<SEC-DOCUMENT>0001193125-16-432047.txt : 20160321
<SEC-HEADER>0001193125-16-432047.hdr.sgml : 20160321
<ACCEPTANCE-DATETIME>20160119121533
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001193125-16-432047
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20160119

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INNOSPEC INC.
		CENTRAL INDEX KEY:			0001054905
		STANDARD INDUSTRIAL CLASSIFICATION:	CHEMICALS & ALLIED PRODUCTS [2800]
		IRS NUMBER:				981081725
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		8310 SOUTH VALLEY HIGHWAY
		STREET 2:		SUITE 350
		CITY:			ENGLEWOOD
		STATE:			CO
		ZIP:			80112
		BUSINESS PHONE:		303-566-0528

	MAIL ADDRESS:	
		STREET 1:		8310 SOUTH VALLEY HIGHWAY
		STREET 2:		SUITE 350
		CITY:			ENGLEWOOD
		STATE:			CO
		ZIP:			80112

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	OCTEL CORP
		DATE OF NAME CHANGE:	19980209
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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">January&nbsp;15, 2016 </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>VIA EMAIL AND EDGAR </B></P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Mr.&nbsp;Terence O&#146;Brien </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Accounting Branch Chief </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Division of Corporation Finance </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Securities and Exchange Commission </P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">100 F Street, N.E. </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Washington, D.C. 20549 </P> <P STYLE="font-size:12pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><B>Re:</B></TD>
<TD ALIGN="left" VALIGN="top"><B>Innospec, Inc. </B></TD></TR></TABLE>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><B>&nbsp;&nbsp;</B></TD>
<TD ALIGN="left" VALIGN="top"><B>Form 10-K for the Fiscal Year Ended December&nbsp;31, 2014 filed February&nbsp;17, 2015 </B></TD></TR></TABLE>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><B>&nbsp;&nbsp;</B></TD>
<TD ALIGN="left" VALIGN="top"><B>Form 10-Q for the Fiscal Quarter Ended September&nbsp;30, 2015 filed November&nbsp;4, 2015 </B></TD></TR></TABLE>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><B>&nbsp;&nbsp;</B></TD>
<TD ALIGN="left" VALIGN="top"><B>Definitive Proxy Statement on Schedule 14A filed March&nbsp;20, 2015 </B></TD></TR></TABLE>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><B>&nbsp;&nbsp;</B></TD>
<TD ALIGN="left" VALIGN="top"><B>File No.&nbsp;1-13879 </B></TD></TR></TABLE> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Dear Mr.&nbsp;O&#146;Brien: </P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">We are submitting this response to your letter dated December&nbsp;18, 2015 (the &#147;Comment Letter&#148;) in respect of the above-referenced filings
addressed to Ian Cleminson Chief Financial Officer, of Innospec Inc. (the &#147;Corporation,&#148; &#147;Company,&#148; &#147;we,&#148; &#147;us&#148; or &#147;our&#148;). We understand that you will be reviewing our response and may have additional
comments. We appreciate the additional time through January&nbsp;31, 2016 that you granted us to respond to your comments. </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">The responses set forth below
correspond to the numbering in the Comment Letter. In addition, for ease of reference, we have reproduced your comments in the Comment Letter in bold text before each response. Where relevant, our responses below include the proposed form of new or
modified disclosures to be made in our applicable future filings. Italicized text in our responses below represents proposed additional disclosure. </P>
<P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Form 10-K for the Fiscal Year Ended December&nbsp;31, 2014 </B></P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations, page 24 </B></P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Results of Operations, page 29 </B></P> <P STYLE="font-size:6pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD WIDTH="4%">&nbsp;</TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><B>1.</B></TD>
<TD ALIGN="left" VALIGN="top"><B>Based on your disclosures you expect sales for TEL to decline in future periods due to market conditions. Please expand your discussion to analyse this known trend and the expected impact on future operations.
Clarify the impact on sales and gross profit from the sales of TEL in the aviation and automotive markets during the periods presented and discuss the material changes between periods. Analyze the known events and trends impacting the marketability
of TEL and quantify the expected material impact on future operations and liquidity. Refer to Item 303 of Regulation S-K and SEC Release 33-8350 for guidance. </B></TD></TR></TABLE>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Company Response: Innospec supplies tetra ethyl lead (&#145;TEL&#146;) to the automotive market and supplies TEL to the piston engine aviation market under
the trade name AvTel. The Group separately reports the results of the supplies to the automotive business as the Octane Additives segment. The supply of TEL to the piston engine aviation market does not represent a separate segment of our Group.
Innospec has made a commitment to manufacture and supply AvTel to the industry until a suitable unleaded additive or fuel is found. While we feel the known trends and the impact on future operations in the Octane Additives business are well
disclosed we will provide additional disclosure in our future filings to clarify the nature of the AvTel product line and the long term uncertainty of the product line. </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Beginning with our Form 10-K for the year ended December&nbsp;31, 2015, we propose to revise such disclosure that was set out on page&nbsp;24 of our Form 10-K
for the year ended December&nbsp;31, 2014 as set forth in the example below: </P>

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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Executive Overview </B></P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Our business performance in 2014 grew in line with our expectations, as we delivered on our strategy to expand our oilfield specialties business. Sales in our
growth businesses of Fuel Specialties and Personal Care reflected the strength of our product portfolio and research and development pipeline in these markets. <I>Our Fuel Specialties segment also includes our AvTel product line, which comprises
sales of TEL for use in the piston engine aviation market. Innospec has made a commitment to manufacture and supply AvTel to the aviation industry until a suitable unleaded additive or fuel is found. We anticipate that this product line will decline
when an unleaded substitute is identified.</I> </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">The decline in our Octane Additives <I>segment</I> was in line with the final stages of transition to
unleaded gasoline <I>in the automotive market</I>. </P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">We have managed our investments in capital equipment, working capital and recruitment of additional
skilled personnel in line with these market factors. Our capital program and expenses during 2014 included the continued investment in a new information system platform, which we expect to add value to our business in future years. During 2014, we
completed the acquisition of Independence Oilfield Specialties LLC to further build out our presence in this market. </P> <P STYLE="font-size:12pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD WIDTH="4%">&nbsp;</TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><B>2.</B></TD>
<TD ALIGN="left" VALIGN="top"><B>In your earnings call for the fourth quarter of 2014 your management discussed, among other topics, the impacts of declining crude prices and global market conditions of your business, and their expectation of
declining revenues from your sole remaining customer for Octane Additives during 2015. Please ensure that your MD&amp;A contains a discussion of management&#146;s views regarding the trends and uncertainties that have had or that you reasonably
expect will have a material impacts on your results of operations. Please see Section III.B.3 of SEC Release 33-8350 and Item&nbsp;303(a)(3)(ii) of Regulations S-K and provide a discussion of such trends and uncertainties in future filings.
</B></TD></TR></TABLE> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Company Response: Beginning with our Form 10-K for the year ended December&nbsp;31, 2015, we propose to include such disclosure as set
forth in the sample disclosure below, in which we revised the information set out on page&nbsp;41 of our Form 10-K for the year ended December&nbsp;31, 2014 to reflect how it would have appeared on a revised basis. </P>
<P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Outlook </B></P> <P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><I>We are pleased with our operational
performance and results for 2014. The results reinforce our confidence in our strategy and approach to the market. Both our core businesses and acquisitions met or exceeded our expectations, and, importantly, provided exceptional cash inflows.
</I></P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><I>We continue to have expectations that our Fuel Specialties and Performance Chemicals business will deliver good performances in 2015. However, the
significant movement in crude oil prices is both an opportunity and a challenge for Innospec. We expect to benefit from lower raw material prices in Fuel Specialties and Performance Chemicals but we anticipate pressure on many of our customers,
notably in Oilfield Specialties. Our planned focus will be to continue to work with our customers, bring them the best available technology in the most cost-effective manner, and support them through this volatile period. </I></P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><I>We anticipate a decline in revenues from our Octane Additives segment. We have no firm contract from our sole remaining customer and thus have no clear
visibility for 2015, although we have received an inquiry from them regarding additional supply in 2015. </I></P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">At December&nbsp;31, 2014, The Company had
cash, cash equivalents and short-term investments of $46.3 million, long term debt of $139.4 million and finance leases of $2.2 million, giving total debt of $141.6 million, resulting in net debt of $95.3 million. </P>

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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">The Company expects to fund its operations over at least the next 12 months from a combination of operating cash
flows and its revolving credit facility. The Company has funded the acquisition of Independence in 2014 with existing cash and debt facilities which the Company believes will continue to provide adequate sources of liquidity for future working
capital needs. </P> <P STYLE="font-size:12pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD WIDTH="4%">&nbsp;</TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><B>3.</B></TD>
<TD ALIGN="left" VALIGN="top"><B>In future filings please clarify what the term AvTel refers to in your tables and in your discussion. If you do not provide and explanation that you sell tetraethyl lead to the general aviation market under the trade
name AvTel, the meaning of this word is unclear. </B></TD></TR></TABLE> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Company Response: We propose to clarify the term AvTel in our filings as per the
proposed disclosure in question&nbsp;1. </P> <P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Form 10-Q for the Fiscal Quarter Ended September&nbsp;30, 2015 </B></P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations, page 21 </B></P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Results of Operations, page 21 </B></P> <P STYLE="font-size:6pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD WIDTH="4%">&nbsp;</TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><B>4.</B></TD>
<TD ALIGN="left" VALIGN="top"><B>Please explain in MD&amp;A the underlying reasons for the changes in your estimate of the fair value of the contingent consideration associated with the acquisition of Independence Oilfield Chemicals during the nine
months ending September&nbsp;30, 2015. Discuss the assumptions underlying your estimate and analyse any material uncertainties and their potential to impact future operations. Refer to item 303 of Regulation S-K and SEC Release 33-8350.
</B></TD></TR></TABLE> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Company Response: In accordance with ASC 805-20-35-1, management have reviewed the contingent consideration payable on a quarterly
basis. Based on the market conditions at September&nbsp;30, 2015 we updated our forecasts to reflect the lower demand for our products. Accordingly this resulted in a decrease in the contingent consideration payable. As the adjustment is a result of
events occurring after the acquisition date, the resulting release is credited through the income statement. In future quarters if there is an adjustment to the fair value of the contingent consideration we propose to revise such disclosure as set
out on page&nbsp;21 of our <FONT STYLE="white-space:nowrap">Form&nbsp;10-Q</FONT> for the period ended September&nbsp;30, 2015 as set forth in the example below: </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Adjustment to fair value of contingent consideration: the credit of $8.5 million relates to an adjustment of the carrying value of the liability for
contingent consideration related to our Independence acquisition of $11.1 million, partly offset by the accretion charge of $2.6 million for the quarter. <I>The carrying value of the contingent consideration is based on the estimated EBITDA and free
cash flow generated by the Independence business through the period to October&nbsp;31, 2016. The contingent consideration payable is based on management&#146;s latest forecasts of the business and on the current trading performance. The results of
the business are particularly sensitive to the level of exploration, development and production activity of our customers in the oil and gas sector, this is directly affected by trends in oil prices.</I> </P>
<P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Definitive Proxy Statement on Schedule 14A file March&nbsp;20, 2015 </B></P>
<P STYLE="margin-top:6pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><B>Annual Incentives, page 23 </B></P> <P STYLE="font-size:6pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><B>5.</B></TD>
<TD ALIGN="left" VALIGN="top"><B>You state on page 24 that performance targets set for 2014 MICP incentive payments were based on &#147;corporate operating income (before restructuring)&#148; and &#147;consolidated operating cash flow,&#148; or
&#147;corporate free cash flow.&#148; While you do disclose the target amounts and the actual amounts achieved for bonus purposes, it is unclear how these measures themselves were determined. In future filings please include a brief discussion of
how your performance measures were determined. </B></TD></TR></TABLE> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Company Response: The Company will amend the disclosure to clarify how the performance
measures for the MICP are determined in future Proxy Statement filings beginning with the Proxy Statement filings beginning with the Proxy Statement for the 2016 annual meeting as follows: </P>

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 <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><I>The performance measures are established by the Compensation Committee and reviewed by them each year to
ensure they remain appropriate and focus on delivery of high performance while recognizing the economic and business challenges the Corporation faces. In 2015, the Compensation Committee determined that the appropriate measures were corporate
operating income, which is a measure of earnings, and consolidated operating cash flow, which is seen as a measure of working capital management. Where applicable for any NEO, the performance measures also include operating income and operating cash
flow for the individual businesses. These measures were chosen as they are designed to align the NEOs with the balanced objectives of increasing earnings and improving cash flow through working capital management, which the Compensation Committee
believe are key to the success of the Corporation. </I></P> <P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman" ALIGN="center">***** </P>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Pursuant to your Comment Letter request, the Company acknowledges that: </P> <P STYLE="font-size:6pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD WIDTH="4%">&nbsp;</TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left">-</TD>
<TD ALIGN="left" VALIGN="top">the Company is responsible for the adequacy and accuracy of the disclosure in the filings; </TD></TR></TABLE> <P STYLE="font-size:6pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD WIDTH="4%">&nbsp;</TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left">-</TD>
<TD ALIGN="left" VALIGN="top">Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filings; and </TD></TR></TABLE>
<P STYLE="font-size:6pt;margin-top:0pt;margin-bottom:0pt">&nbsp;</P>
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<TD WIDTH="4%">&nbsp;</TD>
<TD WIDTH="2%" VALIGN="top" ALIGN="left">-</TD>
<TD ALIGN="left" VALIGN="top">the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. </TD></TR></TABLE>
<P STYLE="margin-top:12pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">If you have any additional questions or comments, please feel free to contact me directly at 00 44 151 355 3611. </P>
<P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman"><U>/s/ Ian P. Cleminson </U></P> <P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Ian P. Cleminson </P>
<P STYLE="margin-top:0pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Executive Vice-President and Chief Financial Officer </P> <P STYLE="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">Cc:
Securities and Exchange Commission &#150; Tracey McKoy, Staff Accountant </P>
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