subsidiary of NewMarket Corporation, from at least 2005 until termination of that relationship in 2010. The stated claim, inclusive of costs and expenses, is for up to $42.3 million and relates to alleged loss of profits for JAG’s business in Iraq between 2004 and 2010. The Company believes that the allegations in the JAG claim are without merit and intends to defend vigorously its interests.

Other legal matters

While we are involved from time to time in claims and legal proceedings that result from, and are incidental to, the conduct of our business including business and commercial litigation, employee and product liability claims, there are no other material pending legal proceedings to which the Company or any of its subsidiaries is a party, or of which any of their property is subject. It is possible, however, that an adverse resolution of an unexpectedly large number of such individual claims or proceedings could in the aggregate have a material adverse effect on results of operations for a particular year or quarter.

Guarantees

The Company and certain of the Company’s consolidated subsidiaries are contingently liable for certain obligations of affiliated companies primarily in the form of guarantees of debt and performance under contracts entered into as a normal business practice. This includes guarantees of non-U.S. excise taxes and customs duties. As at March 31, 2014, such contingent liabilities which are not recognized as liabilities in the consolidated financial statements amounted to $4.7 million.

Under the terms of the guarantee arrangements, generally the Company would be required to perform should the affiliated company fail to fulfil its obligations under the arrangements. In some cases, the guarantee arrangements have recourse provisions that would enable the Company to recover any payments made under the terms of the guarantees from securities held of the guaranteed parties’ assets.

The Company and its affiliates have numerous long-term sales and purchase commitments in their various business activities, which are expected to be fulfilled with no adverse consequences material to the Company.

NOTE 13 – STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION PLANS

At March 31, 2014, the Company had authorized common stock of 40,000,000 shares (December 31, 2013 – 40,000,000). Issued shares at March 31, 2014, were 29,554,500 (December 31, 2013 – 29,554,500) and treasury stock amounted to 5,168,037 shares (December 31, 2013 – 5,207,947).

The Company grants stock options and stock equivalent units (“SEUs”) from time to time as a long-term performance incentive. In certain cases the grants are subject to performance conditions such as the Company’s stock price. Where performance conditions apply the Monte Carlo simulation model is used to determine the fair values. Otherwise the Black-Scholes model is used to determine the fair values.

Stock option plans

The Company has four active stock option plans, two of which provide for the grant of stock options to employees and one provides for the grant of stock options to non-employee directors. The fourth plan is a savings plan which provides for the grant of stock options to all Company employees provided they commit to make regular savings over a pre-defined period which can then be used to purchase common stock upon vesting of the options. The stock options have discrete vesting periods which range from 24 months to 6 years and in all cases stock options granted expire within 10 years of the date of grant. All grants are at the sole discretion of the Compensation Committee of the Board of Directors. Grants may be priced at market value or at a premium or discount (including at no cost). The aggregate number of shares of common stock reserved for issuance which can be granted under the plans is 2,640,000.

The following table summarizes the transactions of the Company’s stock option plans for the three months ended March 31, 2014:


	Number of Options			Weighted Average Exercise Price		Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2013		447,390		$	7.33
Granted—at discount		55,176		$	0.00	$	33.44
—at market value		21,542		$	46.03	$	14.18
Exercised		(43,770	)	$	6.16
Forfeited		(2,844	)	$	10.36

Outstanding at March 31, 2014		477,494		$	8.32

At March 31, 2014, there were 158,829 stock options that were exercisable, of which 67,001 had performance conditions attached.

The Company’s policy is to issue shares from treasury stock to holders of stock options who exercise those options, but if sufficient treasury stock is not available, the Company will issue previously unissued shares of stock to holders of stock options who exercise options.

The total compensation cost for the first three months of 2014 was $0.6 million (2013 – $0.7 million). The total intrinsic value of options exercised in the first three months of 2014 was $0.5 million (2013 – $1.9 million).

The total compensation cost related to non-vested stock options not yet recognized at March 31, 2014 was $3.8 million and this cost is expected to be recognized over the weighted-average period of 2.31years.

Stock equivalent units

SEUs have discrete vesting periods which range from 11 months to 4 years and in all cases SEUs granted expire within 10 years of the date of grant. Grants may be priced at market value or at a premium or discount (including at no cost). There is no limit to the number of SEUs that can be granted. The liability for SEUs is located in accrued liabilities in the consolidated balance sheets until they are cash settled.

The following table summarizes the transactions of the Company’s SEUs for the three months ended March 31, 2014:


	Number of SEUs			Weighted Average Exercise Price		Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2013		403,262		$	3.64
Granted—at discount		48,213		$	0.00	$	33.04
—at market value		7,147		$	46.03	$	14.18
Exercised		(141,600	)	$	5.52
Forfeited		(3,847	)	$	9.60

Outstanding at March 31, 2014		313,175		$	3.21

At March 31, 2014 there were 100,593 SEUs that are exercisable, of which 88,645 had performance conditions attached.

The charges for SEUs are spread over the life of the award subject to a revaluation to fair value each quarter. The revaluation may result in a charge or a credit to the income statement in the quarter dependent upon our share price and other performance criteria.

The total compensation cost for the first three months of 2014 was $0.6 million (2013—$3.7 million). The total intrinsic value of SEUs exercised in the first three months of 2014 was $3.0 million (2013 – $1.2 million).

The weighted-average remaining vesting period of non-vested SEUs is 1.72 years.

Long-term incentive plan

In the first quarter of 2014, Innospec granted a long-term incentive plan to reward selected executives with a bonus for delivering exceptional performance. One of the elements of the plan is payable if the Innospec share performance matches or out-performs that of competitors, as measured by the Russell 2000 Index, over the performance period January 1, 2014 to December 31, 2016. The maximum bonus payable under this element of the plan is $3 million. Under GAAP this element is determined to be share-based compensation and as such the fair value of these liability cash-settled stock appreciation rights is calculated on a quarterly basis. The fair value is calculated using a Monte Carlo model and is summarized as follows:


(in millions)	2014
Balance at January 1	$	0.0
Compensation charge for the period		0.1

Balance at March 31	$	0.1

The following assumptions were used in the Monte Carlo model at March 31, 2014:


	2014
Dividend yield		1.11	%
Volatility of Innospec’s share price		36.0	%
Risk free interest rate		0.90	%

NOTE 14 – RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

Reclassifications out of accumulated other comprehensive loss for the first three months of 2014 were:


(in millions) Details about AOCL Components	Amount Reclassified from AOCL			Affected Line Item in the Statement where Net Income is Presented
Defined benefit pension plan items:
Amortization of prior service credit	$	(0.4	)	See ⁽¹⁾ below
Amortization of actuarial net losses		1.4		See ⁽¹⁾ below

		1.0		Total before tax
		(0.2	)	Income tax expense

		0.8		Net of tax

Total reclassifications	$	0.8		Net of tax

⁽¹⁾	These items are included in the computation of net periodic pension cost. See Note 6 for additional information.

Changes in accumulated other comprehensive loss for the first three months of 2014, net of tax, were:


(in millions)	Defined Benefit Pension Plan Items			Cumulative Translation Adjustments			Total
Balance at December 31, 2013	$	(120.2	)	$	(33.7	)	$	(153.9	)

Other comprehensive income/(loss) before reclassifications		0.0			(1.2	)		(1.2	)
Amounts reclassified from AOCL		0.8			0.0			0.8

Total other comprehensive income/(loss)		0.8			(1.2	)		(0.4	)

Balance at March 31, 2014	$	(119.4	)	$	(34.9	)	$	(154.3	)

NOTE 15 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”), which requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. To the extent the tax benefit is not available at the reporting date under the governing tax law or if the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and not combined with deferred tax assets. ASU 2013-11 is effective for annual periods, and interim periods within those years, beginning after December 15, 2013. The amendments are to be applied to all unrecognized tax benefits that exist as of the effective date and may be applied retrospectively to each prior reporting period presented. The implementation of the amended accounting guidance has not had a material impact on our consolidated financial statements.

NOTE 16 – RELATED PARTY TRANSACTIONS

Mr. Robert I. Paller has been a non-executive director of the Company since November 1, 2009. The Company has retained and continues to retain Smith, Gambrell & Russell, LLP (“SGR”), a law firm with which Mr. Paller holds a position. In the first three months of 2014 the Company incurred fees payable to SGR of $0.1 million (2013 full year – $1.0 million). As at March 31, 2014, the amount due to SGR from the Company was $0.1 million (December 31, 2013—$0.2 million).

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended March 31, 2014

This discussion should be read in conjunction with our unaudited interim consolidated financial statements and the notes thereto.

CRITICAL ACCOUNTING ESTIMATES

The policies and estimates that the Company considers the most critical in terms of complexity and subjectivity of assessment are those related to contingencies, environmental liabilities, pensions, deferred tax and uncertain income tax positions, goodwill, and other intangible assets (net of amortization) and property, plant and equipment. These policies have been discussed in the Company’s 2013 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

The following table provides operating income by reporting segment:


	Three Months Ended March 31
(in millions)	2014			2013
Net sales:
Fuel Specialties	$	164.2		$	140.0
Performance Chemicals		56.1			47.8
Octane Additives		0.4			11.6

	$	220.7		$	199.4

Gross profit:
Fuel Specialties	$	52.0		$	47.0
Performance Chemicals		13.6			10.5
Octane Additives		0.1			6.3

	$	65.7		$	63.8

Operating income:
Fuel Specialties	$	25.8		$	24.9
Performance Chemicals		6.5			5.0
Octane Additives		(1.2	)		4.8
Pension credit/(charge)		(0.8	)		(0.7	)
Corporate costs		(12.1	)		(11.5	)
Restructuring charge		(0.2	)		0.0
Impairment of Octane Additives segment goodwill		0.0			(0.3	)

Total operating income	$	18.0		$	22.2


	Three Months Ended March 31
(in millions, except ratios)	2014			2013			Change
Net sales:
Fuel Specialties	$	164.2		$	140.0		$	24.2		+17	%
Performance Chemicals		56.1			47.8			8.3		+17	%
Octane Additives		0.4			11.6			(11.2	)	-97	%

	$	220.7		$	199.4		$	21.3		+11	%

Gross profit:
Fuel Specialties	$	52.0		$	47.0		$	5.0		+11	%
Performance Chemicals		13.6			10.5			3.1		+30	%
Octane Additives		0.1			6.3			(6.2	)	-98	%

	$	65.7		$	63.8		$	1.9		+3	%

Gross margin (%):
Fuel Specialties		31.7			33.6			-1.9
Performance Chemicals		24.2			22.0			+2.2
Octane Additives		25.0			54.3			-29.3
Aggregate		29.8			32.0			-2.2

Operating expenses:
Fuel Specialties	$	(26.2	)	$	(22.1	)	$	(4.1	)	+19	%
Performance Chemicals		(7.1	)		(5.5	)		(1.6	)	+29	%
Octane Additives		(1.3	)		(1.5	)		0.2		-13	%
Pension credit/(charge)		(0.8	)		(0.7	)		(0.1	)	+14	%
Corporate costs		(12.1	)		(11.5	)		(0.6	)	+5	%

	$	(47.5	)	$	(41.3	)	$	(6.2	)	+15	%

Fuel Specialties

Net sales: the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate:

Three Months Ended March 31, 2014

Change (%)

Americas

EMEA

ASPAC

Avtel

Total

Volume

+11

-1

-13

Price and product mix

-16

-4

-1

Exchange rates

Acquisitions

+32

+13

+43

+10

-17

+17

Americas saw an increase in volumes in the first quarter of 2014 as a result of higher demand, while acquisitions, relating to Bachman, generated additional sales compared to 2013. EMEA volumes increased from the prior year due to higher demand, while benefiting from an improved price and product mix. EMEA benefited from favorable exchange rates driven primarily by a strengthening of the European Union euro against the U.S. dollar. Volumes were marginally lower in ASPAC combined with an adverse price and product mix as a result of lower sales of higher margin products. Avtel volumes decreased due to the timing of shipments to customers as opposed to any change in the long-term outlook for that market, while the price and product mix was negatively impacted by an adverse customer mix.

Gross margin : the year on year decrease of 1.9% primarily reflected lower sales in our higher margin Avtel business compared to a strong comparative quarter in 2013; and by an adverse price and product mix in ASPAC.

Operating expenses: the year on year increase of 19%, or $4.1 million, was due to $5.3 million of additional costs for the Bachman businesses; offset by a $1.1 million decrease in personnel-related compensation costs, primarily due to lower accruals for share-based compensation expense; and a $0.1 million decrease in other expenses.

Performance Chemicals

Net sales: the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate:

Three Months Ended March 31, 2014

Change (%)

Americas

EMEA

ASPAC

Total

Volume

-15

+27

-1

Price and product mix

-5

Exchange rates

Acquisitions

+35

+16

+21

+11

+24

+17

Volumes in the Americas were lower, primarily due to lower volumes in Fragrance Ingredients and for an industrial product. Acquisitions in the Americas, relating to Chemsil and Chemtec, generated additional sales compared to 2013. Volumes in EMEA were higher than the prior year, primarily due to higher volumes in Personal Care, combined with an improved price and product mix. EMEA benefited from favorable exchange rates driven primarily by a strengthening of the European Union euro against the U.S. dollar. ASPAC volumes were significantly higher in Personal Care and Fragrance Ingredients although adversely impacted by higher sales of lower margin products. ASPAC benefited from favorable exchange rates against the U.S. dollar.

Gross margin: the year on year increase of 2.2% primarily reflected improved price and product mix in our Personal Care market together with higher margins in our Chemsil business, partly offset by adverse price and product mix in ASPAC.

Operating expenses: the year on year increase of 29%, or $1.6 million, was primarily in respect of $2.1 million of additional costs for our Chemsil and Chemtec businesses, partly offset by a $0.5 million reduction in other costs including lower agents’ commission and lower personnel-related compensation driven by lower accruals for share-based compensation expense.

Octane Additives

Net sales: decreased by 97% with decreased volumes (down 94%), due to the timing of shipments and declining demand from major customers, and an adverse customer mix (down 2%), together with reduced revenue from our environmental remediation business (down 1%).

Gross margin: the year on year decrease of 29.3% was principally due to lower manufacturing volumes.

Operating expenses: the year on year decrease of $0.2 million was due to the efficient management of the cost base.

Other Income Statement Captions

Pension credit/(charge): is non-cash, and was a $0.8 million net charge in 2014 compared to $0.7 million net charge in 2013.

Corporate costs: the year on year increase of 5%, or $0.6 million, primarily reflected $0.9 million higher costs for amortization of the new information system platform; $1.5 million provision for insurance claims within the group; $0.4 million higher legal and other professional expenses; partly offset by $2.2 million lower personnel-related compensation costs, primarily due to lower accruals for share-based compensation expense.

Impairment of Octane Additives segment goodwill: was $0.0 million in 2014 and $0.3 million in 2013.

Other net income/(expense): other net income of $1.9 million primarily related to gains of $1.5 million on translation of net assets denominated in non-functional currencies in our European businesses. In 2013, other net income of $1.0 million primarily related to net foreign exchange gains on foreign currency forward exchange contracts.

Interest expense, net: was $0.9 million in 2014 and $0.3 million in 2013 due to the higher level of borrowing during 2014, used primarily to fund our acquisition activity.

Income taxes: the effective tax rate was 11.1% and 21.4% in 2014 and 2013, respectively. The adjusted effective tax rate, once adjusted for non-recurring items relating to the adjustment of income tax provisions, was 22.6% compared to 23.1% in the prior year. The 0.5% reduction was primarily due to the first quarter of 2014 benefiting to a minor extent from the positive impact of taxable profits in different geographical locations as compared to the first quarter of 2013. The Company believes that this adjusted effective tax rate, a non-GAAP financial measure, provides useful information to investors and may assist them in evaluating the Company’s underlying performance and identifying operating trends. In addition, management uses this non-GAAP financial measure internally to evaluate the performance of the Company’s operations and for planning and forecasting in subsequent periods.


	Three Months Ended March 31
(in millions)	2014			2013
Income before income taxes	$	19.0		$	22.9

Income taxes	$	2.1		$	4.9
Add back adjustment of income tax positions		2.2			0.4

	$	4.3		$	5.3

GAAP effective tax rate		11.1	%		21.4	%

Adjusted effective tax rate		22.6	%		23.1	%

LIQUIDITY AND FINANCIAL CONDITION

Working Capital

The Company believes that adjusted working capital, a non-GAAP financial measure, (defined by the Company as trade and other accounts receivable, inventories, prepaid expenses, accounts payable and accrued liabilities rather than total current assets less total current liabilities) provides useful information to investors in evaluating the Company’s underlying performance and identifying operating trends. Management uses this non-GAAP financial measure internally to allocate resources and evaluate the performance of the Company’s operations. Items excluded from the adjusted working capital calculation are listed in the table below and represent factors which do not fluctuate in line with the day to day working capital needs of the business.


(in millions)	March 31, 2014			December 31, 2013
Total current assets	$	394.6		$	407.4
Total current liabilities		(127.0	)		(155.6	)

Working capital		267.6			251.8
Less cash and cash equivalents		(90.1	)		(80.2	)
Less short-term investments		(5.8	)		(6.6	)
Less current portion of deferred tax assets		(8.7	)		(8.7	)
Less prepaid income taxes		(3.4	)		(11.4	)
Add back current portion of long-term debt		5.4			5.3
Add back current portion of plant closure provisions		5.4			6.2
Add back current portion of unrecognized tax benefits		0.0			6.8
Add back current portion of deferred tax liabilities		0.2			0.2
Add back current portion of deferred income		0.3			0.3

Adjusted working capital	$	170.9		$	163.7

In 2014 our adjusted working capital increased by $7.2 million, compared to a $1.1 million decrease in the first quarter of 2013, primarily due to higher payments to external suppliers subsequent to the year end.

The $13.8 million decrease in trade and other accounts receivable primarily reflects a decrease in our Octane Additives segment, with sales for the first quarter of 2014 being $25 million lower than the fourth quarter of 2013. Days’ sales outstanding in our Fuel Specialties segment decreased from 49 days to 44 days, whilst they increased slightly from 51 days to 52 days in our Performance Chemicals segment.

The $1.3 million increase in inventories is primarily due to increased inventories in our Octane Additives segment due to the timing of shipments expected early in the second quarter. Days’ sales in inventory in our Fuel Specialties segment remained unchanged at 79 days, whilst declining in our Performance Chemicals segment over the same period from 96 days to 83 days as the relatively high level of inventories at the year end was sold through.

Prepaid expenses decreased $1.4 million from $5.8 million to $4.4 million, primarily related to the normal expensing of prepaid costs.

The $21.1 million decrease in accounts payable and accrued liabilities was due to reductions across all our segments, primarily reflecting payments to external suppliers subsequent to the year end following our normally high sales in the fourth quarter, together with payments for personnel-related compensation. Creditor days in our Fuel Specialties segment decreased from 32 days to 30 days and in our Performance Chemicals segment decreased from 42 days to 26 days.

Operating Cash Flows

We generated cash from operating activities of $20.9 million in 2014 compared to $17.9 million in 2013. Year over year cash from operating activities has been impacted by lower net income, higher cash outflows for our working capital requirements, and significant movements in taxes. In 2014 our working capital requirements increased by $6.8 million, compared to a $2.0 million increase in 2013.

Cash

At March 31, 2014 and December 31, 2013 we had cash and cash equivalents of $90.1 million and $80.2 million, respectively, of which $84.1 million and $73.3 million, respectively, were held by non-U.S. subsidiaries principally in the United Kingdom. The Company is in a position to control whether or not to repatriate foreign earnings and intends to reinvest earnings to fund overseas subsidiaries. We currently do not expect to make a further repatriation in the foreseeable future and hence have not provided for future income taxes on the cash held by overseas subsidiaries. If circumstances were to change that would cause these earnings to be repatriated an additional U.S. tax liability could be incurred, and we continue to monitor this position.

Short-term investments

At March 31, 2014 and December 31, 2013, we had short-term investments of $5.8 million and $6.6 million, respectively.

Debt

At March 31, 2014, the Company had debt outstanding of $134.0 million under its credit facility, a $5.0 million promissory note and $0.7 million of debt financing within our acquired Bachman businesses. The credit facility provides for borrowings by us of up to $180 million until it expires on December 14, 2016 and may be drawn down in full in the U.S.. In addition, the Company can request an additional amount of up to $20 million to be committed by the lenders.

Item 3

Quantitative and Qualitative Disclosures about Market Risk

The Company uses floating rate debt to finance its global operations. The Company is subject to business risks inherent in non-U.S. activities, including political and economic uncertainty, import and export limitations, and market risk related to changes in interest rates and foreign currency exchange rates. The political and economic risks are mitigated by the stability of the countries in which the Company’s largest operations are located. Credit limits, ongoing credit evaluation and account monitoring procedures are used to minimize bad debt risk. Collateral is not generally required.

The Company uses derivatives, including interest rate swaps, commodity swaps and foreign currency forward exchange contracts, in the normal course of business to manage market risks. The derivatives used in hedging activities are considered risk management tools and are not used for trading purposes. In addition, the Company enters into derivative instruments with a diversified group of major financial institutions in order to manage the exposure to non-performance of such instruments. The Company’s objective in managing the exposure to changes in interest rates is to limit the impact of such changes on earnings and cash flows and to lower overall borrowing costs. The Company’s objective in managing the exposure to changes in foreign currency exchange rates is to reduce volatility on earnings and cash flows associated with such changes.

The Company offers fixed prices for some long-term sales contracts. As manufacturing and raw material costs are subject to variability the Company uses commodity swaps to hedge the cost of some raw materials thus reducing volatility on earnings and cash flows. The derivatives are considered risk management tools and are not used for trading purposes. The Company’s objective is to manage its exposure to fluctuating costs of raw materials.

The Company’s exposure to market risk has been discussed in the Company’s 2013 Annual Report on Form 10-K and there have been no significant changes since that time.

Item 4

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on an evaluation carried out as of the end of the period covered by this report, under the supervision and with the participation of our management, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) were effective as of March 31, 2014.

Changes in Internal Controls over Financial Reporting

The Company is continuously seeking to improve the efficiency and effectiveness of its operations and of its internal controls. This is intended to result in refinements to processes throughout the Company. There were no changes in the Company’s internal control over financial reporting, which were identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

Item 1

Legal Proceedings

Jalal Bezee Mejel Al-Gaood & Partner litigation

Other legal matters

Item 1A

Risk Factors

Information regarding risk factors appears in Item 1A of the Company’s 2013 Annual Report on Form 10-K and, in management’s view, there have been no material changes in the risk factors facing the Company since that time.

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities, nor any purchases of equity securities by the issuer in the quarter ended March 31, 2014.

Item 3

Defaults Upon Senior Securities

None.

Item 4

Mine Safety Disclosures

Not applicable.

Item 5

Other Information

None.

Item 6

Exhibits

10.1	Form of Indemnification Agreement for individual who is an officer (1)

10.2	Form of Indemnification Agreement for individual who is a director (1)

10.3	Form of Indemnification Agreement for individual who is an officer and director (1)

10.4	Employment contract for Brian Watt *

10.5	Innospec Inc. 2014 Long-Term Incentive Plan *

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	XBRL Instance Document and Related Items.

(1)	Incorporated by reference to the Form 8-K previously filed on February 27, 2014.

*	Denotes a management contract or compensatory plan.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date: May 7, 2014	By	/s/ PATRICK S. WILLIAMS
		Patrick S. Williams
		President and Chief Executive Officer

Date: May 7, 2014	By	/s/ IAN P. CLEMINSON
		Ian P. Cleminson
		Executive Vice President and Chief Financial Officer

Exhibit 10.4

LOGO

CONTRACT OF EMPLOYMENT

EMPLOYEE’S NAME : BRIAN R. WATT

Date: 1 March 2010

EXECUTIVE SERVICE AGREEMENT

Dated: 1 March 2010

PARTIES

EMPLOYER: Innospec Limited (registered number 00344359) whose registered office is at Innospec Manufacturing Park, Oil Sites Road, Ellesmere Port, Cheshire CH65 4EY (“the Company”).

EMPLOYEE: Mr B Watt of The Lodge, Husthwaite, York, YO61 4PD (“you”)

1.	INTERPRETATION

1.1	In this Agreement



“the Board”		means the board of directors of the Parent Company as the case may be and includes any committee of the Board duly appointed by it;

“Chairman”		means any person or persons jointly holding such office of the Parent Company from time to time and includes any person(s) exercising substantially the functions of a Chairman of the Parent Company;

“Confidential Information”		includes but is not limited to any trade secrets, names and contact details of customers and prospective customers, purchasing and sales agents, suppliers, prices charged to or charged by the Company and any Group Company, financial and budget information, and any other information of a confidential nature relating to the Company or any Group Company or information which has been given to the Company or any Group Company by a third party under a duty of confidence where such a duty has been made known to you and which is not in the public domain otherwise than by breach of your duties of confidentiality to the Company and any Group Company.



“Group Company”		includes the Parent Company and any holding company from time to time of the Company or any subsidiary or associated company from time to time of the Company or of any such holding company (for which purpose “holding company” and “subsidiary” have the meanings ascribed to them by section 736 of the Companies Act 1985 as amended by the Companies Act 1989 and “associated company” means any company which any such holding company or subsidiary holds or controls more than 20 per cent. of the equity share capital).

“Marketing Information”		means all and any information (whether or not recorded in documentary form or on computer disc or tape) relating to the marketing or sales of any product or service of the Company or any Group Company including without limitation sales targets and statistics, market share and pricing statistics, marketing surveys and plans, market research reports, sales techniques, price lists, discount structures, advertising and promotional material, the names, addresses, telephone numbers, contact names and identities of customers and potential customers of and suppliers and potential suppliers to the Company or any Group Company and the nature of their business operations, their requirements for any product or service sold to or purchased by the Company or any Group Company and all confidential aspects of their business relationship with the Company and Group Company.

“Parent Company”		means Innospec Inc. which is a company listed on the NASDAQ with its European headquarters being at the Company’s registered office.

“Termination Date”		means the date on which your employment under this Agreement terminates.

2.	APPOINTMENT

2.1

The Company appoints you to serve the Company and any other Group Company as Vice President Strategic Planning and Regulatory Affairs or in such other appointment as may from time to time be agreed. You accept that the Company and Parent Company may at its discretion require you to perform other duties or tasks not within the scope of your normal duties and you agree to perform those duties or undertake those tasks as if they were specifically required under this Agreement.

2.2	The appointment shall be deemed to have commenced on 1 January 2010 and shall continue until terminated by the Company or Parent Company under this Agreement in accordance with clauses 10.1, 11 or 20.1. Your period of continuous employment with the Company began on 22 January 2001.

2.3	With your prior consent, the Company or Parent Company may from time to time appoint any other person or persons to act jointly with you in your appointment.

2.4	You warrant that by virtue of entering into this Agreement you will not be in breach of any express or implied terms of any contract with or any other obligation to any third party binding upon you.

3.	DUTIES

3.1	You shall at all times during the period of this Agreement;

3.1.1

devote the whole of your time, attention and ability to the duties of your appointment;

3.1.2

faithfully and diligently perform those duties and exercise such powers consistent with them which are from time to time assigned to or vested in you;

3.1.3

obey all lawful and reasonable directions of the Board;

3.1.4

use your best endeavours to promote the interests of the Company and Group Companies;

3.1.5

keep the Board promptly and fully informed (in writing if so requested) of your conduct of the business or affairs of the Company and any other Group Company and provide such explanations in connection therewith as the Board may require;

3.1.6

not at any time make any untrue or misleading statement relating to the Company or any Group Company;

3.1.7

inform the Chairman promptly if you receive a solicitation from a competitor or potential competitor either on a personal or business basis which could be prejudicial to the best interests of the Company or its Group Companies.

4.	PLACE OF WORK

4.1

You will initially be employed at our Ellesmere Port site, but as a term of your employment you may also be required to work at or from any other of the Group Company’s establishments whether inside or outside of the United Kingdom. You may also be transferred or seconded between establishments when necessary as required by business needs. Whilst this Agreement provides for such transfer or secondment the Company and Parent Company will give careful and sympathetic consideration to your personal circumstances and career interests.

5.	REMUNERATION

5.1

Your basic salary will be £135,000 per annum from 1 March 2010 paid monthly in advance by credit transfer on or around the sixth of the month (excluding first month of employment where salary will be paid in arrears). Your salary will be reviewed on 1st March 2011 and every March thereafter. The fact that your salary may be increased in any year or years during your employment does not confer any right on you to receive any increase in any subsequent year.

5.2	The salary referred to in this clause will be inclusive of any director’s fees to which you may be entitled.

5.3

At the absolute discretion of the Compensation Committee of the Board, you may participate in the Management Incentive Compensation Plan. Your participation in the Management Incentive Compensation Plan will be subject always to such terms and targets as the Compensation Committee of the Board may determine from time to time. Currently your target bonus is 40%. The Compensation Committee reserve the right to change this target percentage at any time.

6.	HOURS OF WORK

6.1	The normal hours of work are 38 hours per week exclusive of lunch breaks.

6.2	It is recognised that the nature of your role will involve working extended hours, either during the working week or at weekends. This is accepted as a normal part of the working life of a global business and does not warrant either extra payment or time off in lieu.

6.3	You acknowledge that as a managing executive your employment falls within the scope of Regulation 20 of the Working Time Regulations 1998.

7.	COMPANY CAR

7.1	Subject to you being legally entitled to drive, you will be provided with a fully expensed Company car, including private fuel.

7.2	You may take a cash equivalent in lieu of a car. Currently the allowance is £13,650 per annum, such amount to be non-pensionable and will not be included in salary for bonus purposes. The Company reserves the right to change this amount.

7.3

You shall always comply with all regulations laid down by the Company and Parent Company from time to time with respect to company cars, shall follow their policies in the case of any accidents involving your Company car, shall immediately report to the Company and Parent Company any driving convictions in respect of which you are disqualified from driving a motor vehicle and, on the termination of your appointment whether lawfully or unlawfully, shall forthwith return your Company car.

8.	EXPENSES

8.1

The Company shall reimburse to you all expenses reasonably incurred by you in the proper performance of your duties subject to you complying with such guidelines or regulations issued by the Company and Parent Company from time to time in this respect and to the production by you to the relevant company of such vouchers or other evidence of actual payment of the expenses as it may reasonably require.

9.	HOLIDAYS

9.1

For a full year your holiday entitlement is 30 days per annum in addition to the English public bank holidays. Your holiday entitlements shall be in accordance with the Company’s Employee Handbook in force from time to time, but will not be greater than 30 days per annum, inclusive of any service related holidays.

10.	NOTICE AND GARDEN LEAVE

10.1

Subject to clause 11.1 below, the Company has the right to terminate your employment by giving you twelve months’ notice in writing. This will not apply in the event of gross misconduct. You are required to give the Company and Parent Company 6 months’ notice in writing of termination of employment, to be served, in accordance with clause 27.

10.2

After notice of termination has been given by either party pursuant to clause 10.1 or if you seek to or indicate an intention to resign from the Company or any Group Company or terminate your employment without notice, provided that you continue to be paid and enjoy your full contractual benefits until your employment terminates in accordance with the terms of this Agreement, the Board may in its absolute discretion without breaking the terms of this Agreement or giving rise to any claim against the Company or any Group Company for all or part of the notice period required under clause 10.1:

(i)

exclude you from the premises of the Company and any Group Company;

(ii)

require you to carry out specified duties (consistent with your status, role and experience) for the Company and any Group Company or to carry out no duties;

(iii)

announce to employees, suppliers and customers that you have been given notice of termination or have resigned (as the case may be);

(iv)

instruct you not to communicate orally or in writing with suppliers, customers, employees, agents or representatives of the Company or any Group Company until your employment hereunder has terminated.

For the avoidance of doubt, your duties and obligations under this Agreement continue to apply during any period of exclusion pursuant to this clause.

10.3	On commencement of any period of exclusion pursuant to clause 10.2 you will:

(i)

deliver up to the Company in accordance with clause 23 all property belonging to the Company or any Group Company; and

(ii)

resign in accordance with clause 24 from all offices and appointments you hold in the Company and any Group Company.

10.4	During any period of exclusion pursuant to clause 10.2 you will not be entitled to accrue any bonus/ profit share/ performance-related pay under this Agreement. Any untaken holiday entitlement accrued or likely to accrue up to the Termination Date should be taken during the period of exclusion.

10.5	Before and after termination of your employment, you will provide the Company and/or any Group Company with assistance regarding matters of which you have knowledge and/or experience in any proceedings or possible proceedings in which the Company and/or Group Company is or may be a party.

10.6	You agree to comply with all Company rules and policies as may be amended from time to time regarding the holding and dealing (whether directly or indirectly) of shares in the Company, subject to the Board’s discretion.

11.	CHANGE OF CONTROL

11.1	In the event that there is a Change of Control of the Parent Company, as defined in Appendix 1, then, for the 12 months following the date of the Change of Control,

11.1.1

If you terminate for “Good Reason”, as defined in Appendix 2, your employment with the Company, you will be entitled to 24 months’ compensation from the date of the Change of Control defined as base salary, bonus at target and any car allowance but excluding compensation for pension contributions other benefits and any other salary supplements.

11.1.2

If the Company serves notice to terminate your employment under this agreement, other than for gross misconduct, you will be entitled to 24 months’ compensation, as defined in 11.1.1. above, from the date of such notice.

12.	HEALTHCARE BENEFITS

12.1	You will be entitled to the following healthcare benefits:

12.1.1

Group Accident Insurance

You will be covered by the Company’s Group Accident Insurance in force from time to time. The Company’s Insurance Department will issue you with details of the scheme. The Company and Parent Company reserve the right to change the provider at its discretion.

12.1.2

Healthcare

You are entitled to membership of the Group Healthcare Scheme in place from time to time for your spouse and dependant children as well as yourself. The cost of the membership will be met by the Company. This is a taxable benefit. The Company and Parent Company reserve the right to change the provider at its discretion.

12.2

Your participation in the schemes referred to in this clause is subject to their respective rules from time to time and subject to you, your spouse and dependant children being eligible to participate or benefit from the schemes pursuant to their respective rules at a cost acceptable to the Company and Parent Company.

13.	SICKNESS ABSENCE

13.1

If you are absent because of sickness (including mental disorder) or injury you shall report this fact forthwith to the Chief Executive Officer and complete any self-certification forms which are required by the Company and Parent Company. If you are so prevented for seven or more consecutive days you shall provide a medical practitioner’s statement to the Senior Vice President, Human Resources on the eighth day and weekly thereafter so that the whole period of absence is certified by such statements.

13.2

If you are absent due to sickness (including mental disorder) or injury duly certified in accordance with the provisions of Clause 13.1 you shall be paid your full remuneration including benefits for up to one month’s absence in any period of twelve consecutive months and thereafter such remuneration, if any, as the Chief Executive Officer shall determine from time to time provided that such remuneration shall be inclusive of any Statutory Sick Pay to which you are entitled, any Social Security Sickness Benefit or other benefits recoverable by you (whether or not recovered) may be deducted there from.

13.3

If your sickness or injury shall be or appear to be occasioned by actionable negligence of a third party in respect of which damages are or may be recoverable, you shall immediately notify the Company and Parent Company of that fact and of any claim, compromise, settlement or judgment made or awarded in connection with it and shall give to the Company and Parent Company all particulars they may reasonably require and shall if required by the Company or Parent Company refund that part of any damages recovered relating to loss of earnings for the period of the incapacity as they may reasonably require, provided that the amount to be refunded shall not exceed the amount of damages or compensation recovered by you less any costs borne by you in connection with the recovery of such damages and or compensation and shall not exceed the total remuneration paid to you by way of salary in respect of the period of absence.

13.4	For Statutory Sick Pay purposes your qualifying days shall be your normal working days

13.5

The provisions of this clause and any right or prospective right you have or may have to receive any benefit under the Company’s Healthcare Scheme referred to in clause 12.1.2 will not prejudice or limit in any way the Company’s or Parent Company’s right to terminate this Agreement pursuant to its terms. In particular but without limitation the Company and Parent Company may terminate your employment pursuant to clause 10.1 for any reason and to clause 20.1 on the grounds set out in that clause even if such termination would prejudice or limit your rights or prospective rights under the Company’s Healthcare Scheme. The Company and Parent Company may terminate this Agreement pursuant to such clauses even if at the time of such termination, Company sick pay payable pursuant to this clause has not been exhausted.

14.	MEDICAL EXAMINATIONS

14.1

At any time during the period of your appointment you shall at the request and expense of the Company permit yourself to be examined by a registered medical practitioner to be selected by the Company or Parent Company and shall authorise such medical practitioner to disclose and discuss with the Company and Parent Company the result of such examination and any matters which arise from it.

15.	PENSION

15.1	The Company operates a defined contribution Group Personal Pension (GPP) for the benefit of employees.

If you join the GPP, there are two categories available:-

Category 1 : Contributions of 5% of pensionable salary from you and 15% from the Company.

Category 2 : Contributions of 10% of pensionable salary from you and 15% from the Company.

In addition, in recognition of your seniority, the Company will pay an additional 5% of your pensionable salary into the GPP regardless of which of the above categories you choose.

You may also contribute higher contributions up to the annual or lifetime allowance limit. You may also make additional contributions up to the higher of 100% of your salary or the Annual Allowance (see the Explanatory Booklet for further details). These are in addition to your contributions above and can be varied at any time.

15.2	For that element of your salary over the Company Pensions Cap, you will receive a 20% salary supplement paid monthly through payroll.

Alternatively, provided that any such payment is within the Inland Revenue annual and lifetime allowance limits, you can elect for this supplement to be paid directly into such personal pension arrangements as you may notify to the Company including, if eligible, into any additional voluntary contribution plan provided by the Company. This payment would not be included as base salary for bonus purposes and if paid as cash will be taxable.

16.	DEATH IN SERVICE BENEFIT

16.1	During your employment, you may participate in the Company’s death in service scheme, providing you with a lump sum benefit equivalent to four times your salary. From 1 April 2010 as a result of changes made for all Ellesmere Port based staff, this will increase to 6 times your salary.

16.2

Your participation in this scheme is subject to its rules form time to time (and replacement schemes provided by the Company or Parent Company) and subject to you being eligible to participate in or benefit from the scheme pursuant to its rules at a cost acceptable to the Company and Parent Company.

17.	INVENTIONS

17.1

You will promptly disclose to the Company and Parent Company and keep confidential all inventions copyright works, designs or technical know how conceived or made by you alone or with others in the course of your employment. You will hold all such intellectual property in trust for the Company and/or Parent Company and will do everything necessary or desirable at its expense to vest the intellectual property fully in the Company and/or Parent Company and/or to secure patent or other appropriate forms of protection for the intellectual property. Decisions as to the protection or exploitation of any intellectual property shall be in the absolute discretion of the Company and Parent Company.

17.2

You hereby assign to the Company and Parent Company by way of future assignment all copyright, design rights and other intellectual property rights for the full terms thereof throughout the world in respect of all copyright works and designs originated, conceived, written or made by you (except only those works or designs originated, conceived, written or made by you wholly outside your normal working hours which are wholly unconnected with your employment or the business of the Company and Parent Company) during the period of your employment by the Company.

17.3

You hereby irrevocably and unconditionally waive in favour of the Company and Parent Company any and all moral rights conferred on you of the Copyright Designs and Patents Act 1988 for any work in which copyright or design right is vested in the Company and Parent Company whether by Clause 17.2 or otherwise.

17.4	You shall, at the request and cost of the Company do all things necessary or desirable to substantiate the rights of the Company or Parent Company under Clauses 17.2 and/or 17.3.

18.	CONFIDENTIALITY

18.1	You acknowledge that the Company and its Group Companies possess or will possess a valuable body of Confidential Information and Marketing Information and that you have access to Confidential Information and Marketing Information in order that you may carry out the duties of your employment.

18.2

You acknowledge that you owe a duty of trust and confidence and a duty to act at all times in the best interests of the Company and any Group Company. You also acknowledge that the disclosure of any Confidential Information and/or Marketing Information to any competitor of the Company or any Group Company or to other third parties would place the Company or any Group Company at a serious competitive disadvantage and would cause serious financial and other damage to their businesses.

18.3	You agree not to make use of or disclose (either during the period of your employment by the Company or at any time after the Termination Date) any Confidential Information or Marketing Information.

18.4	You agree not to obtain or seek to obtain any financial advantage from the disclosure of any Confidential Information or Marketing Information acquired by you in the course of your employment with the Company.

19.	RESTRICTIVE COVENANTS

19.1	Within this Clause 19 the following words shall have the following meanings:


“Relevant Period”		shall mean the twelve month period prior to and ending on the Termination Date.

“Restricted Customer”		shall mean any person, firm, company or other entity who was at any time in the Relevant Period a customer of the Company or any Group Company with whom you had dealings.

“Prospective Customer”		shall mean any person, firm or company who was at the Termination Date negotiating with the Company or any Group Company with a view to dealing with the Company or any Group Company with whom you had dealings.

“Prohibited Business”		shall mean any business or activity carried on by the Company or any Group Company at the Termination Date or at any time in the Relevant Period in which you shall have been directly concerned in the course of your employment at any time in the Relevant Period.

“Protected Supplier”		shall mean any supplier or prospective supplier of the Company or any Group Company with whom you shall have had dealings in the course of your employment during the Relevant Period.

19.2

You shall not in competition with the Company or any Group Company during the period of twelve months after the Termination Date directly or indirectly on your own account or on behalf of or in conjunction with any person, firm or company or other organisation canvas or solicit or by any other means seek to conduct, or conduct Prohibited Business with any Restricted Customer with whom you shall have had material dealings during the course of your duties hereunder at any time in the Relevant Period.

19.3

You shall not in competition with the Company or any Group Company during the period of twelve months after the Termination Date directly or indirectly on your own account or on behalf of or in conjunction with any person, firm or company or other organisation canvas or solicit or by any other means seek to conduct Prohibited Business with or conduct Prohibited Business with any Prospective Customer with whom you shall have had material dealings in the course of your duties hereunder at any time in the Relevant Period.

19.4

You shall not during the period of twelve months after and during a six month period prior to the Termination Date directly or indirectly induce or seek to induce any employee being a manager or a director of the Company or any Group Company engaged in the Prohibited Business who was such an employee at the Termination Date and with whom you shall during the Relevant Period have had material dealings in the course of your duties hereunder to leave the employment of the Company or any Group Company whether or not this would be a breach of contract on the part of that employee.

19.5	You shall not during the period of twelve months after the Termination Date directly or indirectly seek to entice away from the Company or any Group Company or otherwise solicit or interfere with the relationship between the Company or any Group Company and any Protected Supplier.

19.6

Each of the restrictions contained in this Clause 19 is intended to be separate and severable. In the event that any of the restrictions shall be held void but would be valid if part of the wording thereof were deleted, such restriction shall apply with such deletion as may be necessary to make it valid and effective.

19.7	The Company reserves the right to update and change the restrictions in clauses 19.2 to 19.6 when circumstances dictate to reflect the changing nature of its business and protectable interests.

19.8

Each of the restrictions in each of Clauses 19.2 to 19.6 is considered by the parties to be reasonable in all the circumstances but if any such restriction shall be held by any Court to be void as going beyond what is reasonable in all the circumstances for the protection of the interests of the Company and Group Companies, the said restriction shall apply with such modifications as may be necessary to render it valid and effective.

20.	TERMINATION

20.1	The Company and Parent Company may by notice terminate your employment with immediate effect without compensation if you:

20.1.1

commit any act of gross misconduct or repeat or continue any other serious breach of your obligations under this Agreement; or

20.1.2

are guilty of any conduct which in the reasonable opinion of the Board brings you or the Company or its Group Companies into disrepute; or

20.1.3

breach the provisions of the Company’s Code of Ethics; or

20.1.4

are convicted of any criminal offence which in the reasonable opinion of the Board affects your position under this Agreement; or

20.1.5

commit any act of dishonesty whether relating to the Company, any Group Company, any of its or their employees or otherwise; or

20.1.6

become bankrupt or make any arrangement or composition with your creditors generally; or

20.1.7

have in the reasonable opinion of the Board become incompetent to perform your duties; or

20.1.8

become prohibited by law from being a director of a company or if you cease to be a director of the Company or any Group Company without the consent or concurrence of the Board.

21.	PERSONAL DATA

21.1

The Company needs to keep information about you for purposes connected with your employment. The sort of information it will hold includes information for payroll purposes, references, contact names and addresses and other personal details relating to your employment. Some of this information may also be processed by other organisations on our behalf.

21.2

The Company believes these uses are consistent with the principles of the Data Protection Act 1998. The information the Company holds will be for its management and administrative use only but it may, from time to time, need to disclose some information it holds about you to relevant third parties (eg The Inland Revenue). The Company may also transfer information about you to another Group Company (which may be outside of the European Economic Area) solely for purposes connected with your employment or the management of the business. You agree to the Company keeping the information for these purposes throughout your employment and following its termination.

21.3

You also agree to the Company keeping information about your health for the purposes of compliance with its health and safety and occupational health obligations; considering how your health affects your ability to do your job and, if you are or become disabled, whether you require any reasonable adjustments to be made to assist you at work; or in relation to the administration of insurance, pension, sick pay and any other related benefits in force from time to time.

21.4	You agree to the Company holding details of any unspent convictions that may affect your suitability for employment in addition to any other personal data it requires to ensure compliance with its Equal Opportunities Policy (eg race and/or ethnic origin).

22.	DEDUCTIONS

22.1

You hereby authorise the Company to deduct from your remuneration (which for this purpose includes salary, pay in lieu of notice, commission, bonus, holiday pay and sick pay) all debts owed by you to the Company or any Group Company, including but without limitation the balance outstanding of any loans (and interest where appropriate) advanced by the Company or Group Companies to you.

23.	DELIVERY OF DOCUMENTS AND PROPERTY

23.1

On termination of your employment for any reason (or earlier if requested) you will immediately deliver up to the Company or relevant Group Company all property (including but not limited to documents and software, credit cards, mobile telephone, computer equipment, facsimile machine, keys and security passes) belonging to the Company or any Group Company in your possession or under your control. Documents and software include (but are not limited to) correspondence, diaries, address books, databases, files, reports, minutes, plans, records, documentation or any other medium for storing information. Your obligations under this clause include the return of all copies, drafts, reproductions, notes, extracts or summaries (however stored or made) of all documents and software.

24.	RESIGNATION AS DIRECTOR

24.1	You will, if relevant, on termination of your employment for any reason at the request of the Board give notice resigning immediately without claim for compensation (but without prejudice to any claim you may have for damages for breach of this Agreement):

24.1.1

as a director of the Company and all such Group Companies of which you are a director; and

24.1.2

all trusteeships held by you of any pension scheme or other trusts established by the Company or any Group Company or any other company with which you have had dealings as a consequence of your employment with the Company.

24.2

If notice pursuant to clause 24.1 is not received by the relevant company within seven days of a request by the Company, or Group Company the Company and Group Company or either of them are irrevocably authorised to appoint a person to execute any documents and to do everything necessary to effect such resignation or resignations on your behalf.

24.3	Except with the prior written agreement of the Board, you will not during your employment under this Agreement resign from your office as a director or officer of the Company or any Group Company.

25.	DISCIPLINARY AND GRIEVANCE PROCEDURES

25.1

The Company’s disciplinary and grievance procedures are available from the HR Department. The spirit and principles of these procedures apply to you suitably adapted to reflect your seniority and status. Except and to the extent of any procedure implied by statute the Company’s disciplinary and grievance procedures are not incorporated by reference in this Agreement and therefore do not form any part of your contract of employment.

25.2	Disciplinary issues will be handled by the Chief Executive Officer with appeals to the Chairman or Board Committee appointed by the Chairman to deal with this.

25.3

If you have a grievance in relation to your employment or are dissatisfied with a disciplinary decision against you, you may apply in writing to the Chief Executive Officer who will decide the matter in question (unless the grievance or dissatisfaction relates to the Chief Executive Officer or any decision taken by the Chief Executive Officer, in which case you should apply to the Chairman). If you are dissatisfied with such decision you may refer the matter to the Chief Executive Officer or Board Committee appointed by the Chairman to deal with this whose decision will be final.

26.	THIRD PARTY RIGHTS

Apart from the provisions of this Agreement which are expressly or impliedly entered into by the Company for itself and as agent of and trustee for any Group Company the parties do not intend that this Agreement should confer any right or benefit on any third party.

27.	NOTICES

Notices under this Agreement by you to the Company or the Parent Company should be addressed to the Company or Parent Company and left at its registered office or European Headquarters respectively or sent by first class post or by facsimile transmission or other form of electronic delivery to its registered office or European Headquarters respectively and notices given by the Company or Parent Company to you should be served personally or sent by first class post or sent by facsimile transmission or other form of electronic delivery to your usual or last known place of residence in England. In case of service by post, the day of service will be 48 hours after posting and in the case of facsimile transmission or other electronic delivery the day of service will be the day of transmission by the sender.

28.	MISCELLANEOUS

28.1	This Agreement will be governed by and interpreted in accordance with the law of England and Wales.

28.2

The parties to this Agreement submit to the exclusive jurisdiction of the English Courts in relation to any claim, dispute or matter arising out of or relating to this Agreement.

28.3

Any delay by the Company in exercising any of its rights under this Agreement will not constitute a waiver of such rights.

28.4

There are no collective agreements which directly affect your terms and conditions of employment.

THIS AGREEMENT has been signed on behalf of the Company by a director and its secretary/two directors and executed and delivered as a deed by you on the date set out at the beginning.

LOGO

APPENDIX 1

Change of Control

“Change of Control” means a change in control of a nature that would be required to be reported in response to item 5 (f) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 of the United States of America, as amended (“Exchange Act”) whether or not the Company or the Parent Company is then subject to such reporting requirement; provided that, without limitation, such a change in control shall be deemed to have occurred if

(a) any “person” or “group” (as such terms are used in Section 13 (d) and 14 (d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Parent Company or the Company representing 30% or more of the combined voting power of the Parent Company or the Company respectively, then outstanding securities (other than the Parent Company or the Company, any employee benefit plan of the Company or the Parent Company); and, for purposes of this Agreement, no change in control shall be deemed to have occurred as a result of the “beneficial ownership”, or changes therein, of the Parent Company or the Company’s securities, respectively, by any of the foregoing,

(b) there shall be consummated (i) any consolidation or merger the Parent Company or the Company in which the Parent Company or the Company is not the surviving or continuing corporation or pursuant to which shares of the Parent Company or the Company’s Common Stock, respectively, would be converted into cash, securities or other property, other than a merger of the Parent Company or the Company in which the holders of the Parent Company’s or the Company’s Common Stock immediately prior to the merger have (directly or indirectly) at least a 70% ownership interest in the outstanding Common Stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Parent Company or the Company,

(c) the shareholders of the Parent Company or the Company approve any plan or proposal for the liquidation or dissolution of the Parent Company or the Company, or

(d) as the result of, or in connection with, any cash tender offer, exchange offer, merger or other business combination, sale of assets, proxy or consent solicitation (other than by the Board), contested election or substantial share accumulation (a “Control Transaction”), the members of the Board immediately prior to the first public announcement relating to such Control Transaction shall thereafter cease to constitute a majority of the Board.

APPENDIX 2

“Good Reason” exists if, without your express written consent,

(a) you are assigned duties materially inconsistent from your position, duties, responsibilities and status with the Company and the Parent Company immediately prior to the date of the Change of Control,

(b) the Company or Parent Company reduces your base salary as in effect immediately prior to the date of the Change of Control,

(c) the Company or Parent Company reduces your aggregate compensation and incentive and benefit package from that provided immediately prior to the date of the Change of Control,

(d) the Company or Parent Company requires you regularly to perform your duties of employment beyond a forty miles radius from the location of your place of employment at the date of the Change of Control,

(e) the Company or Parent Company takes any other action which materially and adversely changes the conditions of your employment in effect at the time of the Change of Control,

(f) the Company or Parent Company fails to obtain agreement from any successor to comply fully with the terms of this Agreement, or

(g) the Company or the Parent Company purports to terminate your employment other than pursuant to a notice of termination which satisfies the requirements of this Agreement.

Exhibit 10.5

INNOSPEC INC. 2014

LONG-TERM INCENTIVE PLAN

1. Purpose . The purpose of the Innospec Inc. 2014 Long-Term Incentive Plan (the “ Plan ”) is to retain and motivate certain key employees of Innospec Inc., a Delaware corporation (the “ Company ”) or its Subsidiaries through the grant of a Cash Incentive Award (as defined below) on the terms set forth herein. The Plan covers a three-year performance period beginning January 1, 2014 and ending on December 31, 2016 (the “ Performance Period ”) with the actual amount of the Cash Incentive Award payable to each eligible employee determined based on the achievement of specified performance measures and subject to the terms of the Plan as described below. Capitalized words and phrases not otherwise defined in the body of the Plan are defined pursuant to Section 11 of the Plan.

2. Grant of Cash Incentive Awards . Effective as of the Grant Date, each person who has received a Grant Letter which notified such person of his or her grant of a Cash Incentive Award pursuant to the Plan and specified the Maximum Bonus Amount for such person shall be a “ Participant ” in the Plan. The list of participation levels available to Participants granted a Cash Incentive Award are specified in Exhibit A . On or after the Grant Date but prior to December 31, 2014, the Committee may grant Cash Incentive Awards to additional Participants pursuant to a Grant Agreement with such award subject to the terms of the Plan and any additional terms specified in the Grant Agreement and with a Maximum Bonus Amount set forth in such Grant Agreement.

3. Distribution . On the Distribution Date, a Participant who remains in Good Standing shall be entitled to a single lump sum payment for his or her Cash Incentive Award (to the extent not previously forfeited) in an amount (the “ Distribution Payment ”) equal to the total of (a) the Relative Share Price Portion plus (b) the Earnings Per Share Portion plus (c) the Operating Income for Acquisition Business Portion all as determined pursuant to Exhibit B ; provided, however, that in the event that a Change in Control occurs prior to the last day of the Performance Period, each Participant shall become entitled to a payment on the thirty-day anniversary of such Change in Control in an amount equal the Maximum Bonus Amount for each Participant (to the extent not previously forfeited). For a Participant who was absent from work due to a Leave of Absence, such Participant shall only be entitled to receive a lump sum payment equal to his or her Distribution Payment as determined pursuant to the previous sentence further multiplied by the Leave of Absence Fraction. Upon payment of the Distribution Payment, if any, pursuant to this Section 3, all Cash Incentive Awards (which have not previously been forfeited or cancelled) shall be cancelled.

4. Termination of Employment Prior to Distribution Date . Except as otherwise provided in this Section 4 or as otherwise determined by the Committee, if the Participant’s Termination Date occurs for any reason prior to the Distribution Date and prior to a Change in Control or if the Participant fails to meet the requirements of Good Standing as of any date prior to the Distribution Date and prior to a Change in Control or if the Participant is under notice of termination, is on garden leave or has given notice of resignation prior to the Distribution Date and prior to a Change in Control, the Participant’s Cash Incentive Award shall be immediately forfeited and cancelled. If the Participant’s Termination Date occurs prior to the Distribution Date and prior to a Change in Control and if the Participant is a Good Leaver, then, to the extent determined by the Committee in its sole discretion, the Participant shall be entitled to receive a payment of the Cash Incentive Award in a single lump-sum payment no later than the sixty-day anniversary of such Termination Date with the amount of the Distribution Payment, if any, determined by the Compensation Committee in its sole discretion; provided, however, that in the event that the Cash Incentive Award held by a terminated Participant is intended to constitute Performance-Based Compensation, the Compensation Committee shall determine amount of the Distribution Payment that would have been earned based on the satisfaction of performance goals in Exhibit B determined as if the Performance Period ended as of the last day of the calendar year during which the Termination Date for such Participant occurs and, for the Relative Share Price Portion, determined using the average price during the last quarter of the year of such termination, for the Earnings Per Share Portion, determined based on the satisfaction of the Earnings Per Share Stretch Target for the year of such termination (which was used by the Committee in determining the appropriate Earning Per Share Stretch Target for 2016 for purposes of this Plan), and for the Operating Income for Acquisition Business Portion, determined based on the satisfaction of the Combined Target EBIT for the three acquired companies for the year of such termination (which was used by the Committee in determining the appropriate Combined Target EBIT for 2016 for purposes of this Plan) and the payment of the Distribution Payment shall be made no later than March 15 of the calendar year following the calendar year of the Termination Date. Upon payment of the Distribution Payment, if any, pursuant to this Section 4, all Cash Incentive Awards (which have not previously been forfeited or cancelled) shall be cancelled.

5. Restrictions on Transfer . No Cash Incentive Award (whether vested or unvested) or any other right under the Plan may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of to any third party other than the Company except by will or the laws of descent and distribution.

6. Notices . Except as expressly set forth to the contrary in the Plan, all notices, requests or consents provided for or required to be given hereunder shall be in writing and shall be deemed to be duly given if personally delivered or mailed by certified mail, return receipt requested, or nationally recognized overnight delivery service with proof of receipt maintained, if to the Company, at its principal office and, if to a Participant, at the last known address for the Participant on the Company’s records (or such address as the Company or Participant, may designate in writing). Any such notice shall, if delivered personally, be deemed received upon delivery; shall, if delivered by certified mail, be deemed received upon the earlier of actual receipt thereof or five days after the date of deposit in the United States mail, as the case may be; and shall, if delivered by nationally recognized overnight delivery service, be deemed received upon the first business day after the date of deposit with the delivery service. The Company or a Participant, as applicable, may waive any required notice by written waiver.

7. Miscellaneous .

(a)

No Implied Rights . Neither a Participant nor any other person shall, by reason of participation in the Plan, acquire any right in or title to any assets, funds or property of the Company or any of its Subsidiaries whatsoever, including, without limitation, any specific funds, assets, or other property which the Company or any of its Subsidiaries, in their sole discretion, may set aside in anticipation of a liability under the Plan. A Participant (or his estate) shall have only a contractual right to a Distribution Payment, if any, under the Plan, unsecured by any assets of the Company or any of its Subsidiaries, and nothing contained in the Plan shall constitute a guarantee that the assets of the Company or any of its Subsidiaries shall be sufficient to pay any benefits to any person. The grant and holding of a Cash Incentive Award shall not represent the grant or holding of an ownership interest in the Company or any of its Subsidiaries.

(b)

No Rights to Continued Employment . Neither the Plan nor any action taken or omitted to be taken hereunder shall be deemed to create or confer on any Participant any right to be retained in the employ of the Company or any of its Subsidiaries, or to interfere with or to limit in any way the right of the Company or any of its Subsidiaries to terminate the employment of any Participant at any time.

(c)

Restrictions on Distributions . Notwithstanding any other provision of the Plan, the Company shall have no obligation to make any distribution of benefits under the Plan unless such distribution complies with all applicable laws; provided , however , that if the restriction set forth in this Section becomes operative, the Company will use its reasonable efforts to restructure the form or manner of such distribution of benefits so that it is complaint with applicable law.

(d)

Successors . The Plan shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business.

(e)

Severability . Each provision of the Plan shall be considered severable and, if for any reason any provision or provisions herein is determined to be invalid, unenforceable or illegal under any existing or future law, such invalidity, unenforceability or illegality shall not impair the operation of or affect those portions of the Plan which are valid, enforceable and legal.

(f)

Tax Withholding . The grant, vesting, and distribution with respect to Cash Incentive Awards under the Plan are subject to withholding of all applicable taxes. The Company and its Subsidiaries shall have the right to deduct from all cash distributions made pursuant to the Plan any federal, state or local taxes required to be withheld with respect to such distributions. In no event whatsoever shall the Company or any Subsidiary be liable for any taxes, penalties or interest that may be imposed on a Participant under Section 409A of the Code or under any other similar provision of state tax law in connection with such Participant’s participation in the Plan or otherwise. By agreeing to participate in the Plan, the Participant acknowledges and agrees that he or she shall be liable for all taxes imposed on him or her as a result of participation in the Plan and in relation to payments received pursuant to the Plan, including, but not limited to, Section 409A of the Code and any other similar provision of state tax law.

(g)

No Restriction on Right of Company to Effect Corporate Changes . Neither the Plan nor the grant of a Cash Incentive Award hereunder shall affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business.

(h)

Governing Law . For Participants whose primary place of employment for the Company as of the Grant Date is in the United States, the Plan shall be governed by, and construed under, the laws of the State of Delaware (without regard to conflict of laws or principles), all rights and remedies being governed by such laws. For Participants whose primary place of employment for the Company as of the Grant Date is in the United Kingdom, the Plan shall be governed by, and construed under, English law, all rights and remedies being governed by such laws. For all other participants, the Plan shall be governed by, and construed under, the laws of the country where the Participant’s primary place of employment is located determined as of the Grant Date for such Participant.

(i)

Exhibits Incorporated Into Plan . Any Exhibit to the Plan is incorporated into and forms part of the Plan.

8. Administration of the Plan . The authority to control and manage the operation and administration of the Plan shall be vested in the Committee in accordance with this Section 8.

(a)

Authority of the Committee . The Committee’s administration of the Plan shall be subject to the following:

(i)

The Committee will have the authority and discretion to interpret the Plan, to establish and amend any rules and regulations relating to the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan.

(ii)

Any interpretation of the Plan by the Committee and any decision made by it under the Plan shall be final and binding on all persons.

(iii)

The Committee will have the authority and the discretion to determine the Distribution Payment amount pursuant to Sections 3 and 4. No participant shall be entitled to a Distribution Payment until the Committee has certified in writing the satisfaction of the applicable performance goals in Exhibits B, C and D.

(iv)

The Committee shall take such actions as it determines to be necessary or appropriate with respect to the Plan, and the Cash Incentive Awards granted under the Plan, to avoid acceleration of income recognition or the imposition of taxes under Section 409A of the Code.

(v)

Notwithstanding any other provision of the Plan, no benefit shall be distributed under the Plan unless the Committee, in its sole discretion, determines that such person is entitled to benefits under the Plan as determined in good faith by the Committee in accordance with the terms of the Plan and applicable law, and the Committee retains the discretion to reduce or eliminate a Participant’s right to receive Distribution Payment at any time and for any reason prior to the date that such payment is made to a Participant.

(b)

Delegation by Committee . Except to the extent prohibited by applicable law, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it, in any case other than Participants in the Plan. Any such allocation or delegation may be revoked by the Committee at any time.

9. Amendment and Termination . Notwithstanding anything herein to the contrary, the Committee may at any time terminate or amend, modify or suspend the Plan in whole or in part. The Committee may also, without the consent of any Participant, make such amendments or modifications to the Plan or any outstanding Cash Incentive Award as the Committee determines are reasonably necessary in order for the Plan or such Cash Incentive Award to (a) comply with, or avoid being subject to, Sections 409A of the Code and (b) comply with, or take into account changes in, applicable tax laws, accounting rules and other applicable laws, rules and regulations.

10. Section 409A of the Code . This Plan and the payments made pursuant to this Plan are intended to be interpreted and operated to the fullest extent possible so that the payments and benefits under this Plan shall be exempt from the requirements of Section 409A of the Code. It is intended that the Distribution Payment will in any event be paid pursuant to the terms of this Plan to each Participant who is a US Taxpayer within the period necessary to satisfy the exemption from Section 409A of the Code for short-term deferrals set forth in Treas. Reg. §1.409A-1(b)(4)(i) (which generally requires that payment be made not later than the fifteenth day of the third month after the end of the year in which the amount becomes vested).

11. Definitions . For purposes of the Plan, the following terms have the meanings set forth below:

(a)

“ Board ” means the Board of Directors of the Company.

(b)

“ Cash Incentive Award ” means an award to a Participant of the right to receive a Distribution Payment, if any, pursuant to the terms of the Plan and the applicable Grant Agreement. The Cash Incentive Awards granted to the named executive officers of the Company other than the Chief Executive Officer granted February 10, 2014 are intended to constitute Cash Incentive Awards and Performance-Based Compensation within the meaning of such terms as defined in the PRSOP.

(c)

“ Cause ” means the occurrence of any of the following:

(i)

A Participant commits any act of gross misconduct or repeat or continue any other serious breach of his or her duties under the applicable employment agreement; or

(ii)

A Participant is guilty of any conduct which in the reasonable opinion of the Board brings him or her or the Company or its Subsidiaries into disrepute; or

(iii)

A Participant breaches the provisions of the Company’s Code of Ethics; or

(iv)

A Participant is convicted of any criminal offence which in the reasonable opinion of the Board affects his or her position with the Company; or

(v)

A Participant commits any act of dishonesty whether relating to the Company, any Subsidiary, any of its or their employees or otherwise; or

(vi)

A Participant becomes bankrupt or makes any arrangement or composition with his or her creditors generally; or

(vii)

A Participant has in the reasonable opinion of the Board become incompetent to perform his or her duties; or

(viii)

A Participant has become prohibited by law from being a director of a company or ceased to be a director of the Company or any Subsidiary without the consent or concurrence of the Board.

(d)

“ Change in Control ” means a change in control of the Company of a nature that would be required to be reported in response to item 5 (f) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 of the United States of America, as amended (“Exchange Act”) whether or not the Company is then subject to such reporting requirement; provided that, without limitation, such a change in control shall be deemed to have occurred if:

(i)

any “person” or “group” (as such terms are used in Section 13 (d) and 14 (d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company respectively, then outstanding securities (other than the Company, any employee benefit plan of the Company or a Subsidiary); and, for purposes of this Plan, no change in control shall be deemed to have occurred as a result of the “beneficial ownership”, or changes therein, of the Company’s securities, respectively, by any of the foregoing,

(ii)

there shall be consummated (i) any consolidation or merger of the Company in which the Company is not the surviving or continuing corporation or pursuant to which shares of the Company’s Common Stock, respectively, would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company’s Common Stock immediately prior to the merger have (directly or indirectly) at least a 70% ownership interest in the outstanding Common Stock of the surviving corporation immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company,

(iii)

the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company, or

(iv)

as the result of, or in connection with, any cash tender offer, exchange offer, merger or other business combination, sale of assets, proxy or consent solicitation (other than by the Board), contested election or substantial share accumulation (a “Control Transaction”), the members of the Board immediately prior to the first public announcement relating to such Control Transaction shall thereafter cease to constitute a majority of the Board.

(e)

“ Code ” means the Internal Revenue Code of 1986, as amended, and any regulations and other official guidance issued thereunder.

(f)

“ Committee ” means the Compensation Committee of Board of Directors of the Company.

(g)

“ Distribution Date ” means the date that the Distribution Payment is paid by the Company and such date shall be between February 1, 2017 and March 31, 2017; provided, however, for any Participant who is a US Taxpayer, the Distribution Date shall be between February 1, 2017 and March 15, 2017.

(h)

“ Employer Company ” means the Company or a Subsidiary of the Company that employs a Participant.

(i)

“ Good Leaver ” means a Participant whose Termination Date occurs due to (i) death; (ii) disability; (iii) the Employer Company’s termination of the Participant’s employment without Cause (with Cause being determined by the Committee in its sole discretion consistent with Section 2(f)), including due to a redundancy; or (iv) the Participant’s retirement. The determination of whether a Participant is a Good Leaver shall be made by the Committee in its sole discretion and no Participant shall have any rights as a Good Leaver prior to the date that such determination is made by the Committee.

(j)

“ Good Standing ” means a Participant who has received a performance rating of a 3 (Good Performer) or better for each year of the Performance Period and who remains employed at the same level in the same or a similar role throughout the Performance Period.

(k)

“ Grant Agreement ” means a written letter executed by a member of the Committee (or someone who was delegated authority to sign on behalf of the Committee by the Committee) granting a Participant a Cash Incentive Award under the Plan.

(l)

“ Grant Date ” means February 10, 2014 for Participants who were granted Cash Incentive Awards by the Committee in a meeting on February 10, 2014. For any other Participants, the Grant Date means the date that such Participant was granted a Cash Incentive Award by the Committee.

(m)

“ Leave of Absence ” means a period of not less than a full month that a Participant is absent from work on leave that is approved by the Employer Company due to illness or other approved reason.

(n)

“ Leave of Absence Fraction ” means a fraction with a numerator equal to thirty-six (36) minus the number of full months that such Participant was on a Leave of Absence on or after the Grant Date and the denominator of which is equal to thirty-six (36).

(o)

“ Maximum Bonus Amount ” means the maximum amount of the Cash Incentive Award granted to each Participant in the Plan as specified in the Grant Agreement.

(p)

“ Participant ” means each person who is granted a Cash Incentive Award pursuant to the terms of the Plan and a Grant Agreement.

(q)

“ Performance-Based Compensation ” means performance-based compensation as defined in the PRSOP.

(r)

“ PRSOP ” means the Innospec Inc. Performance Related Stock Option Plan.

(s)

“ Subsidiary ” means a subsidiary corporation as defined in the PRSOP.

(t)

“ Termination Date ” means the first day occurring on or after the Grant Date on which the Participant is not employed by the Company or any of its Subsidiaries, regardless of the reason for the termination of employment; provided that a termination of employment shall not be deemed to occur by reason of a transfer of the Participant between the Company and a Subsidiary of the Company or between two Subsidiaries of the Company; and further provided that the Participant’s employment shall not be considered terminated while the Participant is on a bona fide Leave of Absence from the Company or a Subsidiary of the Company approved by the Employer Company. If, as a result of a transaction (other than a Change in Control) or otherwise, the Employer Company for which the Participant provides services ceases to be a Subsidiary of the Company, and the Participant ceases to be employed by the Company or an entity that is then a Subsidiary of the Company, then, such Participant’s Termination Date shall be deemed to have resulted and the Participant shall be deemed to be a Good Leaver.

(u)

“ US Taxpayer ” means a Participant who is a citizen or permanent resident of the United States for purposes of the Code or a Participant for whom the compensation payable pursuant to the Plan would otherwise be subject to United States federal income taxation under the Code.

EXHIBIT A

PARTICIPATION LEVELS


Level	Maximum Bonus Amount	Total Number of Participants at Each Level as of February 10, 2014
Level 1	$4,800,000	1
Level 2	$1,700,000	2
Level 3	$1,300,000	1
Level 4	$750,000	4
Level 5	$700,000	2
Level 6	$550,000	2

EXHIBIT B

CALCULATION OF DISTRIBUTION PAYMENT

The Distribution Payment, if any, for a Participant shall equal an amount equal to the total of the (a) Relative Share Price Portion plus (b) the Earnings Per Share Portion plus (c) the Operating Income for Acquisition Business Portion all as determined pursuant to this Exhibit B.

The amount of each portion of the Distribution Payment shall equal an amount determined by multiplying (x) the Maximum Bonus Amount by (y) applicable Weighting Percentage determined below by (z) the applicable Portion Percentage determined below.


Performance Measure	Weighting Percentage
Relative Share Price Portion		20	%
Earnings Per Share Portion		40	%
Operating Income for Acquisition Business Portion		40	%

Relative Share Price Portion : The Relative Share Price is a comparison of the Company’s share price at the beginning of the Performance Period in 2014 to the Company’s average share price during the last calendar quarter in 2016 as compared to the performance of the share price of the Companies in the Russell 2000 over the same time period. For purposes of this determination, the Committee has determined to use the price of $41.18 as the Company’s share price at the beginning of the performance period (determined using an average of the share price over the first six months in 2013).


Company’s Relative Share Price as compared to Relative Share Price of the Russell 2000	Relative Share Price Portion Percentage
10% out performance of Russell 2000		100	%
5% out performance of Russell 2000		75	%
Performance in line with Russell 2000		50	%
Performance below Russell 2000		0

Earnings Per Share Portion : The Earnings Per Share is determined as the earnings per share of the Company during 2016 excluding TEL and excluding costs related to TEL. The Earnings Per Share Stretch Target for 2016 was included in each Participant’s Grant Agreement.


Percentage of Earnings Per Share Stretch Target Achieved During 2016	Earnings Per Share Portion Percentage
100% or greater		100	%
95% or greater but less than 100%		75	%
90% or greater but less than 95%		50	%
Less than 90%		0

Operating Income for Acquisition Business Portion : The Operating Income for Chemsil/Chemtec, Strata and Bachman shall be determined as the earnings before interest and taxes (“EBIT”) for the three acquired entities added together for calendar year 2016. The Combined Target EBIT for 2016 for the three companies was included in each Participant’s Grant Agreement.


Percentage of Combined Target EBIT for Chemsil/Chemtec, Strata & Bachman Achieved for 2016	Acquisition Business Portion Percentage
110% or greater		100	%
100% or greater but less than 110%		75	%
90% or greater but less than 100%		50	%
Less than 90%		0

Exhibit 31.1

CERTIFICATION BY PATRICK S. WILLIAMS PURSUANT TO

SECURITIES EXCHANGE ACT 1934 RULE 13a-14 and 15d-14

I, Patrick S. Williams, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Innospec Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ PATRICK S. WILLIAMS

Patrick S. Williams

President and Chief Executive Officer

May 7, 2014

Exhibit 31.2

CERTIFICATION BY IAN P. CLEMINSON PURSUANT TO

SECURITIES EXCHANGE ACT 1934 RULE 13a-14 and 15d-14

I, Ian P. Cleminson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Innospec Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ IAN P. CLEMINSON

Ian P. Cleminson

Executive Vice President and Chief Financial Officer

May 7, 2014

Exhibit 32.1

Section 1350 Certification

by Patrick S. Williams

In connection with the Quarterly Report on Form 10-Q of Innospec Inc. (the “Company”) for the period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick S. Williams, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ PATRICK S. WILLIAMS

Patrick S. Williams

President and Chief Executive Officer

May 7, 2014

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of this Report or as a separate disclosure document.

A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission upon request.

Exhibit 32.2

Section 1350 Certification

by Ian P. Cleminson

In connection with the Quarterly Report on Form 10-Q of Innospec Inc. (the “Company”) for the period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ian P. Cleminson, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ IAN P. CLEMINSON

Ian P. Cleminson

Executive Vice President and Chief Financial Officer

May 7, 2014

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of this Report or as a separate disclosure document.

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