2012 ANNUAL REPORT
INGREDIENTS FOR SUCCESS
Innophos is a leading international producer of performance-critical and nutritional Specialty Ingredients, with applications in food,
beverage, dietary supplements, pharmaceutical, oral care and industrial end markets. Innophos combines more than a century of
experience in specialty phosphate manufacturing with a growing capability in a broad range of other Specialty Ingredients to supply
(cid:2)(cid:3)(cid:4)(cid:2)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:11)(cid:12)(cid:13)(cid:14)(cid:15)(cid:9)(cid:16)(cid:17)(cid:18)(cid:11)(cid:17)(cid:2)(cid:7)(cid:17)(cid:11)(cid:19)(cid:10)(cid:10)(cid:17)(cid:11)(cid:18)(cid:17)(cid:13)(cid:3)(cid:20)(cid:4)(cid:10)(cid:20)(cid:17)(cid:11)(cid:13)(cid:10)(cid:4)(cid:9)(cid:8)(cid:7)(cid:17)(cid:14)(cid:13)(cid:21)(cid:11)(cid:19)(cid:7)(cid:20)(cid:9)(cid:22)(cid:7)(cid:16)(cid:17)(cid:9)(cid:13)(cid:3)(cid:20)(cid:4)(cid:11)(cid:18)(cid:17)(cid:7)(cid:20)(cid:15)(cid:7)(cid:13)(cid:15)(cid:18)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:18)(cid:12)(cid:10)(cid:16)(cid:3)(cid:23)(cid:16)(cid:11)(cid:16)(cid:9)(cid:18)(cid:17)(cid:14)(cid:19)(cid:10)(cid:13)(cid:11)(cid:13)(cid:10)(cid:24)(cid:9)(cid:3)(cid:13)(cid:10)(cid:19)(cid:10)(cid:20)(cid:17)(cid:18)(cid:11)(cid:25)(cid:14)(cid:13)(cid:8)(cid:15)(cid:25)(cid:3)(cid:15)(cid:10)(cid:26)(cid:11)(cid:11)(cid:27)(cid:20)(cid:20)(cid:14)(cid:12)(cid:2)(cid:14)(cid:18)(cid:11)
(cid:3)(cid:18)(cid:11)(cid:16)(cid:14)(cid:20)(cid:17)(cid:3)(cid:20)(cid:9)(cid:7)(cid:8)(cid:8)(cid:21)(cid:11)(cid:15)(cid:10)(cid:6)(cid:10)(cid:8)(cid:14)(cid:12)(cid:3)(cid:20)(cid:4)(cid:11)(cid:20)(cid:10)(cid:25)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:3)(cid:20)(cid:20)(cid:14)(cid:6)(cid:7)(cid:17)(cid:3)(cid:6)(cid:10)(cid:11)(cid:28)(cid:12)(cid:10)(cid:16)(cid:3)(cid:7)(cid:8)(cid:17)(cid:21)(cid:11)(cid:27)(cid:20)(cid:4)(cid:13)(cid:10)(cid:15)(cid:3)(cid:10)(cid:20)(cid:17)(cid:18)(cid:11)(cid:17)(cid:2)(cid:7)(cid:17)(cid:11)(cid:7)(cid:15)(cid:15)(cid:13)(cid:10)(cid:18)(cid:18)(cid:11)(cid:18)(cid:12)(cid:10)(cid:16)(cid:3)(cid:23)(cid:16)(cid:11)(cid:16)(cid:9)(cid:18)(cid:17)(cid:14)(cid:19)(cid:10)(cid:13)(cid:11)(cid:7)(cid:12)(cid:12)(cid:8)(cid:3)(cid:16)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:18)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:7)(cid:13)(cid:10)(cid:11)(cid:18)(cid:9)(cid:12)(cid:12)(cid:14)(cid:13)(cid:17)(cid:10)(cid:15)(cid:11)(cid:29)(cid:21)(cid:11)
(cid:3)(cid:20)(cid:15)(cid:9)(cid:18)(cid:17)(cid:13)(cid:21)(cid:5)(cid:8)(cid:10)(cid:7)(cid:15)(cid:3)(cid:20)(cid:4)(cid:11)(cid:17)(cid:10)(cid:16)(cid:2)(cid:20)(cid:3)(cid:16)(cid:7)(cid:8)(cid:11)(cid:18)(cid:10)(cid:13)(cid:6)(cid:3)(cid:16)(cid:10)(cid:26)(cid:11)(cid:11)(cid:30)(cid:10)(cid:7)(cid:15)(cid:24)(cid:9)(cid:7)(cid:13)(cid:17)(cid:10)(cid:13)(cid:10)(cid:15)(cid:11)(cid:3)(cid:20)(cid:11)(cid:31)(cid:13)(cid:7)(cid:20)(cid:29)(cid:9)(cid:13)(cid:21)!(cid:11)"(cid:10)(cid:25)(cid:11)#(cid:10)(cid:13)(cid:18)(cid:10)(cid:21)!(cid:11)(cid:27)(cid:20)(cid:20)(cid:14)(cid:12)(cid:2)(cid:14)(cid:18)(cid:11)(cid:2)(cid:7)(cid:18)(cid:11)(cid:19)(cid:7)(cid:20)(cid:9)(cid:22)(cid:7)(cid:16)(cid:17)(cid:9)(cid:13)(cid:3)(cid:20)(cid:4)(cid:11)(cid:14)(cid:12)(cid:10)(cid:13)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:18)(cid:11)(cid:3)(cid:20)(cid:11)"(cid:7)(cid:18)(cid:2)(cid:6)(cid:3)(cid:8)(cid:8)(cid:10)!(cid:11)$"%(cid:11)
(cid:31)(cid:2)(cid:3)(cid:16)(cid:7)(cid:4)(cid:14)(cid:11)(cid:30)(cid:10)(cid:3)(cid:4)(cid:2)(cid:17)(cid:18)!(cid:11)(cid:27)’%(cid:11)(cid:31)(cid:2)(cid:3)(cid:16)(cid:7)(cid:4)(cid:14)(cid:11)()(cid:7)(cid:17)(cid:10)(cid:13)(cid:25)(cid:7)(cid:21)*!(cid:11)(cid:27)’%(cid:11)+(cid:10)(cid:3)(cid:18)(cid:19)(cid:7)(cid:13)!(cid:11)’/%(cid:11)1(cid:4)(cid:15)(cid:10)(cid:20)!(cid:11)3$%(cid:11)"(cid:14)(cid:13)(cid:17)(cid:2)(cid:11)(cid:28)(cid:7)(cid:8)(cid:17)(cid:11)’(cid:7)4(cid:10)!(cid:11)3$%(cid:11):(cid:7)(cid:17)(cid:10)(cid:13)(cid:18)(cid:14)(cid:20)!(cid:11)"#%(cid:11)+(cid:13)(cid:10)(cid:10)(cid:20)(cid:11):(cid:14)(cid:20)(cid:15)!(cid:11)(cid:28)(cid:31)%(cid:11):(cid:14)(cid:13)(cid:17)(cid:11);(cid:7)(cid:3)(cid:17)(cid:8)(cid:7)(cid:20)(cid:15)!(cid:11)
1"(cid:11)((cid:31)(cid:7)(cid:20)(cid:7)(cid:15)(cid:7)*%(cid:11)$(cid:7)(cid:3)(cid:16)(cid:7)(cid:20)(cid:4)(cid:11)((cid:31)(cid:2)(cid:3)(cid:20)(cid:7)*%(cid:11)(cid:31)(cid:14)(cid:7)(cid:17)<(cid:7)(cid:16)(cid:14)(cid:7)(cid:8)(cid:16)(cid:14)(cid:18)!(cid:11)=(cid:10)(cid:13)(cid:7)(cid:16)(cid:13)(cid:9)<(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:28)(cid:7)(cid:20)(cid:11)#(cid:14)(cid:18)(cid:10)(cid:11)(cid:15)(cid:10)(cid:11)(cid:27)(cid:17)(cid:9)(cid:13)(cid:29)(cid:3)(cid:15)(cid:10)(cid:11)(;(cid:3)(cid:18)(cid:18)(cid:3)(cid:14)(cid:20)(cid:11)(cid:30)(cid:3)(cid:8)(cid:8)(cid:18)*!(cid:11)+(cid:9)(cid:7)(cid:20)(cid:7)>(cid:9)(cid:7)(cid:17)(cid:14)(cid:11)(;(cid:10)?(cid:3)(cid:16)(cid:14)*(cid:26)
For more information please visit www.innophos.com.
Revenues by Segment
($ Millions)
935
810
862
714
667
579
Operating Income by Segment
($ Millions)
299
48
127
95
137
110
07
08
09
10
11
12
07
08
09
10
11
12
(cid:28)(cid:12)(cid:10)(cid:16)(cid:3)(cid:7)(cid:8)(cid:17)(cid:21)(cid:11):(cid:2)(cid:14)(cid:18)(cid:12)(cid:2)(cid:7)(cid:17)(cid:10)(cid:18)(cid:11)3(cid:28)@(cid:31)(cid:7)(cid:20)(cid:7)(cid:15)(cid:7)
(cid:28)(cid:12)(cid:10)(cid:16)(cid:3)(cid:7)(cid:8)(cid:17)(cid:21)(cid:11):(cid:2)(cid:14)(cid:18)(cid:12)(cid:2)(cid:7)(cid:17)(cid:10)(cid:18)(cid:11);(cid:10)?(cid:3)(cid:16)(cid:14)
+$(cid:28):(cid:11)E(cid:11)1(cid:17)(cid:2)(cid:10)(cid:13)
(cid:28)(cid:12)(cid:10)(cid:16)(cid:3)(cid:7)(cid:8)(cid:17)(cid:21)(cid:11):(cid:2)(cid:14)(cid:18)(cid:12)(cid:2)(cid:7)(cid:17)(cid:10)(cid:18)(cid:11)3(cid:28)@(cid:31)(cid:7)(cid:20)(cid:7)(cid:15)(cid:7)
(cid:28)(cid:12)(cid:10)(cid:16)(cid:3)(cid:7)(cid:8)(cid:17)(cid:21)(cid:11):(cid:2)(cid:14)(cid:18)(cid:12)(cid:2)(cid:7)(cid:17)(cid:10)(cid:18)(cid:11);(cid:10)?(cid:3)(cid:16)(cid:14)
+$(cid:28):(cid:11)E(cid:11)1(cid:17)(cid:2)(cid:10)(cid:13)
Cumulative Total Return Comparison
IPHS
Russell 2000 Index
400%
300%
200%
100%
0%
07
08
09
10
11
12
13
INNOPHOS ANNUAL REPORT 2012
DEAR FELLOW INNOPHOS INVESTORS,
We made good progress against our
strategic priorities in 2012 and positioned
the business for long-term growth.
During the year, we completed two
‘bolt-on’ acquisitions, complementing
the one completed in late 2011, which
enhanced Innophos’ position in attractive
high growth nutritional ingredients
end markets and as a leading Specialty
Ingredients producer. Additionally, we
continued to deliver on our geographic
growth objectives in Latin America and
Asia, and launched new, innovative
Specialty Ingredients for consumer-
oriented products.
(cid:27)(cid:20)(cid:11)(cid:17)(cid:10)(cid:13)(cid:19)(cid:18)(cid:11)(cid:14)(cid:22)(cid:11)(cid:23)(cid:20)(cid:7)(cid:20)(cid:16)(cid:3)(cid:7)(cid:8)(cid:11)(cid:12)(cid:10)(cid:13)(cid:22)(cid:14)(cid:13)(cid:19)(cid:7)(cid:20)(cid:16)(cid:10)!(cid:11)KMNK(cid:11)
saw Specialty Phosphates sales increase
6% primarily on higher prices, as volumes
were affected by economic weakness in
our key markets, offset by our growth
initiatives and recent acquisitions.
Specialty Phosphates operating income
declined by 7% from 2011 as market raw
(cid:19)(cid:7)(cid:17)(cid:10)(cid:13)(cid:3)(cid:7)(cid:8)(cid:11)(cid:16)(cid:14)(cid:18)(cid:17)(cid:11)(cid:3)(cid:20)U(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:11)(cid:16)(cid:7)(cid:9)(cid:4)(cid:2)(cid:17)(cid:11)(cid:9)(cid:12)(cid:11)(cid:17)(cid:14)(cid:11)(cid:8)(cid:7)(cid:18)(cid:17)(cid:11)
year’s price increase actions, primarily in
the U.S. and Canada.
That said, we continued to generate
(cid:18)(cid:17)(cid:13)(cid:14)(cid:20)(cid:4)(cid:11)(cid:22)(cid:13)(cid:10)(cid:10)(cid:11)(cid:16)(cid:7)(cid:18)(cid:2)(cid:11)U(cid:14)(cid:25)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:14)(cid:9)(cid:13)(cid:11)(cid:29)(cid:7)(cid:8)(cid:7)(cid:20)(cid:16)(cid:10)(cid:11)
sheet remained solid, both of which
allowed us to support our efforts to
maximize value for our shareholders in
KMNK(cid:26)(cid:11)$(cid:2)(cid:3)(cid:18)(cid:11)(cid:3)(cid:18)(cid:11)(cid:13)(cid:10)U(cid:10)(cid:16)(cid:17)(cid:10)(cid:15)(cid:11)(cid:3)(cid:20)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)(cid:17)(cid:25)(cid:14)(cid:11)(cid:15)(cid:3)(cid:6)(cid:3)(cid:15)(cid:10)(cid:20)(cid:15)(cid:11)
increases we announced during the year.
We now pay an attractive $0.35 per
share quarterly dividend, which has more
than doubled over the last two years.
Dividends will continue to be an avenue
to return value to our shareholders
going forward.
U.S. and Canada
In our U.S. and Canada Specialty
Phosphates business, sales increased
8% for the year on 5% higher prices and
3% growth from acquisitions. Operating
income performance was negatively
affected by the effects of 2011’s market
(cid:13)(cid:7)(cid:25)(cid:11)(cid:19)(cid:7)(cid:17)(cid:10)(cid:13)(cid:3)(cid:7)(cid:8)(cid:11)(cid:16)(cid:14)(cid:18)(cid:17)(cid:11)(cid:3)(cid:20)U(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:11)(cid:29)(cid:10)(cid:16)(cid:14)(cid:19)(cid:3)(cid:20)(cid:4)(cid:11)
more fully realized in cost of goods
sold, thus catching up to selling price
increases already achieved in earlier
periods. Our growth initiatives partially
offset moderately lower market demand
(cid:17)(cid:14)(cid:11)(cid:15)(cid:10)(cid:8)(cid:3)(cid:6)(cid:10)(cid:13)(cid:11)U(cid:7)(cid:17)(cid:11)(cid:6)(cid:14)(cid:8)(cid:9)(cid:19)(cid:10)(cid:11)(cid:12)(cid:10)(cid:13)(cid:22)(cid:14)(cid:13)(cid:19)(cid:7)(cid:20)(cid:16)(cid:10)(cid:11)(cid:14)(cid:20)(cid:11)
our base business excluding acquisitions.
Market weakness was accentuated by
some year-end customer destocking.
In terms of our strategic initiatives, we
continued to strengthen our innovative
product portfolio. We introduced new
products, technologies and blends
targeted at a diverse range of end
markets. Some of the more noteworthy
examples include a more cost effective
(cid:7)(cid:18)(cid:12)(cid:2)(cid:7)(cid:8)(cid:17)(cid:11)(cid:19)(cid:14)(cid:15)(cid:3)(cid:23)(cid:16)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)!(cid:11)(cid:22)(cid:9)(cid:13)(cid:17)(cid:2)(cid:10)(cid:13)(cid:11)(cid:7)(cid:15)(cid:15)(cid:3)(cid:17)(cid:3)(cid:14)(cid:20)(cid:18)(cid:11)(cid:17)(cid:14)(cid:11)
our industry leading calcium phosphates
targeting new applications, and creating
a wider portfolio of blends enabling
(cid:23)(cid:18)(cid:2)!(cid:11)(cid:19)(cid:10)(cid:7)(cid:17)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:12)(cid:14)(cid:9)(cid:8)(cid:17)(cid:13)(cid:21)(cid:11)(cid:19)(cid:7)(cid:20)(cid:9)(cid:22)(cid:7)(cid:16)(cid:17)(cid:9)(cid:13)(cid:10)(cid:13)(cid:18)(cid:11)
to reduce sodium and improve
processing yields. Product ranges that
were important to the 2012 success of
our subsidiary, Kelatron Corporation
(“Kelatron”), included a range of chromium
and selenium based ingredients. New
(cid:2)(cid:3)(cid:4)(cid:2)(cid:10)(cid:13)(cid:11)(cid:18)(cid:12)(cid:10)(cid:16)(cid:3)(cid:23)(cid:16)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:11)(cid:6)(cid:10)(cid:13)(cid:18)(cid:3)(cid:14)(cid:20)(cid:18)(cid:11)(cid:14)(cid:22)(cid:11)(cid:17)(cid:2)(cid:10)(cid:18)(cid:10)(cid:11)
products were introduced during the year
that we expect to support further growth
in 2013. We also achieved regulatory
approval for existing products in new
geographies. For example, Health Canada
approved Cal-Rise®, our calcium-based
(cid:16)(cid:2)(cid:10)(cid:19)(cid:3)(cid:16)(cid:7)(cid:8)(cid:11)(cid:8)(cid:10)(cid:7)(cid:6)(cid:10)(cid:20)(cid:3)(cid:20)(cid:4)(cid:11)(cid:7)(cid:4)(cid:10)(cid:20)(cid:17)(cid:11)(cid:18)(cid:12)(cid:10)(cid:16)(cid:3)(cid:23)(cid:16)(cid:7)(cid:8)(cid:8)(cid:21)(cid:11)
designed to reduce overall sodium
content in baked goods.
We will continue to develop new,
innovative products to meet the
growing needs of our customers
in support of major health trends.
_(cid:14)(cid:13)(cid:17)(cid:3)(cid:23)(cid:16)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:11)(cid:12)(cid:13)(cid:14)(cid:15)(cid:9)(cid:16)(cid:17)(cid:18)(cid:11)(cid:17)(cid:2)(cid:7)(cid:17)(cid:11)(cid:12)(cid:13)(cid:14)(cid:6)(cid:3)(cid:15)(cid:10)(cid:11)
consumers with essential minerals and
vitamins to promote heart and bone
INNOPHOS ANNUAL REPORT 2012
health are a focus of our diverse offering.
With the combination of our recent
acquisitions and resulting adjacent
technologies, we have the capabilities to
meet demand for high value applications
through continued product innovation.
Mexico
For the year, Mexico Specialty Phosphates
sales were up 1% on 6% higher prices
but 5% lower volumes due to a softer
market environment and some production
constraints that affected the second half of
2012. Despite this trend, operating income
(cid:25)(cid:7)(cid:18)(cid:11)U(cid:7)(cid:17)(cid:11)(cid:25)(cid:3)(cid:17)(cid:2)(cid:11)KMNN(cid:11)(cid:8)(cid:10)(cid:6)(cid:10)(cid:8)(cid:18)!(cid:11)(cid:15)(cid:10)(cid:19)(cid:14)(cid:20)(cid:18)(cid:17)(cid:13)(cid:7)(cid:17)(cid:3)(cid:20)(cid:4)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)
operational improvements we have made in
the business over the last few years.
$(cid:2)(cid:3)(cid:18)(cid:11)(cid:18)(cid:10)(cid:4)(cid:19)(cid:10)(cid:20)(cid:17)(cid:11)(cid:13)(cid:10)(cid:19)(cid:7)(cid:3)(cid:20)(cid:10)(cid:15)(cid:11)(cid:7)(cid:11)(cid:18)(cid:3)(cid:4)(cid:20)(cid:3)(cid:23)(cid:16)(cid:7)(cid:20)(cid:17)(cid:11)
area of operational focus as we
continued to strengthen our facilities,
further differentiate the product range
manufactured in Mexico and invest in
our supply chain while enhancing our
presence throughout the broader Latin
American region.
Combined with Kelatron, these three
businesses generate annual revenue in
excess of $50 million with EBITDA margins
in line with our more differentiated Specialty
Ingredients. They are well positioned in a
market segment which has continued to
grow at high single digit rates in spite of the
current challenging economic environment.
While the main value we see from these
acquisitions is in realizing their growth
potential and synergistically supporting
the growth of our Specialty Phosphates
products, we are also focused on operational
improvement. I am pleased to say that
cost synergy achievement is ahead of our
expectations as we enter 2013.
Going forward, we will continue to
explore additional ‘bolt-on’ acquisition
opportunities, and while we cannot
predict the timing of such acquisitions,
this remains an important part of our
overall growth strategy. Our ‘bolt-on’
acquisition strategy is based on building
an expanded product offering to support
our customers and complement our
existing portfolio.
We have made extensive progress in Mexico
in recent years and remain committed to
improving our manufacturing reliability and
capabilities with continued plant upgrades
that will enable us to evolve the business
towards more differentiated end markets.
We believe these efforts will position us well
for long-term growth throughout the region.
Investments
In recent years, we have invested heavily
in our geographic growth initiatives. Our
focus in Latin America, Eastern Europe and
the Middle East continues to be on new
market growth, operational and supply chain
enhancements and customer education.
Acquisitions
In the fourth quarter of 2011, Innophos
completed the acquisition of, Kelatron,
(cid:14)(cid:9)(cid:13)(cid:11)(cid:23)(cid:13)(cid:18)(cid:17)(cid:11)(cid:7)(cid:16)(cid:24)(cid:9)(cid:3)(cid:18)(cid:3)(cid:17)(cid:3)(cid:14)(cid:20)(cid:11)(cid:7)(cid:18)(cid:11)(cid:7)(cid:11)(cid:12)(cid:9)(cid:29)(cid:8)(cid:3)(cid:16)(cid:11)(cid:16)(cid:14)(cid:19)(cid:12)(cid:7)(cid:20)(cid:21)(cid:26)(cid:11)
This business performed very well in
2012, successfully achieving revenue
and cost synergies and providing early
strong evidence for the value we can
create through our acquisition strategy. In
2012, Innophos acquired two additional
companies that are highly complementary
to Kelatron and to each other and have
strong platforms for future growth in
attractive market segments.
On July 17th, Innophos acquired AMT Labs,
Inc., (“AMT”) headquartered in North Salt
Lake, Utah. AMT specializes in mineral
ingredients essential to the human diet
that are manufactured in various forms
to be better utilized by the body. Then on
December 31st, Innophos acquired the
business and assets of Triarco Industries,
Inc., (“Triarco”) based in New Jersey. Triarco
specializes in botanical- and enzyme-based
(cid:3)(cid:20)(cid:4)(cid:13)(cid:10)(cid:15)(cid:3)(cid:10)(cid:20)(cid:17)(cid:18)(cid:11)(cid:17)(cid:2)(cid:7)(cid:17)(cid:11)(cid:12)(cid:13)(cid:14)(cid:6)(cid:3)(cid:15)(cid:10)(cid:11)(cid:3)(cid:19)(cid:12)(cid:14)(cid:13)(cid:17)(cid:7)(cid:20)(cid:17)(cid:11)(cid:29)(cid:10)(cid:20)(cid:10)(cid:23)(cid:17)(cid:18)(cid:11)
in attractive markets such as sports
nutrition, dietary supplements and
(cid:22)(cid:14)(cid:13)(cid:17)(cid:3)(cid:23)(cid:10)(cid:15)(cid:11)(cid:29)(cid:10)(cid:6)(cid:10)(cid:13)(cid:7)(cid:4)(cid:10)(cid:18)(cid:26)(cid:11)
(cid:27)(cid:20)(cid:11)/(cid:18)(cid:3)(cid:7)(cid:11):(cid:7)(cid:16)(cid:3)(cid:23)(cid:16)!(cid:11)(cid:25)(cid:10)(cid:11)(cid:16)(cid:14)(cid:19)(cid:12)(cid:8)(cid:10)(cid:17)(cid:10)(cid:15)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)
construction of our food-grade blending
facility and food ingredient lab in China,
and submitted our application for our food
manufacturing license. While we expect
the licensing process to be completed
as early as the second quarter 2013, we
have already increased our commercial
resources in the region, both in sales and
technical service. We enter 2013 with our
(cid:18)(cid:17)(cid:13)(cid:14)(cid:20)(cid:4)(cid:10)(cid:18)(cid:17)(cid:11)(cid:10)(cid:6)(cid:10)(cid:13)(cid:11)(cid:12)(cid:13)(cid:10)(cid:18)(cid:10)(cid:20)(cid:16)(cid:10)(cid:11)(cid:3)(cid:20)(cid:11)/(cid:18)(cid:3)(cid:7)(cid:11):(cid:7)(cid:16)(cid:3)(cid:23)(cid:16)(cid:26)
In total, our capital expenditures in 2012
were $33 million, and included projects
we undertook in our core markets and
the investment in our China subsidiary.
In 2013, we expect capital expenditures
of approximately $40 - $45 million with a
continued focus on improving operations
at our Coatzacoalcos facility, as well as
investing in the Company’s overall quality
and safety programs. In addition, we will
continue to explore the value that our
Mexican mining concessions might bring
us in the future. We remain comfortable
in our leverage situation, and our capital
allocation strategy remains focused on
investing for growth, maintaining a strong
balance sheet and returning excess cash
to shareholders.
Looking Ahead
We continue to believe that our position
as a market leader, driven by our
innovation and geographic expansion,
will enable us achieve our long-term
growth target of twice the rate of
market growth.
As we start the year, we are continuing to
experience challenging market conditions,
in particular with our Granulated Triple
Superphosphate (“GTSP”) & Other
business which is expected to continue
(cid:20)(cid:10)(cid:7)(cid:13)(cid:11)(cid:29)(cid:13)(cid:10)(cid:7)4(cid:5)(cid:10)(cid:6)(cid:10)(cid:20)(cid:11)(cid:17)(cid:2)(cid:13)(cid:14)(cid:9)(cid:4)(cid:2)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)(cid:23)(cid:13)(cid:18)(cid:17)(cid:11)(cid:24)(cid:9)(cid:7)(cid:13)(cid:17)(cid:10)(cid:13)(cid:26)(cid:11)(cid:11)
Although the destocking effect we saw
at the end of December was short lived
with January orders recovering well, we
(cid:15)(cid:14)(cid:11)(cid:20)(cid:14)(cid:17)(cid:11)(cid:12)(cid:13)(cid:10)(cid:18)(cid:10)(cid:20)(cid:17)(cid:8)(cid:21)(cid:11)(cid:10)?(cid:12)(cid:10)(cid:16)(cid:17)(cid:11)(cid:7)(cid:20)(cid:21)(cid:11)(cid:18)(cid:3)(cid:4)(cid:20)(cid:3)(cid:23)(cid:16)(cid:7)(cid:20)(cid:17)(cid:11)
improvement in underlying market
demand for Specialty Phosphates.
We are focused on the areas which we
can control, such as product line execution
that will drive the above-market
growth and new product innovation.
This includes ingredients that provide
(cid:16)(cid:7)(cid:8)(cid:16)(cid:3)(cid:9)(cid:19)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:14)(cid:17)(cid:2)(cid:10)(cid:13)(cid:11)(cid:19)(cid:3)(cid:20)(cid:10)(cid:13)(cid:7)(cid:8)(cid:11)(cid:22)(cid:14)(cid:13)(cid:17)(cid:3)(cid:23)(cid:16)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:11)
options for foods and beverages and
those that reduce sodium content in
baked goods and proteins. We believe
we can leverage these focused areas into
long-term growth, along with operational
improvement to drive cost and revenue
synergies from our three recent
acquisitions. Our continued execution on
our growth strategies will enable us to
achieve our long-term objectives.
Finally, we will continue to take the
necessary steps to ensure we are
maximizing shareholder value by
(cid:8)(cid:10)(cid:6)(cid:10)(cid:13)(cid:7)(cid:4)(cid:3)(cid:20)(cid:4)(cid:11)(cid:14)(cid:9)(cid:13)(cid:11)(cid:18)(cid:17)(cid:13)(cid:14)(cid:20)(cid:4)(cid:11)(cid:16)(cid:7)(cid:18)(cid:2)(cid:11)U(cid:14)(cid:25)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)
balance sheet both to support growth
and improve cash returns to shareholders.
Our track record is established against
these objectives as evidenced by our
recent acquisitions and two dividend
increases completed in 2012. With a
strong balance sheet and ample liquidity,
we are well positioned to continue
delivering against our goals in
2013 and beyond.
In closing, I want to thank our employees,
our customers and our stakeholders.
Randy Gress
(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:5)(cid:10)(cid:11)(cid:12)(cid:4)(cid:13)(cid:5)(cid:7)(cid:14)(cid:6)(cid:15)(cid:10)(cid:5)(cid:16)(cid:7)(cid:17)(cid:7)(cid:2)(cid:3)(cid:18)(cid:4)(cid:16)(cid:19)(cid:18)(cid:20)
April 25, 2013
222221100 21210100 211002222222
20122221210100222201222212100 2121010022222
ACHIEVVVVEVEIHHHCCACAAA
ACHIEVEMMEEV MMEEVEEVEVVEVEEI VVEVEI VEVEEI VVEVEIHHCHCCHHHCCACHHCHCCHHHCCACAAAAAAAAAAAA
EMENTS
EMENTS
Acquired AMT and Triarco
which, combined with
Kelatron, provide a strong
platform for future growth
in attractive nutritional
ingredients markets.
Continued investment in US /
Canada and Mexico Specialty
Ingredients facilities to
support growth objectives.
Continued investment in
support of Mexico’s capability
to process multiple grades of
phosphate rock consistent
with the Company’s supply
(cid:16)(cid:2)(cid:7)(cid:3)(cid:20)(cid:11)(cid:15)(cid:3)(cid:6)(cid:10)(cid:13)(cid:18)(cid:3)(cid:23)(cid:16)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:11)(cid:18)(cid:17)(cid:13)(cid:7)(cid:17)(cid:10)(cid:4)(cid:21)(cid:26)
Expanded geographically into
high-growth areas through
the completion of our new
blending facility and food lab
in Taicang, China.
Increased quarterly dividend
twice to the current rate
of $0.35/share, more than
doubling the dividend in
two years.
(cid:28)(cid:17)(cid:13)(cid:14)(cid:20)(cid:4)(cid:11)(cid:16)(cid:7)(cid:18)(cid:2)(cid:11)U(cid:14)(cid:25)(cid:11)(cid:22)(cid:13)(cid:14)(cid:19)(cid:11)
operations of over $100
million supported increased
growth investment and higher
dividend payments with only
$24 million of additional
borrowing required.
~(cid:10)(cid:23)(cid:20)(cid:7)(cid:20)(cid:16)(cid:10)(cid:15)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)(cid:10)?(cid:3)(cid:18)(cid:17)(cid:3)(cid:20)(cid:4)
credit facility, reducing
interest rates, adding $100
million of revolver capacity,
and extending maturities out
to 2017.
MMMMMMMMRRERE MRMRREE MRREREETTG ETTTGG ETT-GGGNNONGGNGNNO GGNNONOOLOLOOOLLOOLOL
GGNNONGGGGNGNGNNNNOOOOLOLOOOOOOLLLL
LONG TERM
TET-G EETTTTTTGGGG
RMRERE MMRMRMRRRREEEE
MMMMMMMM
LONG-TERM
GOALS
OOGGGOOOGGGOOGGGOOOOOGGGGGOOOOGGGGGG
LLAAO LLAAAOO LALAAOALLLLAAAAAAOO LLLLAAAAOO
SSSSSSSSSSSSSSS
GOALS
We continue to target Specialty Phosphate operating income growth rates of 7% to
10% per year through 2015. This will be achieved by targeting organic volume growth,
averaging 4% to 6% per year, which represents approximately double the Company’s
estimated market rate of growth, and by sustaining or moderately improving the
(cid:12)(cid:13)(cid:14)(cid:23)(cid:17)(cid:7)(cid:29)(cid:3)(cid:8)(cid:3)(cid:17)(cid:21)(cid:11)(cid:14)(cid:22)(cid:11)(cid:14)(cid:9)(cid:13)(cid:11)(cid:4)(cid:13)(cid:14)(cid:25)(cid:3)(cid:20)(cid:4)(cid:11)(cid:6)(cid:14)(cid:8)(cid:9)(cid:19)(cid:10)(cid:11)(cid:29)(cid:7)(cid:18)(cid:10)(cid:26)(cid:11))(cid:10)(cid:11)(cid:16)(cid:9)(cid:13)(cid:13)(cid:10)(cid:20)(cid:17)(cid:8)(cid:21)(cid:11)(cid:10)?(cid:12)(cid:10)(cid:16)(cid:17)(cid:11)KMN(cid:127)(cid:11)(cid:6)(cid:14)(cid:8)(cid:9)(cid:19)(cid:10)(cid:11)(cid:4)(cid:13)(cid:14)(cid:25)(cid:17)(cid:2)!(cid:11)
(cid:10)?(cid:16)(cid:8)(cid:9)(cid:15)(cid:3)(cid:20)(cid:4)(cid:11)(cid:29)(cid:10)(cid:20)(cid:10)(cid:23)(cid:17)(cid:18)(cid:11)(cid:22)(cid:13)(cid:14)(cid:19)(cid:11)(cid:7)(cid:16)(cid:24)(cid:9)(cid:3)(cid:18)(cid:3)(cid:17)(cid:3)(cid:14)(cid:20)(cid:18)(cid:11)(cid:16)(cid:14)(cid:19)(cid:12)(cid:8)(cid:10)(cid:17)(cid:10)(cid:15)(cid:11)(cid:3)(cid:20)(cid:11)KMNK!(cid:11)(cid:17)(cid:14)(cid:11)(cid:29)(cid:10)(cid:11)(cid:7)(cid:17)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)(cid:8)(cid:14)(cid:25)(cid:11)(cid:10)(cid:20)(cid:15)(cid:11)(cid:14)(cid:22)(cid:11)(cid:14)(cid:9)(cid:13)(cid:11)(cid:128)(cid:129)(cid:11)
to 6% targeted growth rate.
This is further supported by the strength of our leading market position in an attractive
industry that is less vulnerable to economic cycles. The following highlight our plan to
successfully execute on our long-term goals:
Target growth through product
innovation and geographic
expansion, both organically and
through acquisition.
Maintain and impr
Maintain and improve our
margins through the value of our
margins through the valu
products and the strength of our
products and the strength o
business mix.
business mix.
Strengthen our already attractive
strategic position particularly
by continuing to enhance our
industry leading supply chain.
(cid:31)(cid:14)(cid:20)(cid:17)(cid:3)(cid:20)(cid:9)(cid:3)(cid:20)(cid:4)(cid:11)(cid:18)(cid:17)(cid:13)(cid:14)(cid:20)(cid:4)(cid:11)(cid:16)(cid:7)(cid:18)(cid:2)(cid:11)U(cid:14)(cid:25)(cid:11)(cid:17)(cid:14)(cid:11)
support our growth investments
as well as cash returns to
shareholders.
INNOPHOS ANNUAL REPORT 2012
Recent Acquisitions
The combined businesses of Kelatron, AMT and Triarco enhance
Innophos’ position in attractive high growth nutritional ingredients
end markets with combined annual revenues in excess of $50 million.
The addition of these businesses strengthens Innophos’ position in the
high-value and growing nutritional Specialty Ingredients and Mineral
_(cid:14)(cid:13)(cid:17)(cid:3)(cid:23)(cid:16)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:11)(cid:19)(cid:7)(cid:13)4(cid:10)(cid:17)(cid:18)(cid:26)(cid:11)$(cid:2)(cid:10)(cid:11)(cid:31)(cid:14)(cid:19)(cid:12)(cid:7)(cid:20)(cid:21)(cid:11)(cid:16)(cid:14)(cid:20)(cid:17)(cid:3)(cid:20)(cid:9)(cid:10)(cid:18)(cid:11)(cid:17)(cid:14)(cid:11)(cid:19)(cid:7)?(cid:3)(cid:19)(cid:3)<(cid:10)(cid:11)(cid:3)(cid:17)(cid:18)(cid:11)(cid:13)(cid:7)(cid:20)(cid:4)(cid:10)(cid:11)(cid:14)(cid:22)(cid:11)
(cid:7)(cid:12)(cid:12)(cid:8)(cid:3)(cid:16)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:18)!(cid:11)(cid:15)(cid:10)(cid:8)(cid:3)(cid:6)(cid:10)(cid:13)(cid:11)(cid:14)(cid:20)(cid:11)(cid:18)(cid:3)(cid:4)(cid:20)(cid:3)(cid:23)(cid:16)(cid:7)(cid:20)(cid:17)(cid:11)(cid:18)(cid:21)(cid:20)(cid:10)(cid:13)(cid:4)(cid:3)(cid:10)(cid:18)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:18)(cid:10)(cid:10)4(cid:11)(cid:10)?(cid:16)(cid:10)(cid:8)(cid:8)(cid:10)(cid:20)(cid:16)(cid:10)(cid:11)(cid:3)(cid:20)(cid:11)(cid:3)(cid:17)(cid:18)(cid:11)
supply chain management.
On July 17, 2012, Innophos acquired
AMT Labs, Inc., a privately held company
based in North Salt Lake, Utah. AMT has
been manufacturing high quality custom
ingredients for the food, beverage,
confectionary and nutraceutical
industries for more than 20 years.
AMT specializes in mineral ingredients
essential to the human diet that are
manufactured in various forms to be
better utilized by the body.
On December 31, 2012, Innophos
acquired the business and assets of
Triarco Industries, Inc., a privately held
company based in New Jersey, that has
been manufacturing high quality custom
ingredients for the food, beverage,
dietary supplement and nutraceutical
industries for more than 30 years. Triarco
specializes in botanical and enzyme
based ingredients that provide important
(cid:29)(cid:10)(cid:20)(cid:10)(cid:23)(cid:17)(cid:18)(cid:11)(cid:3)(cid:20)(cid:11)(cid:4)(cid:13)(cid:14)(cid:25)(cid:3)(cid:20)(cid:4)(cid:11)(cid:19)(cid:7)(cid:13)4(cid:10)(cid:17)(cid:18)(cid:11)(cid:18)(cid:9)(cid:16)(cid:2)(cid:11)(cid:7)(cid:18)(cid:11)
sports nutrition, dietary supplements and
(cid:22)(cid:14)(cid:13)(cid:17)(cid:3)(cid:23)(cid:10)(cid:15)(cid:11)(cid:29)(cid:10)(cid:6)(cid:10)(cid:13)(cid:7)(cid:4)(cid:10)(cid:18)(cid:26)(cid:11)
On October 31, 2011, Innophos acquired
Kelatron Corporation, an Ogden,
Utah-based leading manufacturer of
bioactive mineral nutrients. For over
30 years, the company has been a key
supplier of specialty minerals and custom
blends to manufacturers of nutritional
and dietary supplements. Recent
investments by Kelatron in upgrading
manufacturing facilities and introducing
a new line of premium minerals have
positioned the company well for future
growth. The combination of Kelatron’s
micronutrient range of products with the
macronutrients of calcium, magnesium,
potassium and phosphorus manufactured
(cid:29)(cid:21)(cid:11)(cid:27)(cid:20)(cid:20)(cid:14)(cid:12)(cid:2)(cid:14)(cid:18)(cid:11)(cid:18)(cid:3)(cid:4)(cid:20)(cid:3)(cid:23)(cid:16)(cid:7)(cid:20)(cid:17)(cid:8)(cid:21)(cid:11)(cid:18)(cid:17)(cid:13)(cid:10)(cid:20)(cid:4)(cid:17)(cid:2)(cid:10)(cid:20)(cid:18)(cid:11)
Innophos’ offering to its food, beverage
and dietary supplement customers.
INNOPHOS ANNUAL REPORT 2012
60%
Specialty
Ingredients
Baking
(cid:31)(cid:14)(cid:13)(cid:10)(cid:11)(cid:3)(cid:20)(cid:4)(cid:13)(cid:10)(cid:15)(cid:3)(cid:10)(cid:20)(cid:17)(cid:11)(cid:3)(cid:20)(cid:11)(cid:29)(cid:7)4(cid:3)(cid:20)(cid:4)(cid:11)(cid:12)(cid:14)(cid:25)(cid:15)(cid:10)(cid:13)!(cid:11)(cid:10)(cid:20)(cid:7)(cid:29)(cid:8)(cid:3)(cid:20)(cid:4)(cid:11)(cid:12)(cid:7)(cid:20)(cid:16)(cid:7)4(cid:10)(cid:18)!(cid:11)(cid:16)(cid:7)4(cid:10)(cid:18)!(cid:11)(cid:19)(cid:9)(cid:22)(cid:23)(cid:20)(cid:18)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:29)(cid:3)(cid:18)(cid:16)(cid:9)(cid:3)(cid:17)(cid:18)(cid:11)(cid:17)(cid:14)(cid:11)(cid:13)(cid:3)(cid:18)(cid:10)(cid:11)(cid:7)(cid:17)(cid:11)(cid:13)(cid:7)(cid:17)(cid:10)(cid:18)(cid:11)(cid:17)(cid:7)(cid:3)(cid:8)(cid:14)(cid:13)(cid:10)(cid:15)(cid:11)(cid:17)(cid:14)(cid:11)
(cid:18)(cid:12)(cid:10)(cid:16)(cid:3)(cid:23)(cid:16)(cid:11)(cid:12)(cid:13)(cid:14)(cid:15)(cid:9)(cid:16)(cid:17)(cid:11)(cid:13)(cid:10)(cid:24)(cid:9)(cid:3)(cid:13)(cid:10)(cid:19)(cid:10)(cid:20)(cid:17)(cid:18)
(cid:21)(cid:5)(cid:18)(cid:12)(cid:7)(cid:17)(cid:7)(cid:22)(cid:5)(cid:18)(cid:6)(cid:23)(cid:23)(cid:24)
Keeps meat or seafood moist and tender during processing, storage and cooking
(cid:25)(cid:16)(cid:23)(cid:10)(cid:5)(cid:26)(cid:26)(cid:5)(cid:24)(cid:7)(cid:2)(cid:3)(cid:5)(cid:5)(cid:26)(cid:5)
Controls melting properties of cheese slices, blocks and shreds
(cid:25)(cid:23)(cid:12)(cid:18)(cid:12)(cid:23)(cid:5)(cid:26)
Beverage
Prevents unwanted discoloration during french fry manufacture
Supplies required minerals (calcium, phosphorus, magnesium, potassium and micronutrients) to a broad
range of beverages, from soy milk to sports drinks
(cid:25)(cid:3)(cid:18)(cid:16)(cid:19)(cid:18)(cid:10)(cid:5)(cid:11)(cid:12)(cid:4)(cid:10)(cid:18)(cid:27)(cid:7)
Excipients
Contributes essential minerals to nutritional supplements and through superior tableting performance
allows for proper dosing of active ingredients
Oral Care
Asphalt
(cid:28)(cid:23)(cid:16)(cid:12)(cid:4)(cid:10)(cid:11)(cid:27)(cid:12)(cid:11)(cid:16)(cid:5)
(cid:29)(cid:4)(cid:16)(cid:5)(cid:7)(cid:22)(cid:18)(cid:6)(cid:5)(cid:12)(cid:30)
Provides tartar control and abrasive properties to enable cleaning without damage to enamel;
helps prevent cavities
Improves road durability under both high- and low-temperature conditions
Specialized soluble nutrients for drip irrigation
(cid:27)(cid:20)(cid:4)(cid:13)(cid:10)(cid:15)(cid:3)(cid:10)(cid:20)(cid:17)(cid:11)(cid:3)(cid:20)(cid:11)(cid:23)(cid:13)(cid:10)(cid:11)(cid:10)?(cid:17)(cid:3)(cid:20)(cid:4)(cid:9)(cid:3)(cid:18)(cid:2)(cid:10)(cid:13)(cid:11)(cid:22)(cid:14)(cid:13)(cid:11)(cid:10)(cid:22)(cid:22)(cid:10)(cid:16)(cid:17)(cid:3)(cid:6)(cid:10)(cid:11)(cid:13)(cid:7)(cid:12)(cid:3)(cid:15)(cid:11)(cid:10)?(cid:17)(cid:3)(cid:20)(cid:4)(cid:9)(cid:3)(cid:18)(cid:2)(cid:3)(cid:20)(cid:4)(cid:11)(cid:14)(cid:22)(cid:11)U(cid:7)(cid:19)(cid:10)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:2)(cid:14)(cid:17)(cid:11)(cid:4)(cid:8)(cid:14)(cid:25)
(cid:7)(cid:31)(cid:18)(cid:12)(cid:5)(cid:16)(cid:7)!(cid:16)(cid:5)(cid:18)(cid:12)(cid:19)(cid:5)(cid:20)(cid:12)
Prevents build-up of impurities in municipal and industrial water systems
(cid:21)(cid:4)(cid:20)(cid:5)(cid:16)(cid:18)(cid:27)(cid:7)(cid:29)(cid:23)(cid:16)(cid:12)(cid:4)(cid:15)(cid:10)(cid:18)(cid:12)(cid:4)(cid:23)(cid:20)
(cid:132)(cid:14)(cid:17)(cid:7)(cid:20)(cid:3)(cid:16)(cid:7)(cid:8)!(cid:11)(cid:10)(cid:20)<(cid:21)(cid:19)(cid:10)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:29)(cid:3)(cid:14)(cid:7)(cid:16)(cid:17)(cid:3)(cid:6)(cid:10)(cid:11)(cid:19)(cid:3)(cid:20)(cid:10)(cid:13)(cid:7)(cid:8)(cid:11)(cid:20)(cid:9)(cid:17)(cid:13)(cid:3)(cid:10)(cid:20)(cid:17)(cid:18)(cid:11)(cid:9)(cid:18)(cid:10)(cid:15)(cid:11)(cid:3)(cid:20)(cid:11)(cid:7)(cid:11)(cid:25)(cid:3)(cid:15)(cid:10)(cid:11)(cid:6)(cid:7)(cid:13)(cid:3)(cid:10)(cid:17)(cid:21)(cid:11)(cid:14)(cid:22)(cid:11)(cid:22)(cid:14)(cid:13)(cid:17)(cid:3)(cid:23)(cid:10)(cid:15)(cid:11)(cid:22)(cid:14)(cid:14)(cid:15)(cid:18)!(cid:11)(cid:29)(cid:10)(cid:6)(cid:10)(cid:13)(cid:7)(cid:4)(cid:10)(cid:18)!(cid:11)
dietary supplements and sports nutrition
Customer
"##(cid:27)(cid:4)(cid:10)(cid:18)(cid:12)(cid:4)(cid:23)(cid:20)(cid:26)
Products and Applications
Innophos products have a wide variety of
applications. Above are some examples of
the properties Innophos’ products bring
to customers across key industries. In blue
are the three product categories within
the core Specialty Phosphates business.
Details on co-products are shown in green.
Percentages in section heads represent the
category’s contribution to 2012 revenues.
Innophos continues to invest in research
and development (R&D) and technical
services that are the most competitive
in the Specialty Phosphates industry.
Innophos’ scientists are working to
leverage Innophos’ extensive history as
a leader in Specialty Phosphates as well
as its newly acquired technologies to
develop products that include: calcium
and magnesium to support bone health,
chromium for weight loss, selenium for
healthy aging as well as products aimed at
reducing sodium intake in the diet, among
other areas. Innophos also supports R&D
efforts by partnering with universities and
research institutions, putting the Company
in a strong and effective technical position
to support customers.
Building on Magnesium Growth
In addition to aiding bone strength and
growth, scientists and researchers are
now recognizing numerous applications
for magnesium. While most consumers
(cid:15)(cid:14)(cid:11)(cid:20)(cid:14)(cid:17)(cid:11)(cid:21)(cid:10)(cid:17)(cid:11)(cid:22)(cid:9)(cid:8)(cid:8)(cid:21)(cid:11)(cid:9)(cid:20)(cid:15)(cid:10)(cid:13)(cid:18)(cid:17)(cid:7)(cid:20)(cid:15)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)(cid:29)(cid:10)(cid:20)(cid:10)(cid:23)(cid:17)(cid:18)(cid:11)
of magnesium, or its role relative to other
nutrients, interest and understanding
continues to rise. U.S. magnesium raw
material sales reached $55 million in 2011,
up 14% from 2010, according to Nutrition
Business Journal estimates. This growth
(cid:13)(cid:10)U(cid:10)(cid:16)(cid:17)(cid:18)(cid:11)(cid:7)(cid:11)(cid:18)(cid:3)(cid:19)(cid:3)(cid:8)(cid:7)(cid:13)(cid:11)>(cid:9)(cid:19)(cid:12)(cid:11)(cid:3)(cid:20)(cid:11)(cid:16)(cid:14)(cid:20)(cid:18)(cid:9)(cid:19)(cid:10)(cid:13)(cid:11)(cid:18)(cid:7)(cid:8)(cid:10)(cid:18)(cid:11)(cid:14)(cid:22)(cid:11)
magnesium supplements, which climbed
to $440 million in 2011 from $380 million
in 2010 – a 16% growth rate. Magnesium
is the second largest mineral market after
(cid:16)(cid:7)(cid:8)(cid:16)(cid:3)(cid:9)(cid:19)!(cid:11)(cid:29)(cid:9)(cid:17)(cid:11)(cid:2)(cid:7)(cid:18)(cid:11)(cid:18)(cid:3)(cid:4)(cid:20)(cid:3)(cid:23)(cid:16)(cid:7)(cid:20)(cid:17)(cid:8)(cid:21)(cid:11)(cid:2)(cid:3)(cid:4)(cid:2)(cid:10)(cid:13)(cid:11)(cid:4)(cid:13)(cid:14)(cid:25)(cid:17)(cid:2)(cid:11)
rates, and is just one example of the growth
opportunities we see in our nutritional
ingredients product portfolio.
Fortifying Foods and Beverages
Demand for nutrient supplementation
continues to grow as the modern diet
continues to lack key nutrients. Innophos
has the leading phosphate product range,
along with bioactive mineral nutrients from
AMT, Kelatron & Triarco. The Company
produces a diverse range of food and
(cid:29)(cid:10)(cid:6)(cid:10)(cid:13)(cid:7)(cid:4)(cid:10)(cid:11)(cid:22)(cid:14)(cid:13)(cid:17)(cid:3)(cid:23)(cid:16)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:11)(cid:12)(cid:13)(cid:14)(cid:15)(cid:9)(cid:16)(cid:17)(cid:18)!(cid:11)(cid:25)(cid:2)(cid:3)(cid:16)(cid:2)(cid:11)
includes essential vitamins and minerals
such as potassium, magnesium, iron, zinc,
and increasingly selenium and chromium.
Customers can receive their daily intake
from a number of different sources,
including: dairy products such as yogurt
and cheese, nutritional bars, cereal, baked
goods, dietary supplements – and the full
spectrum of beverage applications, from
enhanced water, juice and sports beverages
to milk and milk replacement type products
including soy, rice and coconut-milk.
Reducing Sodium Content
According to the National Health and
Nutrition Examination Survey (NHANES),
the average consumption of sodium
compared to the recommended daily intake
is about 35% above normal, increasing
the risks of cardiovascular disease or
hypertension. Innophos develops products,
including Cal-Rise® in baked goods and
SuperBind™ & So-Lo® 93 in meats and
seafood that reduce the amount of sodium,
while also increasing calcium intake to
lower the chance of osteoporosis.
Revenues by End Market
($ Millions)
Total Sales
862
CAGR
8%
11%
-9%
7%
15%
Total Sales
579
97
145
129
208
07
165
91
183
423
12
Pharma, Food, Beverage & Oral Care
Industrial
Detergents
Fertilizer & Horticulture
18%
Food & Technical
+(cid:13)(cid:7)(cid:15)(cid:10)(cid:11):(cid:9)(cid:13)(cid:3)(cid:23)(cid:10)(cid:15)(cid:11)
Phosphoric Acid (“PPA”)
10%
Sodium Tripolyphosphate
(“STPP”) & Detergent
Grade PPA
12%
GTSP & Other
Beverage
Provides tartness in colas without taste overtones
(cid:31)(cid:18)(cid:12)(cid:5)(cid:16)(cid:7)!(cid:16)(cid:5)(cid:18)(cid:12)(cid:19)(cid:5)(cid:20)(cid:12)
Prevents accumulation of potentially harmful impurities in municipal water
(cid:21)(cid:5)(cid:12)(cid:18)(cid:27)(cid:7)!(cid:16)(cid:5)(cid:18)(cid:12)(cid:19)(cid:5)(cid:20)(cid:12)
(cid:132)(cid:13)(cid:3)(cid:4)(cid:2)(cid:17)(cid:10)(cid:20)(cid:18)(cid:11)(cid:7)(cid:8)(cid:9)(cid:19)(cid:3)(cid:20)(cid:9)(cid:19)(cid:11)(cid:23)(cid:20)(cid:3)(cid:18)(cid:2)
Detergents
Ingredient in consumer-oriented laundry and automatic dishwasher detergents
Industrial Cleaning
Detergent formulations with phosphate provide superior cleaning performance in challenging environments
(cid:25)(cid:3)(cid:23)(cid:26)#(cid:3)(cid:18)(cid:12)(cid:5)(cid:7)(cid:29)(cid:5)(cid:16)(cid:12)(cid:4)(cid:27)(cid:4)$(cid:5)(cid:16)
Granulated Triple Superphosphate (“GTSP”) fertilizer particularly suitable for soybeans and
vineyard cultivation
GTSP and Other Co-products
Fertilizer co-products, such as GTSP,
produced sales revenue of $105 million in
2012, up 6% compared to 2011, on higher
volumes but lower phosphate fertilizer
(cid:19)(cid:7)(cid:13)4(cid:10)(cid:17)(cid:11)(cid:12)(cid:13)(cid:3)(cid:16)(cid:10)(cid:18)(cid:26)(cid:11):(cid:13)(cid:14)(cid:23)(cid:17)(cid:7)(cid:29)(cid:8)(cid:10)(cid:11)(cid:19)(cid:7)(cid:13)4(cid:10)(cid:17)(cid:18)(cid:11)(cid:22)(cid:14)(cid:13)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)
Company’s co-products are important
to the overall value of the Company’s
Mexico manufacturing facilities. Although
margins are more variable than Specialty
Phosphates, GTSP & Other is expected to
(cid:16)(cid:14)(cid:20)(cid:17)(cid:3)(cid:20)(cid:9)(cid:10)(cid:11)(cid:15)(cid:10)(cid:8)(cid:3)(cid:6)(cid:10)(cid:13)(cid:3)(cid:20)(cid:4)(cid:11)(cid:4)(cid:14)(cid:14)(cid:15)(cid:11)(cid:12)(cid:13)(cid:14)(cid:23)(cid:17)(cid:7)(cid:29)(cid:3)(cid:8)(cid:3)(cid:17)(cid:21)(cid:11)(cid:14)(cid:6)(cid:10)(cid:13)(cid:11)
the long term. GTSP & Other recorded
$2 million of operating income and
2% operating income margin for 2012
primarily due to a settlement gain over the
responsibility for Mexican water duties at its
Coatzacoalcos facility. Without this gain and
other adjustments, GTSP & Other had an
operating loss of $3 million for 2012. GTSP
is expected to operate near break-even
(cid:17)(cid:2)(cid:13)(cid:14)(cid:9)(cid:4)(cid:2)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)(cid:23)(cid:13)(cid:18)(cid:17)(cid:11)(cid:24)(cid:9)(cid:7)(cid:13)(cid:17)(cid:10)(cid:13)(cid:11)(cid:14)(cid:22)(cid:11)KMN(cid:127)(cid:11)(cid:15)(cid:9)(cid:10)(cid:11)(cid:17)(cid:14)(cid:11)(cid:8)(cid:14)(cid:25)(cid:11)
fertilizer market prices and relatively high
raw material costs. Although we continue
to expect an improvement in GTSP margins
(cid:4)(cid:14)(cid:3)(cid:20)(cid:4)(cid:11)(cid:22)(cid:14)(cid:13)(cid:25)(cid:7)(cid:13)(cid:15)!(cid:11)(cid:25)(cid:10)(cid:11)(cid:15)(cid:14)(cid:11)(cid:20)(cid:14)(cid:17)(cid:11)(cid:2)(cid:7)(cid:6)(cid:10)(cid:11)(cid:18)(cid:9)(cid:22)(cid:23)(cid:16)(cid:3)(cid:10)(cid:20)(cid:17)(cid:11)
visibility on timing to make predictions
(cid:29)(cid:10)(cid:21)(cid:14)(cid:20)(cid:15)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)(cid:23)(cid:13)(cid:18)(cid:17)(cid:11)(cid:24)(cid:9)(cid:7)(cid:13)(cid:17)(cid:10)(cid:13)(cid:26)
Segment Performance
Specialty Phosphates
Specialty Phosphates comprise the three
product categories below, Specialty
Ingredients, Food and Technical Grade
:(cid:9)(cid:13)(cid:3)(cid:23)(cid:10)(cid:15)(cid:11):(cid:2)(cid:14)(cid:18)(cid:12)(cid:2)(cid:14)(cid:13)(cid:3)(cid:16)(cid:11)/(cid:16)(cid:3)(cid:15)(cid:11)((cid:134)::/(cid:135)*(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:28)(cid:14)(cid:15)(cid:3)(cid:9)(cid:19)(cid:11)
Tripolyphosphate (“STPP”) & Detergent
Grade PPA. In 2012, sales revenue increased
6% with prices up 5% and volumes up 1%
against 2011.
Specialty Ingredients
Specialty Ingredients encompasses a wide
range of mineral-based specialty compounds
providing performance critical ingredients
to food and beverage, pharmaceutical and
oral care end markets, as well as select high-
performance industrial end markets. These
Revenues by Product Line
($ Millions)
118
216
150
34
82
74
80
107
109
451
444
451
105
91
152
98
92
134
486
514
70
131
85
293
07
08
09
10
11
12
Specialty Ingredients
Food & Technical Grade PPA
STPP & Detergent Grade PPA
GTSP & Other
differentiated, high-value products provide
stable demand and strong margins. Sales
revenue increased 6% versus 2011 primarily
on higher prices. Acquisitions contributed
4% to volume growth while organic volumes
were down 3% on lower market demand and
year-end destocking in the US and Canada
business. Specialty Ingredients are the
primary area of focus for Innophos’ business
both within and outside North America.
Food and Technical Grade PPA
Most of Innophos’ PPA is converted
into Specialty Ingredients at dedicated
facilities. Some food grade PPA is sold
directly to customers for applications such
as cola beverages. In addition, technical
grades of PPA are used in municipal water
(cid:17)(cid:13)(cid:10)(cid:7)(cid:17)(cid:19)(cid:10)(cid:20)(cid:17)(cid:11)(cid:7)(cid:20)(cid:15)(cid:11)(cid:19)(cid:10)(cid:17)(cid:7)(cid:8)(cid:11)(cid:23)(cid:20)(cid:3)(cid:18)(cid:2)(cid:3)(cid:20)(cid:4)(cid:26)(cid:11)1(cid:9)(cid:13)(cid:11);(cid:10)?(cid:3)(cid:16)(cid:14)(cid:11)
facilities are capable of producing a wide
range of higher grade PPA, which is key to
successfully delivering growth from the
higher value products. For example, in 2012
we generated sales revenue growth of 14%
compared to 2011 on 7% volume growth
and higher prices.
STPP and Detergent Grade PPA
Detergent grade products include detergent
grade PPA and STPP. Phosphates are very
effective cleaning agents, in both laundry
detergents and in specialized industrial
cleaning applications, where high standards
of cleanliness are required in challenging
conditions. Over recent years, phosphates
have been reformulated out of consumer-
oriented detergents in the U.S. and
Canada although Latin America remains
an important market for these products.
Sales were lower by 1% compared to 2011.
Volume was again affected by some further
modest STPP reformulation in 2012.
INNOPHOS ANNUAL REPORT 2012
Balance Sheet and
Capital Allocation
Innophos currently operates with a strong
balance sheet, and has been able to increase
both investments for growth and cash returns
to shareholders.
During the year, Innophos completed its
second and third acquisitions, invested
in its core product innovation and
geographic expansion initiatives and
continued to return value to shareholders
through dividend payments and a share
repurchase program. Capital expenditures
in 2012 were $33 million.
Net debt increased from $117 million
at the end of 2011 to $149 million at
the end of 2012 as investments in the
aforementioned areas exceeded the cash
provided from operations.
Innophos recognizes the importance of
dividend income to shareholders and
announced two dividend increases in
2012. On February 27, 2012, Innophos
announced that its Board of Directors
declared a dividend increase of 8% over
the previous quarterly dividend rate.
On October 31, 2012, the Company
announced a further 30% increase to a
new quarterly dividend rate of $0.35 per
share of common stock. Innophos has now
more than doubled its dividend in the last
two years.
Additionally, on August 11, 2011,
Innophos’ Board of Directors authorized
a share repurchase program for Company
common stock of up to $50 million. As of
December 31, 2012, the Company had
repurchased 300,000 shares under the
program for a total of $13.4 million, with
150,000 of those shares repurchased in
2012 for $7.3 million. The program
(cid:3)(cid:18)(cid:11)(cid:16)(cid:9)(cid:13)(cid:13)(cid:10)(cid:20)(cid:17)(cid:8)(cid:21)(cid:11)(cid:9)(cid:20)(cid:15)(cid:10)(cid:13)(cid:11)(cid:7)(cid:11)(cid:23)(cid:6)(cid:10)(cid:11)(cid:21)(cid:10)(cid:7)(cid:13)(cid:11)(cid:17)(cid:3)(cid:19)(cid:10)(cid:11)(cid:8)(cid:3)(cid:19)(cid:3)(cid:17)(cid:26)
During the year, Innophos enhanced
(cid:3)(cid:17)(cid:18)(cid:11)(cid:23)(cid:20)(cid:7)(cid:20)(cid:16)(cid:3)(cid:7)(cid:8)(cid:11)U(cid:10)?(cid:3)(cid:29)(cid:3)(cid:8)(cid:3)(cid:17)(cid:21)(cid:11)(cid:29)(cid:21)(cid:11)(cid:13)(cid:10)(cid:23)(cid:20)(cid:7)(cid:20)(cid:16)(cid:3)(cid:20)(cid:4)(cid:11)
its existing credit facility, reducing the
applicable margin for interest rates by
75 basis points to a level of 150
basis points in effect at the time of
(cid:17)(cid:2)(cid:10)(cid:11)(cid:13)(cid:10)(cid:23)(cid:20)(cid:7)(cid:20)(cid:16)(cid:3)(cid:20)(cid:4)!(cid:11)(cid:7)(cid:15)(cid:15)(cid:3)(cid:20)(cid:4)(cid:11)(cid:137)NMM(cid:11)(cid:19)(cid:3)(cid:8)(cid:8)(cid:3)(cid:14)(cid:20)(cid:11)
of revolver capacity, extending the
maturities by an additional two years to
2017, and swapping the LIBOR exposure
(cid:14)(cid:20)(cid:11)(cid:137)NMM(cid:11)(cid:19)(cid:3)(cid:8)(cid:8)(cid:3)(cid:14)(cid:20)(cid:11)(cid:14)(cid:22)(cid:11)U(cid:14)(cid:7)(cid:17)(cid:3)(cid:20)(cid:4)(cid:11)(cid:13)(cid:7)(cid:17)(cid:10)(cid:11)(cid:15)(cid:10)(cid:29)(cid:17)(cid:11)(cid:22)(cid:14)(cid:13)(cid:11)
(cid:23)(cid:6)(cid:10)(cid:11)(cid:21)(cid:10)(cid:7)(cid:13)(cid:18)(cid:11)(cid:7)(cid:17)(cid:11)M(cid:26)(cid:138)(cid:128)(cid:139)(cid:140)(cid:129)(cid:26)
+(cid:3)(cid:6)(cid:10)(cid:20)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)(cid:31)(cid:14)(cid:19)(cid:12)(cid:7)(cid:20)(cid:21)(cid:145)(cid:18)(cid:11)(cid:7)(cid:6)(cid:7)(cid:3)(cid:8)(cid:7)(cid:29)(cid:8)(cid:10)(cid:11)(cid:23)(cid:20)(cid:7)(cid:20)(cid:16)(cid:3)(cid:7)(cid:8)(cid:11)
resources, management continues
to target ‘bolt-on’ acquisitions with
most targets under $50 million in total
purchase price. Innophos’ acquisition
strategy seeks to strengthen the
Company’s market position in high-
growth market segments and geographies
through extending the Company’s
specialty phosphate capability or adding
complementary adjacent
product technologies.
Innophos’ acquisition strategy seeks to strengthen the Company’s market
position in high-growth market segments and geographies.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC, 20549
_______________________________________________________________________________________________
FORM 10-K
_______________________________________________________________________________________________
(cid:2)(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
(cid:4)(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
_______________________________________________________________________________________________
INNOPHOS HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
_______________________________________________________________________________________________
Delaware
(state or other jurisdiction
of incorporation)
001-33124
(Commission File number)
20-1380758
(IRS Employer
Identification No.)
259 Prospect Plains Road
Cranbury, New Jersey 08512
(Address of Principal Executive Officer, including Zip Code)
(609) 495-2495
(Registrants’ Telephone Number, Including Area Code)
Not Applicable
(Former name or former address, if changed since last report)
_______________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.001 per share
Name of Each Exchange on Which Registered
Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:2) Yes (cid:4) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. (cid:4) Yes (cid:2) No
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
Securities registered pursuant to Section 12(g) of the Act: None
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. (cid:2) Yes (cid:4) 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 (cid:4) No (cid:4)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)
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 definition of “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer (cid:2) Accelerated Filer (cid:4) Non-accelerated filer (cid:4) Smaller reporting company (cid:4)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (cid:4) Yes (cid:2) No
The aggregate market value of the voting common equity held by non-affiliates of the registrant was approximately $1.2 billion as of
June 29, 2012, the last business day of the Registrant’s most recently completed second quarter (based on the Nasdaq Global Select Market
closing price on that date).
As of February 4, 2013, the registrant had 21,830,870 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Innophos Holdings, Inc. Proxy Statement to be filed for its Annual
Meeting of Stockholders to be held May 17, 2013
Document
Incorporated By Reference In Part No.
III (Items 10, 11, 12, 13 and 14)
Page
4
12
16
17
17
17
18
19
21
35
37
74
74
75
76
76
76
76
76
76
TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13.
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
PART IV
Item 15.
Signatures
Exhibits, Financial Statement Schedules
Page 2 of 83
FORWARD-LOOKING STATEMENTS
Certain information set forth in this report contains “forward-looking statements” within the meaning of the federal
securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future
events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and
other information that is not historical information. In some cases, forward-looking statements can be identified by terminology
such as “believes,” “expects,” “may,” “will,” “should,” or “anticipates,” or the negative of such terms or other comparable
terminology, or by discussions of strategy. We may also make additional forward-looking statements from time to time.
All forward-looking statements, including without limitation, management’s examination of historical operating trends,
are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in
good faith and we believe there is a reasonable basis for them, but there can be no assurance that management’s expectations,
beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. Unless
required by law, we undertake no obligation to update or revise forward-looking statements to reflect events or circumstances
after the date made or to reflect the occurrence of unanticipated events.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-
looking statements contained in or contemplated by this report. The following are among the factors that could cause actual
results to differ materially from the forward-looking statements. There may be other factors, including those discussed
elsewhere in this report, which may cause our actual results to differ materially from the forward-looking statements. Any
forward-looking statements should be considered in light of the risk factors specified in this Form 10-K.
_______________________________________________________________________________________________
Unless the context otherwise indicates, all references in this report to the “Company,” “Innophos,” “we,” “us” or “our” or
similar words are to Innophos Holdings, Inc. and its consolidated subsidiaries. Innophos Holdings, Inc. is a Delaware
corporation and was incorporated July 15, 2004.
Page 3 of 83
ITEM 1.
BUSINESS
Our Company
PART I
Innophos commenced operations as an independent company in August 2004 after purchasing our North American
specialty phosphates business from affiliates of Rhodia, S.A., or Rhodia. In November 2006, we completed an initial public
offering and listed our Common Stock for trading on the Nasdaq Global Select Market under the symbol “IPHS”.
Innophos is a leading international producer of performance-critical and nutritional specialty ingredients with
applications in food, beverage, pharmaceutical, oral care and industrial end markets. Innophos combines more than a century of
experience in specialty phosphate manufacture with a growing capability in a broad range of other specialty ingredients, to
supply a product range produced to the highest standards of quality and consistency demanded by customers worldwide. Many
of Innophos' products are application-specific compounds engineered to meet customer performance requirements and are often
critical to the taste, texture, performance or nutritional content of foods, beverages, pharmaceuticals, oral care products and
other applications. For example, Innophos products act as flavor enhancers in beverages, electrolytes in sports drinks, texture
additives in cheeses, leavening agents in baked goods, pharmaceutical excipients, cleaning agents in toothpaste and provide a
wide range of nutritional fortification solutions for food, beverage and nutritional supplement manufacturers.
The Company has made two recent acquisitions in the bioactive mineral ingredients sector. Bioactive mineral ingredients
are mineral based ingredients for food, beverage and dietary supplement end markets that are manufactured to be readily
digestible. Historically, Innophos has enjoyed a strong position in “macronutrients,” minerals such as calcium, magnesium and
potassium that are required in relatively large amounts for a balanced diet. Through these acquisitions, the company now also
has a strong position in "micronutrients" such as chromium, selenium, zinc and iron, small quantities of which are also essential
to the human diet. The company's third acquisition was in the botanical and enzyme based specialty nutritional ingredients
sector. As with the bioactive mineral ingredients, botanical and enzyme based ingredients are important to our customers for
their nutritional value and mineral, botanical and specialty phosphate ingredients are often formulated together. The
acquisitions described below together with Innophos' existing strength in specialty phosphates has created a strong position for
Innophos in the attractive and high growth specialty nutritional ingredients market.
In October 2011, Innophos acquired 100% of the stock of Kelatron's holding company, KI Acquisition, Inc., for a
purchase price of approximately $21 million, subject to specified adjustments. Founded in 1975 and based in Ogden, Utah,
Kelatron is a leading producer of technically advanced bioactive mineral ingredients, with a high quality base of customers in
the dietary supplement and sports nutrition markets.
In July 2012, Innophos acquired100% of the equity of AMT Labs, Inc. ("AMT") and an affiliated real estate company
holding all AMT real property for $27 million, with $19.5 million being allocated to the AMT purchase and $7.5 million being
allocated to the real estate entity. Located in North Salt Lake, Utah, AMT has been manufacturing high quality bioactive
mineral ingredients for the food, beverage, confectionary and dietary supplement industries for more than 20 years. AMT has
two manufacturing facilities and land available for further expansion.
In December 2012, Innophos purchased all of the assets of Triarco Industries, Inc., ("Triarco"), for $45 million in cash
plus $1 million in shares of Innophos Holdings, Inc. Common Stock. Triarco, a privately held company based in New Jersey,
has been manufacturing high quality custom ingredients for the food, beverage and dietary supplement industries for more than
30 years. Triarco specializes in botanical and enzyme based ingredients that provide important nutritional benefits and are often
formulated with bioactive minerals and specialty phosphates.
The combined businesses of Kelatron, AMT and Triarco generate annual revenues in excess of $50 million with attractive
positions in high growth end markets.
Key Product Lines
We have four principal product lines: (i) Specialty Ingredients, (ii) Food and Technical Grade purified phosphoric acid,
or PPA, (iii) Technical Grade Sodium Tripolyphosphate (STPP) & Detergent Grade PPA and iv) GTSP & Other . The first
three product lines comprise our Specialty Phosphates US/Canada and Mexico reporting segments, with GTSP & Other
reported separately in a third reporting segment.
Specialty Ingredients
Specialty Ingredients (including specialty phosphate salts, specialty phosphoric acids and a range of other mineral and
botanical based specialty ingredients) are the most highly engineered products in our portfolio. They have a wide range of
applications such as flavor enhancers in beverages, electrolytes in sports drinks, texture modifiers in cheeses, leavening agents
Page 4 of 83
in baked goods, mineral and botanical sources for nutritional supplements, pharmaceutical excipients and abrasives in
toothpaste. Specialty phosphoric acids are used in industrial applications such as asphalt modification and petrochemical
catalysis.
The table below presents a list of the main Specialty Ingredients sold by us in 2012:
Product
Description/End-Use Application
Sodium Aluminum Phosphate, Acidic and Basic (“SALP”)
Sodium Acid PyroPhosphate (“SAPP”)
Sodium HexaMetaPhosphate (“SHMP”)
Monocalcium Phosphate (“MCP”)
Calcium Acid Pyrophosphate (“CAPP”)
Premier leavening agent for baking mixes, cakes, self-rising
flours, baking powders, batter & breadings (acidic). Improves
melting properties of cheese (basic).
Leavening agent for baking powders, doughnuts, and biscuits;
inhibits browning in potatoes; provides moisture and color
retention in poultry and meat.
Water treatment applications; anti-microbial and sequestrant
in beverages; cheese emulsifier; improves tenderness in meat,
seafood and poultry applications.
Leavening agent in double-acting baking powder; acidulant;
buffering agent.
Calcium based, slow acting, multifunctional leavening acid
used in a wide variety of baked goods
Dicalcium Phosphate (“DCP”)
Toothpaste abrasive; leavening agent; calcium fortification.
Tricalcium Phosphate (“TCP”)
Pharma Calcium Phosphates (“A-Tab®”, “Di-Tab®”, “Tri-
Tab®”)
Ammonium Phosphates (“MAP”, “DAP”)
Potassium Phosphates (“TKPP”, “DKP”, “MKP”, “KTPP”)
Calcium and phosphorus fortifier in food and beverage
applications (e.g., orange juice, cereals, and cheese); flow aid;
additive in expandable polystyrene.
Excipients in vitamins, minerals, nutritional supplements and
pharmaceuticals.
High-end fertilizer products for horticultural use; flame
retardant; cigarette additives; culture nutrient.
Water treatment; sports drinks; buffering agent; improves
tenderness in meat, seafood and poultry applications;
horticulture applications.
Specialty Acids (e.g., Polyacid)
Additive improving performance properties of asphalt.
Sodium Blends (e.g., Sodium Tripolyphosphate (STPP (food
grade)))
Ingredient improving yield, tenderness, shelf life, moisture
and color retention in meat, seafood and poultry applications.
Organic Mineral salts and blends including calcium,
chromium, copper, iron, lithium, magnesium, manganese,
phosphorous, potassium, selenium, strontium, vanadium, and
zinc
Plant based botanical, enzyme and mineral nutrients
Other (Sodium Bicarbonate, Tetrasodium Pyrophosphate
(“TSPP”), Mono, Di, & Trisodium Phosphates (“MSP”,
“DSP”, “TSP”))
Bioactive mineral nutrients used in a wide variety of fortified
foods, beverages and dietary supplements.
Fortification for food, beverage and sports nutrition.
Baking powders; gelling agent in puddings; cheese
emulsifiers.
Each salt or acid derivative typically has a number of different applications and end uses. For example, DCP can be used
both as a leavening agent in bakery products and as an abrasive in oral care products. However, several food grade salts are
unique to the end user in their particular finished product application. Manufacturers often work directly with customers to
tailor products to their required specifications.
Our major competitor in the downstream Specialty Ingredients is Israel Chemicals Limited, or ICL.
Page 5 of 83
Food and Technical Grade PPA
Food and Technical Grade PPA are high purity forms of PPA, distinct from the agricultural-grade merchant green
phosphoric acid, or MGA, used in fertilizer production. PPA is used to manufacture specialty phosphate salts and acids and is
also used directly in beverage applications as a flavor enhancer and in water treatment applications. We also sell Technical
Grade PPA in the merchant market to third-party phosphate derivative producers.
Our major PPA competitor is Potash Corporation of Saskatchewan Inc., or PCS, a global fertilizer company for which
specialty phosphates represents only a small part of its business. We consume the majority of our PPA production in our
downstream operations and sell the remainder on the North American merchant market and to other downstream phosphate
derivative producers, where we compete with PCS. To the best of our knowledge, PCS does not have any downstream
technical or food grade phosphate derivative production capacity, other than a small potassium phosphate salt unit.
Technical Grade Sodium Tripolyphosphate (STPP) & Detergent Grade PPA
STPP is a specialty phosphate derived from reacting phosphoric acid with a sodium alkali. STPP is a key ingredient in
cleaning products, including industrial and institutional cleaners and automatic dishwashing detergents and consumer laundry
detergents outside the U.S. In addition to its use in cleaning products, STPP is also used in water treatment, clay processing,
and copper ore processing. Over 90% of the end use market for STPP is derived from consumer product applications. Detergent
Grade PPA is a lower grade form of PPA used primarily in the production of STPP.
Our major North American STPP competitor is Mexichem, S.A.B. de C.V., or Mexichem, in Mexico. Currently,
Mexichem produces STPP at two manufacturing locations in Mexico. We also compete with imports from North Africa,
Europe and China.
Over the past several decades, there have been efforts to reduce the use of STPP in consumer and institutional cleaners.
In the 1980’s, STPP use in consumer laundry applications was discontinued in the U.S. and Canada. STPP use was all but
eliminated in consumer automatic dishwashing applications in the U.S. and Canada in 2010. The Industrial & Institutional
market has also reformulated some of its products to reduce STPP content in an effort to market a lower cost and reduced
phosphate content product line.
GTSP & Other
Granular Triple Super Phosphate, or GTSP, is a fertilizer product line produced at our Coatzacoalcos facility. GTSP is
used throughout Latin America for increasing crop yields in a wide range of agricultural sectors. GTSP is made as a co-product
of our purified wet acid manufacturing process.
Our Industry
The North American marketplaces for each of our product lines have seen consolidation to two primary producers and
several secondary suppliers. We consider the two key producers in each product category to be: (i) our Company and ICL in
Specialty Ingredients; (ii) our Company and PCS in Food and Technical Grade PPA; and (iii) our Company and Mexichem in
Technical STPP. The production of specialty phosphates begins with phosphate rock, which can be processed in two alternative
ways to produce PPA: (i) the thermal acid method, in which elemental phosphorus is combusted in a furnace and subsequently
hydrated to produce purified phosphoric acid; or (ii) the purified wet acid method (PWA), in which mined phosphate rock is
reacted with sulfuric acid to produce merchant green acid, (agricultural grade phosphoric acid), which is then purified through
solvent-based extraction into purified phosphoric acid. The conversion of merchant green acid into PPA is a technically
complex and a capital-intensive process.
The thermal acid method of production is based on the electrolytic production of elemental phosphorus and is therefore
electricity intensive, while phosphoric acid made by the purified wet acid process requires the use of significant amounts of
sulfuric acid. The relative overall costs of the two methods depend on the availability and cost of their component processes,
electricity and coke for the former and sulfur for the latter. PPA is reacted with appropriate mineral salts or inorganic
compounds to produce various specialty phosphate salts or STPP as required. We currently use PPA manufactured via the wet
acid process for all of our Specialty Ingredients manufacturing needs.
Consolidation of producers has been most significant in the Specialty Ingredients market.
In addition to consolidation of producers, uneconomic production capacity has been eliminated in North America across
all three major specialty phosphate product categories during the last decade. For instance, in 2001, Rhodia closed its specialty
salts and specialty acids plants in Buckingham, Quebec and Morrisville, Pennsylvania. In 2002, Vicksburg Chemical Company
closed a specialty salts plant in Vicksburg, Mississippi. In 2003 and 2004, Astaris closed three manufacturing facilities,
Page 6 of 83
eliminating roughly 320,000 metric tons of capacity: a purified wet phosphoric acid plant in Conda, Idaho; a specialty salts
plant in Trenton, Michigan; and an STPP plant in Green River, Wyoming. In January 2009, Mexichem closed its Coatzacoalcos
facility eliminating approximately 50% of their estimated STPP capacity.
In June 2006, PCS started up a fourth PWA based PPA production train at its Aurora, NC facility, a capacity addition less
than the estimated combined level of 2006 North American PPA imports and domestic PPA produced via the thermal process.
The PCS capacity increase was also comparable in capacity to the Astaris Idaho plant closed in 2003 following a failed start-
up.
Innophos also produces a wide range of botanical, enzyme and mineral based nutrients through a variety of production
processes customized to meet customer requirements through spray drying, roller compactions, fine grinding, wet granulations,
solvent extractions and custom blending resulting in more than 2,000 product formulations, which include both chelated and
custom processed ingredients, manufactured to enhance the nutritional benefit of the ingredient after digestion. The mineral
industry is less consolidated than the specialty phosphates industry with Albion Minerals and Jost considered the leading
competitors in mineral ingredients and Naturex and BI Nutraceuticals the leading competitors in botanical and enzyme
ingredients, alongside a number of smaller producers.
Penetration from Imports
Over the past several years, we estimate that imports, including domestically located production facilities owned by
foreign based organizations, have accounted for approximately 15-20% of the North American specialty phosphate market.
This market share has been fairly stable for the last three years.
The following are the primary importers of PPA products and derivatives into North America: (i) Prayon SA, or Prayon,
and Rotem Amfert Negev Ltd. (a subsidiary of ICL) for PPA, with Prayon primarily supplying acid to its specialty salts
manufacturing facility in Augusta, Georgia; and (ii) various European, Chinese, and Israeli specialty phosphate manufacturers
such as Chemische Fabrik Budenheim, Thermphos, Hubei Xingfa, Jiangyin Chengxing, Guangxi Mingli and BK Giulini
Chemie GmbH & Co. (a subsidiary of ICL) for specialty salts and STPP.
Our Customers
Our customer base is principally composed of consumer goods manufacturers, distributors and specialty chemical
manufacturers. Our customers manufacture products such as soft drinks, sports drinks and juices, various food products,
toothpaste and other dental products, petroleum and petrochemical products, and various cleaners and detergents. Our
customers include major consumer goods manufacturers with global market recognition in the food, beverage, pharmaceutical
and cleaning product markets. We have maintained long-term relationships with the majority of our key customers, with the
average customer relationship having lasted over 15 years, and some relationships spanning nearly a century. Our specialty
chemical products are often critical ingredients in the formulation of our customers’ products, and typically represent only a
small percentage of their total product costs. As a result, we believe that the risks associated with our customers switching
suppliers often outweigh the potential gains.
For the years ended December 31, 2012, 2011 and 2010, we generated net sales of $862.4 million, $810.5 million and
$714.2 million, respectively. The growth was delivered through increasing volumes to higher value markets and applications,
and through acquisitions, with sales to the consumer oriented end markets of food & beverage, oral care and pharmaceuticals
representing just under 50% of Innophos sales revenue in 2012.
Raw Materials and Energy
We purchase a range of raw materials and energy sources on the open market, including phosphate rock, sulfur and
sulfuric acid, agricultural grade phosphoric acid (also known as MGA), PPA, natural gas and electricity. To help secure supply,
we purchase several of our key raw materials under long-term contracts generally providing for fixed or minimum quantities of
materials, or purchase of our full requirements, and predetermined pricing formulae based on various market indices and other
factors. We do not engage in any significant futures or other derivative contracts to hedge against fluctuations of raw material.
We are not integrated vertically back to our sources of supply by ownership interests, joint ventures or affiliated companies, as
a result of which raw materials acquisition at economical price levels is an important risk of our business. See Item 1A “Raw
Materials Availability and Pricing” of this Report Form 10-K.
Phosphate Rock and Merchant Green Acid (MGA). MGA is the main raw material for the creation of our downstream
salts and acids. We purchase MGA for processing at our Geismar, LA facility through a long-term agreement with PCS. At our
Coatzacoalcos facility in Mexico, we typically purchase phosphate rock in order to produce MGA internally; however, we can
also process externally purchased MGA, available from various suppliers globally. The Company has agreements with two
preferred phosphate rock suppliers for 2013 to supply the Coatzacoalcos facility. In addition to these primary sources, the
Page 7 of 83
Company has options for other spot suppliers and will continue to qualify and develop additional sources for potential future
supply.
Sulfur and Sulfuric Acid. Sulfur is the key raw material used in the production of Sulfuric Acid. Sulfuric acid is a key raw
material used in the production of merchant green acid. We produce the vast majority of the sulfuric acid required to operate
our Coatzacoalcos facility. The majority of the sulfuric acid required for the production of MGA by PCS Geismar is supplied
by Rhodia. Our U.S. needs for sulfuric acid and our Mexican needs for sulfur are handled through long term contracts with
Rhodia and Pemex-Gas y Petroquimica Basica, or PEMEX, respectively.
Purified Phosphoric Acid. The key raw material input for all of our downstream specialty phosphate salt and specialty
phosphoric acid operations is PPA. We purchase certain quantities of our PPA supply from third parties to optimize our
consumption and net sales, including from PCS with whom we have a long-term supply contract. In 2012, Innophos produced
approximately three quarters and purchased approximately one quarter of its total PPA supply.
Natural Gas and Electricity. Natural gas and electricity are used to operate our facilities and generate heat and steam for
the various manufacturing processes. We typically purchase natural gas and electricity on the North American open market at
so-called “spot rates.” From time to time, we will enter into longer term natural gas and electricity supply contracts in an effort
to eliminate some of the volatility in our energy costs. We did enter into an economic hedge for approximately 75% of our
2012 US & Canada natural gas requirements. We also seek to increase the energy efficiencies of our facilities and reduce costs
through investments and ongoing continuous improvement projects.
Research and Development
Our product engineering and development activities are aimed at developing and enhancing products, processes,
applications and technologies to strengthen our position in our markets and with our customers. We focus on:
•
•
•
•
•
•
developing new or improved application-specific specialty phosphate and other mineral and botanical based
specialty ingredients based on our existing product line and identified or anticipated customer needs;
creating new phosphate products to be used in new applications or to serve new markets;
providing customers with premier technical services as they integrate our ingredients into their products and
manufacturing processes;
ensuring that our products are manufactured in accordance with our stringent regulatory, health and safety
policies and objectives;
developing more efficient and lower cost manufacturing processes; and
expanding existing, and developing new, relationships with customers to meet their product engineering needs.
Our research expenditures were $3.1 million, $2.9 million and $2.4 million for the years ended December 31, 2012, 2011
and 2010, respectively.
Environmental and Regulatory Compliance
Certain of our operations involve manufacturing ingredients for use in food, nutritional supplement and pharmaceutical
excipient products, and therefore must comply with stringent U.S. Food and Drug Administration, or FDA, or the U.S.
Department of Agriculture, or USDA, similar regulatory controls of foreign jurisdictions where we operate, as well as good
manufacturing practices and the quality requirements of our customers. In addition, our operations that involve the use,
handling, processing, storage, transportation and disposal of hazardous materials, are subject to extensive and frequently
changing environmental regulation by federal, state, and local authorities, as well as regulatory authorities with jurisdiction
over our foreign operations that now extend to Canada, Mexico and China. Our operations also expose us to the risk of claims
for environmental remediation and restoration or for exposure to hazardous materials. Our production facilities require
operating permits that are subject to renewal or modification. Violations of health and safety and environmental laws,
regulations, or permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages, the
rescission of an operating permit, third-party claims for property damage or personal injury, or other costs, any of which could
have a material adverse effect on our business, financial condition, results of operations, or cash flows. Due to changes in
health and safety and environmental laws and regulations, the time frames when those laws and regulations might be applied,
and developments in environmental control technology, we cannot predict with certainty the amount of capital expenditures to
be incurred for environmental purposes.
Some environmental laws and regulations impose liability and responsibility on present and former owners, operators or
users of facilities, and sites for contamination at such facilities and sites without regard to causation or knowledge of
Page 8 of 83
contamination. Many of our sites have an extended history of industrial use. Soil and groundwater contamination have been
detected at some of our sites, and additional contamination might occur or be discovered at these sites or other sites in the
future (including sites to which we may have sent hazardous waste). We continue to investigate, monitor or cleanup
contamination at most of these sites. The potential liability for all these sites will depend on several factors, including the extent
of contamination, the method of remediation, future developments and increasingly stringent regulation , the outcome of
discussions with regulatory agencies, the liability of third parties, potential natural resource damage, and insurance coverage.
Accruals for environmental matters are recorded in the accounting period in which our responsibility is established and the cost
can be reasonably estimated. Due to the uncertainties associated with environmental investigations and cleanups and the
ongoing nature of the investigations and cleanups at our sites, we are unable to predict precisely the nature, cost and timing of
our future remedial obligations with respect to our sites and, as a result, our actual environmental costs and liabilities could
significantly exceed our accruals.
Further information, including the current status of significant environmental matters and the financial impact incurred
for the remediation of such environmental matters, is included in Note 16, Commitments and Contingencies, of the Notes to
Financial Statements in “Item 8. Financial Statements and Supplementary Data,” and in “Item 1A. Risk Factors”.
Intellectual Property
We rely on a combination of patent, copyright and trademark laws to protect certain key intellectual aspects of our
business. In addition, our pool of proprietary information, consisting of manufacturing know-how, trade secrets and
unregistered copyrights relating to the design and operation of our facilities and systems, is considered particularly important
and valuable. Accordingly, we protect proprietary information through all legal means practicable. However, monitoring the
unauthorized use of our intellectual property is difficult, and the steps we have taken may not prevent all unauthorized use by
others. While we consider our copyrights and trademarks to be important to our business, ultimately our established reputation
and the products and service we provide to the end-customer are more important.
Insurance
In the normal course of business, we are subject to numerous operating risks, including risks associated with
environmental, health and safety while manufacturing, developing and supplying products, potential damage to a customer, and
the potential for an environmental accident.
We currently have in force insurance policies covering property, general liability, excess liability, workers’
compensation/employer’s liability, product liability, product recall, fiduciary and other coverages. We seek to maintain
coverages consistent with market practices and required by those with whom we do business. Where appropriate for the
protection of our property, we also require others with whom we do business to provide certain coverages for our benefit. We
believe that we are appropriately insured for the insurable risks associated with our business.
Employees
As of December(cid:3)31, 2012, we had 1,290(cid:3)employees, of whom 694 were unionized hourly wage employees. We currently
employ both union and non-union employees at most of our facilities. We believe we have a good working relationship with
our employees, which has resulted in high productivity and low turnover in key production positions. We have experienced no
work stoppages or strikes at any of our unionized facilities since acquiring them in 2004. We are a party to a collective
bargaining agreement with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service
Workers International Union, Local No.(cid:3)7-765 through January(cid:3)16, 2014 at the Chicago Heights facility; International Union of
Operating Engineers, Local No.(cid:3)912 through April(cid:3)18, 2013 at the Nashville facility; the Health Care, Professional, Technical,
Office, Warehouse and Mail Order Employees Union, affiliated with the International Brotherhood of Teamsters, Local 743
through June(cid:3)17, 2014 at the Chicago (Waterway) facility; the United Steelworkers, Local No.(cid:3)6304 through April(cid:3)30, 2014 at
the Port Maitland, Ontario facility; and the Sindicato de Trabajadores de la Industria Qu(cid:175)mica, Petroqu(cid:175)mica, Carboqu(cid:175)mica,
Gases, Similares y Conexos de la Rep(cid:188)blica Mexicana, at the Mexico facilities. The agreement at the Coatzacoalcos, Mexico
facility is for an indefinite period, but wages are reviewed every year and the rest of the agreement is subject to negotiation
every two years. The current two-year period will expire in June 2014.
Page 9 of 83
Executive Officers
The following table and biographical material present information about the persons serving as our executive officers,
and key employees:
Name
Randolph Gress
Neil Salmon
William Farran
Iris Alvarado
Charles Brodheim
Louis Calvarin
Mark Feuerbach
Joseph Golowski
Gail Holler
Russell Kemp
Michael Lovrich
Abraham Shabot
Mark Thurston
Susan Turner
Age
57
44
Position
Chairman of the Board, Chief Executive Officer, President and Director
Vice President and Chief Financial Officer
63
Vice President, General Counsel and Corporate Secretary
42
Vice President of Purchasing, Logistics & Distribution
49
Vice President and Corporate Controller
49
Vice President, Operations
53
Vice President, Investor Relations, Treasury, Financial Planning & Analysis
51
Vice President, Specialty Phosphates
54
Vice President, Human Resources
54
Vice President, Research & Development and Chief Risk Officer
59
Vice President, Planning and Customer Service
51
Vice President, Director General, Innophos Latin America
53
Vice President, Corporate Strategy and Worldwide Business Development
59
Vice President, Quality and Regulatory
Biographical Material
Randolph Gress is Chairman of the Board, Chief Executive Officer, President and Director of Innophos. Mr. Gress
joined Innophos as Chief Executive Officer and Director at the Company's inception in 2004. Previously, Mr. Gress joined
Rhodia in 1997 and held various positions including Global President of Rhodia's Specialty Phosphates business and Vice
President and General Manager of the Sulfuric Acid business. Prior to joining Rhodia, Mr. Gress spent fourteen years at FMC
Corporation where he worked in various managerial capacities in Strategic Planning, Business, Operations and Supply Chain.
From 1977 to 1980, Mr. Gress worked at Ford Motor Company in various capacities within the Plastics, Paint and Vinyl
Division. Mr. Gress earned a B.S.E. in Chemical Engineering from Princeton University and an M.B.A. from Harvard Business
School.
Neil Salmon is Vice President and Chief Financial Officer of Innophos. Mr. Salmon joined Innophos in October 2009.
Prior to joining Innophos, Mr. Salmon was the Chief Financial Officer of the Adhesives Business Group of Imperial Chemical
Industries PLC. The Adhesives Business Group was the largest specialty chemical division representing around 25% of ICI in
2007 with a major presence in North America, Europe, Asia Pacific and Latin America. From 2004 to 2006, Mr. Salmon was
the Chief Financial Officer, Asia Pacific for National Starch and Chemical Company, an ICI subsidiary, and from 2001 to
2003, he was the Commercial Finance Director of ICI’s U.S. Specialty Polymers and Adhesives Group in Bridgewater, New
Jersey. From 1991 to 2001, Mr. Salmon held various management positions within the ICI Group. Mr. Salmon holds an M.A.
in Politics, Philosophy and Economics from Oxford University (1991) and is a member of the Chartered Institute of
Management Accountants.
William Farran is Vice President, General Counsel and Corporate Secretary of Innophos. Mr. Farran joined Rhodia in
1987 as Environmental Counsel and held various positions in the Rhodia Legal Department, including Senior Operations
Counsel and Assistant General Counsel, providing and managing a wide range of legal services to various Rhodia North
American enterprises. In addition to his legal responsibilities, Mr. Farran also led the North American Total Quality
Management function and served as Director, Public Affairs and Communications. Prior to joining Rhodia, Mr. Farran was
Senior Counsel for UGI Corporation, Valley Forge, PA, and an associate with Morgan, Lewis & Bockius, Philadelphia, PA.
Mr. Farran earned his B.S. in Economics from the Wharton School, University of Pennsylvania and his J.D. from Case Western
Reserve University. He is a member of the bars of the Supreme Court of Pennsylvania and the Supreme Court of the United
States.
Iris Alvarado is Vice President of Purchasing, Logistics & Distribution of Innophos. She joined Albright & Wilson in
1996 working in the Logistics Department and she has since held progressive positions in the areas of Purchasing, Logistics
and Distribution. Ms. Alvarado was Manager of Purchasing of Raw Materials, MRO, Logistics and Packaging for Rhodia
Mexico from 2000 through 2002 and Corporate Purchasing Manager in 2003. After her next positions as Innophos(cid:3244) Supply
Page 10 of 83
Chain Director from 2004 to 2008 and Global Director of Strategic Sourcing of Raw Materials & Energy from 2009 to October
2010, Ms. Alvarado was appointed interim Vice President of Supply Chain from November 2010 to January 2012. She studied
Political Science from 1991 to 1992 in the Eberhard Karls University of T(cid:190)bingen in Germany. Ms. Alvarado earned a B.B.A
degree in International Relations from the University of the Americas-Puebla, Mexico and holds an M.A in Business
Administration from Instituto Tecnol(cid:181)gico y de Estudios Superiores de Monterrey.
Charles Brodheim is Vice President and Corporate Controller of Innophos. Mr. Brodheim joined Rhodia in 1988 and
held various tax, accounting and business analyst positions within Rhodia. Mr. Brodheim was the North American Finance
Director for Specialty Phosphates from 2000-2002. After 2002, Mr. Brodheim was a Finance Director for various Rhodia North
American Enterprises, including its Eco-Services enterprise. Mr. Brodheim earned a B.B.A. degree in Finance/Accounting
from Temple University and is a certified public accountant.
Louis Calvarin is Vice President, Operations of Innophos. Dr. Calvarin joined Rhodia in France in 1986. He has been
Director of Manufacturing and Engineering for Specialty Phosphates since January 2004. Prior to that, Dr. Calvarin held the
positions of Director of Manufacturing for Specialty Phosphates (U.S.), Mineral Chemicals Industrial Operations Manager for
Home, Personal Care and Industrial Ingredients, and Projects Director for Paint, Paper and Construction Materials. Dr. Calvarin
earned a Ph.D. degree in Chemical Engineering from the Ecole Nationale Superieure des Mines in France and graduated from
Ecole Polytechnique in France.
Mark Feuerbach is Vice President, Investor Relations, Treasury, Financial Planning & Analysis and had previously
served as Chief Financial Officer of Innophos from August 2004 through April 2005 and again from June through September
2009. Mr. Feuerbach joined Rhodia in 1989 and was Global Finance Director of Specialty Phosphates from 2000 to 2004,
including a two-year assignment in the U.K. immediately following the purchase of the phosphates business of Albright &
Wilson. Prior to this assignment, Mr. Feuerbach was the Finance Director of Rhodia’s North American phosphates business
from 1997 to 2000 and he previously held various finance positions in a number of Rhodia’s businesses. Prior to joining
Rhodia, Mr. Feuerbach held various accounting and finance positions in both manufacturing and service companies.
Mr. Feuerbach earned a B.A. in Business Administration/Accounting from Rutgers College and an M.B.A. in
Finance/Information Systems from Rutgers Graduate School of Management.
Joseph Golowski is Vice President of the Specialty Phosphates Business of Innophos, appointed to that position in April
2010. Joining Rhodia in 1989 in Market Development, Mr. Golowski has since then held progressive roles in Business
Development, Sales, Marketing and Management. From 1997 through 2000, Mr. Golowski served as a Global Market Director
for Rhodia Rare Earths based in Paris, France. Returning to the U.S., he became the North American Asset Manager for
Phosphoric Acid and subsequently the Director of Sales for the Specialty Phosphate Business. This path brought him to be
appointed Vice President of Sales in 2006 and to his current role as Vice President for the Specialty Phosphate Business.
Mr. Golowski earned a B.S. in Ceramic Engineering from Rutgers University, College of Engineering.
Gail Holler is Vice President, Human Resources of Innophos. Ms. Holler joined Innophos in December of 2010 as Senior
Director Human Resources and was elected Vice President, Human Resources in May 2011. She has 30 years of experience
working in Human Resources for global as well as multi-national organizations in both corporate and operational
environments, including pharmaceutical, medical device, biotech, and IT companies. Prior to joining Innophos, Ms. Holler
worked for Tata Consultancy Services, a $7 billion corporation headquartered in India from May 2009 to December 2010.
Previous to that, she was Vice President Human Resources for LifeCell, a $500 million regenerative medicine (biotech)
company located in central New Jersey. She also worked for Sanofi-Aventis (and its legacy organizations) for 14 years, with
her last position as Vice President Human Resources for the Global Dermatology Division. Ms. Holler earned her BA in
Business Communication from the University of Delaware.
Russell Kemp is Vice President, Research & Development and Chief Risk Officer of Innophos. Mr. Kemp joined Rhodia
in 1989, first holding several manufacturing management jobs and – from 1998 through 2007 – fulfilling a business
management role. Previously, he worked as a process and production engineer at Monsanto. Mr. Kemp earned a B.S. in
Chemical Engineering from the Colorado School of Mines and an MBA from Southern Illinois University – Edwardsville.
Michael Lovrich is Vice President, Planning and Customer Service of Innophos. Mr. Lovrich joined Innophos in August
2007 as Vice President, Supply Chain and served in that capacity until 2012. Prior to joining Innophos, Mr. Lovrich served as
Vice President, Supply Chain from 2004 through 2007 for Coach, Inc., the specialty leather and women’s accessories
manufacturer. Previous to that, Mr. Lovrich was with Engelhard Corporation where he held various positions in Supply Chain
Operations and Information Technology, leading several supply chain transformation initiatives at the business unit and
corporate level. Prior to Engelhard, Mr. Lovrich held positions with Fisher Scientific, Thompson Medical and Becton-
Dickinson. Mr. Lovrich earned his B.A. in History from William Paterson College and his M.B.A. from New York University
Stern School of Business. Mr. Lovrich also holds professional certifications in supply chain and operations management.
Page 11 of 83
Abraham Shabot is Vice President and Director General for Innophos Latin America. Mr. Shabot joined Innophos in
July 2009. Prior to joining Innophos, he served as Managing Director of Kaltex Fibers, a leading acrylic fiber producer in the
Americas, from 2007 to 2009. Before that, he held various positions in Sales and Business Development for Comex, a large
Mexican building supplies manufacturer and distributor. In addition, he was Latin American Director for Polyone Corporation,
a large publicly held manufacturer and distributor of plastic resin and rubber compounds. He earned a degree in Chemical
Engineering from Iberoamericana University in Mexico City.
Mark Thurston is Vice President, Corporate Strategy and Worldwide Business Development of Innophos and also leads
the management teams for the recently acquired Kelatron, AMT and Triarco businesses. Mr. Thurston joined Rhodia in 1985
working in Fine Organics and has been Vice President of Strategy and Worldwide Business Development since 2009.
Previously, he was Vice President of Specialty Chemicals from 2004 to 2008 and Vice President and General Manager of Food
Ingredients North America from 2002 to 2004. Prior to that, he worked in various sales and marketing capacities for Rhodia.
Mr. Thurston previously worked at RTZ Corp. as an assistant planning and marketing manager and an assistant production
manager. Mr. Thurston earned a B.S. in Chemical Engineering from the University of Aston in Birmingham, England.
Susan Turner is Vice President, Quality and Regulatory of Innophos. Ms. Turner joined Stauffer Chemical in 1980 and
has since held progressive roles in the areas of Engineering, Manufacturing, Maintenance, Project Management, and Human
Resources. From 2009 to 2012, Ms. Turner served as Process Integration Lead for the ERP business systems redesign and then
assumed leadership of the project post go-live through the stabilization period. From 2005 to 2009, Ms. Turner served as Plant
Manager of the Chicago Heights and Waterway manufacturing facilities. Prior to that, her experience included assignment in
Mexico and France. Ms. Turner earned a B.S. in Mechanical Engineering from Utah State University.
Available Information
The SEC maintains a website that contains reports, proxy and information statements, and other information regarding
issuers, including the Company, that file electronically with the SEC. The public can obtain any documents that the Company
files with the SEC at http://www.sec.gov. The Company files annual reports, quarterly reports, proxy statements and other
documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (Exchange Act).
The public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100
F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.
Innophos also makes available free of charge through its website (www.innophos.com) the Company’s Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports
filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after the Company electronically files such
material with, or furnishes it to, the SEC.
ITEM 1A. RISK FACTORS
Investing in our company involves a significant degree of risk of varying origins, including from our operations and
financial matters. If any of the following risks or uncertainties actually occurs, our business, prospects, financial condition and
results of operations could be materially and adversely affected.
Risks Related to Our Business Operations
Raw Materials Availability and Pricing
Our principal raw materials consist of phosphate rock, sulfur and sulfuric acid, MGA, PPA and energy (principally
natural gas and electricity). Our raw materials are purchased under supply contracts that vary from long term multi-year supply
arrangements to annual agreements. Pricing within contracts is typically set according to predetermined formulae dependent on
price indices or market prices with pricing for some shorter term contracts set by negotiation with reference to market
conditions. The prices we pay under these contracts will generally lag the underlying market prices of the raw material.
Approximately 25% of our supply of these principal raw materials is bought under fixed annual pricing arrangements with the
remaining quantities adjusting in line with changes in market prices or with approximately a three month lag to market price
changes. As a general matter, we cannot be sure that the annual or other periodic contracts we have in place for our raw
materials can be renewed on similar terms to those currently enjoyed.
Various market conditions can affect the price and supply of our raw materials. The primary demand for both phosphate
rock and sulfur, globally, is for fertilizer production. The costs of these materials are heavily influenced by demand conditions
in the fertilizer market and freight costs, which historically have been volatile. Prices for both materials escalated rapidly
during 2007 and 2008, declined during 2009 and began to increase again during 2010, 2011, and 2012. Increased raw material
Page 12 of 83
pricing may adversely affect our margins if we are not able to offset costs with sales price increases as we explain under “Price
Competition” below.
We import phosphate rock for our Coatzacoalcos, Mexico site from multiple global suppliers. We have now successfully
processed industrial scale quantities of phosphate rock from five suppliers and, for 2013, we expect the majority of our
requirements to be met from two of these suppliers. Previously, the Coatzacoalcos facility was supplied exclusively by OCP,
S.A., a state-owned mining company in Morocco under a 1992 supply agreement that expired in September 2010. Although the
Coatzacoalcos facility has made significant advances in its ability to handle alternative grades of rock without adversely
affecting operating efficiency, further investment has been required to realize the full benefits of improved process flexibility.
Accordingly, it remains possible that process efficiency issues will arise as the plant processes new sources of rock over longer
time periods, necessitating further investment or changes in rock suppliers to better suit plant processing capability. We cannot
be sure that those kinds of efficiency issues will not arise, or if they do, that our existing or other suppliers would be able to
supply sufficient additional quantities or grades to meet our full requirements, factors that could significantly affect our
phosphate rock availability and may weaken our ability to maintain our existing levels of operations. Although the
diversification of our supply base has reduced our dependence on any one supplier, tight demand conditions overall in the
fertilizer market would mean that our purchases could be constrained should any major supplier experience a significant
disruption in its ability to supply, for example, as a result of capacity constraints, political unrest, or adverse weather conditions
in the areas where that supplier operates.
Natural gas prices have experienced significant volatility in the past several years. Wide fluctuations in natural gas prices
may result from relatively minor changes in supply and demand, market uncertainty, and other factors, both domestic and
foreign, that are beyond our control. In addition, natural gas is often a substitute for petroleum-based energy supplies and
natural gas prices are positively correlated with petroleum prices. Future increases in the price of petroleum (resulting from
increased demand, political instability or other factors) may result in significant additional increases in the price of natural gas.
We typically purchase natural gas at spot market prices for use at our facilities which exposes us to that price volatility, except
in those instances where, from time to time, we enter into longer term, fixed-price natural gas contracts.
Most of our raw materials are supplied to us by either one or a small number of suppliers. Some of those suppliers rely, in
turn, on sole or limited sources of supply for raw materials included in their products. Failure of our suppliers to maintain
sufficient capability to meet changes in demand or to overcome unanticipated interruptions in their own sources of supply from
force majeure conditions, such as disaster or political unrest, may prevent them from continuing to supply raw materials as we
require them, or at all. Our inability to obtain sufficient quantities of sole or limited source raw materials or to develop
alternative sources on a timely basis if required could result in increased costs, which may be material, in our operations or our
inability to properly maintain our existing level of operations.
Price Competition
We face significant competition in each of our markets. In some markets, our products are subject to price pressure due to
factors such as competition from low-cost producers, import competition, excess industry capacity and consolidation among
our customers and competitors. These developments, and particularly future expansions by one or more competitors, could
have a negative effect on our pricing abilities. In addition, in the specialty chemicals industry, price competition is also based
upon a number of other considerations, including product differentiation and innovation, product quality, technical service, and
supply reliability. Thus, new products or technologies developed by competitors may also have an adverse impact on our
pricing capability.
From time to time, we have experienced pricing pressure, particularly from significant customers and often coincident
with periods of overcapacity in the markets in which we compete. In the past, we have taken steps to reduce costs and resist
possible price reductions by structuring our contracts and developing strong “value-oriented” non-price related customer
service relationships. However, price reductions in the past have adversely affected our sales and margins, and if we are not
able to offset price pressure when it arises through improved operating efficiencies, reduced expenditures and other means, we
may be subject to those same effects in the future.
Innophos has experienced more intense pricing pressures in markets, and for applications, where competing producers,
particularly those located in China, have similar product offerings, established supply relationships, and potential cost
advantages. Historically, this has occurred most frequently in markets such as South America where Innophos does not have
local production capability and for less specialized products such as detergent grade STPP. Chinese phosphate producers
generally utilize the “thermal” method, a process more heavily dependent on energy that may be cost advantaged compared to
“wet” method producers (such as Innophos) during periods of low energy prices. Both North African and some Chinese
producers are integrated back to phosphate rock, which also may provide cost advantages to them depending on the markets in
which they choose to compete. If the relative competitiveness of Chinese and North African producers increases significantly,
Page 13 of 83
or they are successful in extending their product lines to more specialized product applications, pricing pressure on Innophos
could increase significantly.
Environmental, Product Regulations and Sustainability Initiative Concerns
Our operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials and
some of our products are ingredients in foods, nutritional supplements or pharmaceutical excipients that are used in finished
products consumed or used by humans or animals. As a result, we are subject to extensive and frequently changing
environmental and other regulatory requirements and periodic inspection by federal, state, and local authorities, including the
U.S. Environmental Protection Agency, or EPA, and the FDA, as well as other regulatory authorities and those with
jurisdiction over our foreign operations and product markets. Moreover, as we commence operations in other jurisdictions, such
as China where a new facility was completed in 2012, we will be subject to additional licensing tests for our facilities and
operations and a regulatory environment with which we have little previous experience. Our operations also expose us to the
risk of claims for environmental remediation and restoration or for exposure to hazardous materials. Our production facilities
require various operating permits that are subject to renewal or modification. Violations of environmental laws, regulations, or
permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages, the rescission of
operating permits, third-party claims for property damage or personal injury, or other costs.
Additional laws or regulations focused on phosphate-based products may be implemented in the future. For example, a
number of states within the U.S. and Canada countrywide have moved to effectively ban the use of phosphate-based products
in consumer automatic dishwashing detergents. The trade association that includes major manufacturers of consumer automatic
dishwashing detergents has actively supported these efforts in the U.S. and Canada, with non-phosphate legislation becoming
effective in July 2010. In addition, the European Union recently enacted legislation to effectively ban phosphates in consumer
detergents with a first phase beginning 2013, and in Australia an industry-led voluntary phosphate ban will take effect in 2014.
These trends and related changes in consumer preferences have already reduced our requirements for auto dish markets and we
have responded with a shift in our capabilities to serve other food and industrial applications. Furthermore, although phosphates
are still permitted for those applications in many Latin American countries and other parts of the world, we cannot be sure that
similar bans may not be implemented in some or all of these markets in the future, or that the same effect may not result from
manufacturers reformulating to reduce phosphate levels. Additional laws, regulations or distribution policies focused on
reduced use of other phosphate-based products could occur in the future. For example, a global retailer, as part of a corporate
sustainability initiative, issued a statement indicating its intent to continue to reduce phosphates in laundry and dish detergents
in its Latin American and Canadian stores. Also, some jurisdictions have increased restrictions or banned the use of
polyphosphoric acid in asphalt road construction while others have eased restrictions or are in the process of allowing its use.
During 2008, such restrictions were implemented in New York State, but reversed in Nebraska and in 2009 restrictions were
reversed in Wyoming and relaxed in Colorado. In 2009, Colorado allowed the use of polyphosphoric acid in asphalt road
construction on an exception basis. Since then Nebraska and Colorado have reinstituted the restrictions. In 2012, Georgia
approved the use of polyphosphoric acid in asphalt road construction. If restrictions are instituted in multiple jurisdictions or
throughout the U.S. and Canada, a significant impact on our business could occur. Changes in composition or permitted-use
regulations in domestic or export countries may affect the regulatory status of our finished products and our ability to sell these
products into some markets. Such changes may in turn require reformulation or alternative raw material sourcing, potentially
incurring additional cost. If these measures are not successful, the available markets for our products may be limited.
Maintaining compliance with health and safety and environmental laws and regulations has resulted in ongoing costs for
us. Currently, we are involved in several compliance and remediation efforts and agency inspections concerning health, safety
and environmental matters.
Some existing environmental laws and regulations impose liability and responsibility on present and former owners,
operators or users of facilities and sites for contamination at those locations without regard to causation or knowledge of
contamination. Many of our sites have an extended history of industrial use. Soil and groundwater contamination have been
detected at some of our sites, and additional contamination might occur or be discovered at these sites or other sites (including
sites which we might acquire or to which we may have sent hazardous waste) in the future. We continue to investigate, monitor
or clean-up contamination at most of these sites. Due to the uncertainties associated with environmental investigations and
clean-ups and the ongoing nature of the investigations and clean-ups at our sites, we cannot predict precisely the nature, cost,
and timing of our future remedial obligations with respect to our sites.
International Operations
We have significant production operations in Mexico and Canada, and in 2012 we completed construction of our
blending operation for food ingredients at a new facility in China which we target to be operational in the second quarter of
2013. We continually evaluate business opportunities that may expand our operations to other areas beyond our current
operations. We believe that revenue from sales outside the U.S. will continue to account for a material portion of our total
Page 14 of 83
revenue for the foreseeable future. There are inherent risks in international operations, the most notable being currency
fluctuations and devaluations, economic and business conditions that differ from U.S. cycles, divergent social and political
conditions that may become unsettled or even disruptive, communication and translation delays and errors due to cultural and
language barriers and less predictable outcomes from differing legal and judicial systems. Until we gain familiarity with the
risk environment on an ongoing basis, our risks in those regards are likely to be greatest as we implement our new business
startup in China. Among the additional risks potentially affecting our Mexican operations are changes in local economic
conditions, currency devaluations, potential disruption from socio-political violence in that country, and difficulty in contract
enforcement due to differences in the Mexican legal and regulatory regimes compared to those of the U.S. Risks to our
Canadian operations, though generally less than for Mexico, nevertheless include a differing federal and provincial regulatory
environment from that in the U.S. and currency fluctuations and devaluations. In the event we establish operations in new
regions, our exposures to risks from the noted causes and from other as yet unknown causes may increase.
Our overall success as a multinational business depends, in part, upon our ability to succeed in differing economic, social
and political conditions. Among other things, we are faced with potential difficulties in building and starting up local facilities,
staffing and managing local workforces, and designing and effecting solutions to manage commercial risks posed by local
customers and distributors. We may not continue to succeed in developing and implementing policies and strategies that are
effective in each location where we do business. These risks are not limited to only those countries where we actually operate
facilities, but may extend to areas and regions that supply and service our facilities or are supplied and serviced by them.
As a U.S. corporation, we are subject to the regulations imposed by the Foreign Corrupt Practices Act, or FCPA, which
generally prohibit U.S. companies, their subsidiaries and their intermediaries from making improper payments to foreign
officials for the purpose of obtaining or keeping business. We sell many of our products in developing countries through sales
agents and distributors whose personnel are not subject to our disciplinary procedures. While we and our subsidiaries are
committed to conducting business in a legal and ethical manner wherever we operate, and we communicate and seek to monitor
compliance with our policies by all who do business with us, we cannot be sure that all our third party distributors or agents
remain in full compliance with the FCPA or comparable local regulation at all times.
Product Liability Exposure
Many of our products are functional or fortification additives used in the food and beverage, consumer product,
nutritional supplement and pharmaceutical industries. The sale of these additives and our customers' products that include them
involve the risk of product liability and personal injury claims, which may be brought by our customers or end-users of
products. While we adhere to stringent quality standards in the course of their production, storage and transportation, our
products could be subject to adverse effects from foreign matter such as moisture, dust, odors, insects, mold or other
substances, or from excessive temperature variations. Historically, we have not been subject to material product liability
claims, and no material claims are outstanding. However, because our products are used in manufacturing a wide variety of our
customers' products, including those ingested by humans, and we have concentrated the recent growth of our business in those
areas, we cannot be sure we will not be subject to material product liability or recall claims in the future.
Production Facility Operating Hazards
Our production facilities are subject to hazards associated with the manufacturing, handling, storage, and transportation
of chemical materials and products, including failure of pipeline integrity, explosions, fires, inclement weather and natural
disasters, terrorist attacks, mechanical failures, unscheduled downtime, transportation or utility interruptions, remedial
complications, chemical spills, discharges or releases of toxic or hazardous substances, storage tank leaks and other
environmental risks. We have implemented and installed various management systems and engineering controls and procedures
at all our production facilities to enhance safety and minimize these risks. We also insure our facilities to protect against a
range of risks. However, these potential hazards do exist and could cause personal injury and loss of life, severe damage to or
destruction of property and equipment, and environmental and natural resource damage, and may result in a suspension of
operations (or extended shutdowns) and the imposition of civil or criminal penalties, whose nature, timing, severity and non-
insured exposures are unknown.
Intellectual Property Rights
We rely on a combination of contractual provisions, confidentiality procedures and agreements, and patent, trademark,
copyright, unfair competition, trade secrecy, and other intellectual property laws to protect our intellectual property and other
proprietary rights on a worldwide basis. Nonetheless, we cannot be sure that any pending patent application or trademark
application will result in an issued patent or registered trademark, or that any issued or registered patents or trademarks will not
be challenged, invalidated, circumvented or rendered unenforceable. The use of our intellectual property by others could reduce
any competitive advantage we have developed or otherwise harm our business. Moreover, we cannot be sure that our property
Page 15 of 83
rights can be asserted in all cases, particularly in an international context, or that we can defend ourselves successfully or cost-
effectively against the assertion of rights by others.
Contingency Planning
We operate a number of manufacturing facilities in the US, Canada and Mexico, and we coordinate company activities,
including our sales, customer service, information technology systems and administrative services and the like, through
headquarters operated in those countries.
Our sites and those of others who provide services to them are subject to varying risks of disaster and follow on
consequences, both manmade and natural, that could degrade or render inoperable one or more of our facilities for an extended
period of time. Such disaster related risks and effects are not predictable with certainty and, although they can be mitigated,
they cannot be avoided. We seek to mitigate our exposures to physical disaster events in a number of ways. For example, where
feasible, we design and engineer the configuration of our plants and the associated supply chains to reduce the likelihood and
consequences of disasters. We also have adopted certain contingency plans of operation in the event of disruption.
Furthermore, we maintain insurance for our facilities (and in maintaining our supply chain require insurance to be maintained
by others) against casualties, including extended business interruption, and we continually evaluate our risks and develop new
and revised contingency plans for dealing with them and policies for avoiding them in the future. Although we have reviewed
and analyzed a broad range of risks applicable to our business, the ones that actually affect us may not be those we have
concluded most likely to occur. Furthermore, although our reviews have led to more systematic contingency planning, our
plans are in varying stages of development and execution, such that they may not be adequate at the time of occurrence for the
magnitude of any particular disaster event that befalls us.
Contingencies Affecting Dividends
Certain Financial Risks
After our Common Stock became publicly traded in 2006, our Board of Directors initiated a policy of paying regular
quarterly cash dividends, subject to the availability of funds, legal and contractual restrictions and prudent needs of our
business. We have maintained that policy and paid dividends continuously since that time, making payments that we believed
were prudent and promoted stockholder value. However, we are a holding company that does not conduct any business
operations of our own. As a result, we are normally dependent upon cash dividends, distributions and other transfers from our
subsidiaries, most directly Innophos, Inc., our primary operating subsidiary, and its intermediate parent or parents, to make
dividend payments on our Common Stock. The amounts available to us to pay cash dividends are restricted by provisions of
Delaware law and historically, and we expect for the future, also by limitations in our debt facilities. As allowed by existing
debt instruments, we may incur additional indebtedness that may restrict to an even greater degree, or prohibit, the payment of
dividends on stock. We cannot be sure the level of our operations or agreements governing our current or future indebtedness
will permit us to adhere to our current dividend policy, increase dividends, or pay any dividends at all, or that continued
payment of dividends will remain prudent for our business in the future judgment of our Board of Directors.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Page 16 of 83
ITEM 2.
PROPERTIES
Our headquarters are located in Cranbury, New Jersey, with manufacturing facilities strategically located throughout the
United States, Canada, and Mexico. By the second quarter of 2013, we expect to start up a food grade specialty phosphate
blending facility now under construction in Taicang City, China at a leased site. We do not own and are not responsible for any
closed U.S. or Canadian elemental phosphorus or phosphate production sites.
Facility Type
Corporate Headquarters / Research & Development
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Warehouse
Administrative
Administrative
Administrative
Location
Cranbury, NJ
Coatzacoalcos, Mexico
Chicago Heights, IL
Nashville, TN
Port Maitland, Canada
Geismar, LA
Ogden, UT
North Salt Lake, UT
Green Pond, SC
Paterson, NJ
Chicago (Waterway), IL
Mission Hills, Mexico
Chicago, IL
Mexico City, Mexico
Mississauga, Canada
Ogden, UT
Owned or Leased
Leased
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Leased
Owned
ITEM 3.
LEGAL PROCEEDINGS
The information set forth in Note 16 of Notes to Consolidated Financial Statements, “Commitments and Contingencies,”
in “Item 8. Financial Statements and Supplementary Data”.
ITEM 4. MINE SAFETY DISCLOSURES
None.
Page 17 of 83
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Certain Market Data
Our Common Stock has been listed and traded since November 2006 on the Nasdaq Global Select Market under the
symbol “IPHS.”
Stock price comparisons:
Quarter
First
Second
Third
Fourth
2012
Low
45.25
47.07
46.60
43.93
$
Dividends
Paid
Per Share
0.25
0.27
0.27
0.35
$
$
High
46.11
49.38
50.81
49.87
2011
Low
33.17
42.49
37.30
37.74
$
Dividends
Paid
Per Share
0.17
0.25
0.25
0.25
$
$
High
51.85
56.46
58.01
49.71
The Company declared and paid a $0.35 per share dividend in the first quarter of 2013.
The number of holders of record of our Common Stock at February 4, 2013 was 8,351.
Dividends
Consistent with the determination our Board of Directors made in December 2006, we continue to declare and pay
quarterly dividends. Prior to 2011, the quarterly dividend was $0.17 per share of common stock which increased to $0.25 per
share of Common Stock in 2011. The quarterly dividend was increased to $0.27 per share of Common Stock starting with the
first quarter of 2012, and in October 2012 the quarterly dividend was increased to $0.35 per share of Common Stock. Subject to
action by the Board of Directors management’s present policy is to recommend dividends be continued, reflecting its judgment
at the present time that stockholders are better served if we distribute to them, as quarterly dividends payable at the discretion
of the Board, a portion of the cash generated by our business in excess of our expected cash needs rather than retaining or using
the cash for other purposes. Our expected cash needs include operating expenses and working capital requirements, interest and
principal payments on our indebtedness, capital expenditures, costs associated with being a public company, taxes and other
costs. If our financial needs change, management’s recommendations concerning dividends may also change.
We are not required to pay dividends, and our stockholders will not be guaranteed, or have contractual or other rights, to
receive dividends. Our Board of Directors may decide, in its discretion at any time, to decrease or increase the amount of
dividends, otherwise modify or repeal the dividend policy or discontinue entirely the payment of dividends.
In addition to prudent business considerations, our ability to pay dividends is restricted by the laws of Delaware, our state
of incorporation, and may be restricted by agreements governing debt.
Since we are a holding company, substantially all assets shown on our consolidated balance sheet are held by our
subsidiaries. Accordingly, our earnings and cash flow and our ability to pay dividends are largely dependent upon the earnings
and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends. Our
ability to pay dividends on our Common Stock is limited by restrictions in our indebtedness affecting the ability to pay
dividends. See Note 9 of Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary
Data”.
Equity Compensation Plans
The following information is provided for our most recently completed fiscal year for certain plans providing
compensation in the form of equity securities.
Page 18 of 83
Equity Compensation Plan Information
Plan category
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders
Total
______________________
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted average exercise
price of outstanding
options, warrants and rights
(b) **
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
721,422
$
—
721,422
$
$
22.69
—
22.69
1,639,002 *
—
1,639,002
*
Includes in the total 174,404 shares of Common Stock available for future grant and issuance under our 2006 Long
Term Equity Incentive Plan. The remaining shares shown in column (c) are attributable to our 2009 Long Term
Incentive Plan.
**
In column (b), the weighted average exercise price is only applicable to stock options.
Issuer Purchases of Equity Securities
During 2011 the Board of Directors authorized a repurchase program for Company common stock of up to $50 million.
Under the program, shares will be repurchased from time to time at management’s discretion, either through open market
transactions, block purchases, private transactions or other means and will be funded through existing liquidity and cash from
operations. A five year time limit has been set for the expiration of the program as initially structured. The timing of
repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions and other
factors. However, annual repurchase amounts are expected at a minimum to be sufficient to reduce significantly, or eliminate,
earnings per share dilution caused by shares issued upon the exercise of stock options and in connection with other equity
based compensation plans. Treasury stock is recognized at the cost to reacquire the shares. During the third quarter of 2011, the
Company repurchased 150,000 shares of its common stock on the open market at an average price of $40.93 per share or $6.1
million. During the third quarter of 2012, the Company repurchased 150,000 shares of its common stock on the open market at
an average price of $48.36 per share or $7.3 million. As of December 31, 2012, there is a balance of $36.6 million remaining
under the repurchase program.
ITEM 6.
SELECTED FINANCIAL DATA
The following table presents selected historical consolidated statements of operations, balance sheet and other data for the
periods presented and should only be read in conjunction with our audited consolidated financial statements and the related
notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are
included elsewhere in this Form 10-K.
Page 19 of 83
Statement of operations data:
Net sales
Cost of goods sold
Gross profit
Operating expenses:
(Dollars in thousands, except per share amounts, share amounts or where
otherwise noted)
Year Ended December 31,
2012
2011
2010
2009
2008
$
$
862,399
684,979
177,420
$
810,487
605,172
205,315
$
714,231
556,826
157,405
$
666,759
470,780
195,979
934,758
570,176
364,582
Selling, general and administrative
Research and development
Total operating expenses
Operating income
Interest expense, net
Foreign exchange losses (gains), net
Other income, net
Income before income taxes
Provision for income taxes
Net income (loss)
Allocation of net income (loss) to
common shareholders
Per share data:
Income (loss) per share:
Basic
Diluted
Cash dividends declared
Weighted average shares outstanding:
Basic
Diluted
Other data:
Cash flows provided from (used in):
Operating activities
Investing activities
Financing activities
Capital expenditures
Ratio of earnings to fixed charges (1)
$
$
$
$
$
$
64,320
3,107
67,427
109,993
5,977
(1,957 )
—
105,973
31,783
74,190
$
65,380
2,923
68,303
137,012
5,726
875
—
130,411
43,889
86,522
$
59,564
2,405
61,969
95,436
28,289
659
—
66,488
21,333
45,155
$
67,151
1,938
69,089
126,890
23,313
(769 )
—
104,346
41,202
63,144
$
63,417
2,310
65,727
298,855
34,193
2,663
(386)
262,385
55,202
207,183
74,150
$
86,522
$
45,141
$
63,141
$
207,150
$
3.40
3.30
$
0.89 $
$
3.99
3.83
$
1.00 $
$
2.11
2.02
$
0.68 $
$
2.97
2.87
$
0.68 $
9.89
9.54
0.68
21,795,155
22,475,881
21,694,453
22,578,567
21,421,226
22,359,447
21,258,536
21,968,904
20,956,566
21,718,537
2012
2011
(Dollars in thousands)
Year Ended December 31,
2010
2009
2008
$
101,405
(104,766)
(5,066 )
33,060
$
46,346
(54,728 )
(20,082 )
34,195
$
75,958
(31,192 )
(113,511 )
31,192
$
174,100
(19,609 )
(147,368 )
19,609
14.1x
17.7x
3.2x
4.6x
142,794
(18,536)
(14,591)
18,536
8.0x
______________________
(1)
For purposes of calculating the ratio of earnings to fixed charges, earnings represent income before income taxes plus
fixed charges. Fixed charges consist of interest expense and one-third of operating rental expenses which management
believes is representative of the interest component of rent expense.
Page 20 of 83
Balance sheet data:
Cash and cash equivalents
Accounts receivable
Inventories
Property, plant & equipment, net
Total assets
Total debt
Total stockholders’ equity
2012
2011
(Dollars in thousands)
Year Ended December 31,
2010
2009
2008
$
$
26,815
94,033
163,606
195,723
739,266
176,000
444,323
$
$
35,242
104,421
169,728
187,421
687,015
152,000
393,208
$
$
63,706
74,691
123,182
191,948
626,890
149,000
330,716
$
$
132,451
56,345
113,636
205,227
662,468
246,000
295,378
$
$
125,328
79,541
145,310
231,715
728,204
382,500
242,760
Items included in the preceding tables which had a significant impact on results are summarized as follows. 2012
included the acquisitions of AMT and Triarco increasing investing activities by approximately $72 million; an after tax benefit
of $7.2 million ($7.1 million before tax) for the settlement with Rhodia on their liability for the charges to be paid the CNA for
the Fresh Water Claims. 2011 included the acquisition of Kelatron increasing investing activities by approximately $21 million.
2010 included an $11.7 million after tax charge ($20.0 million before tax) for the CNA Fresh Water Claims and a $7.1 million
after tax charge ($10.8 million before tax) related to our debt refinancing. 2009 included a $5.0 million after tax charge ($7.0
million before tax) for the settlement of the phosphate rock supplier dispute. 2008 included a $14.4 million income tax benefit
from the reversal of valuation allowances against U.S. Federal net deferred tax assets mainly as the result of the usage of our
net operating loss carryforwards.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion contains forward-looking statements about our markets, the demand for our products and services and
our future results. We based these statements on assumptions that we consider reasonable. Actual results may differ materially
from those suggested by our forward-looking statements for various reasons including those discussed in the “Risk Factors”
and “Forward-Looking Statements” sections of this report.
Background
Innophos is a leading international producer of performance-critical and nutritional specialty ingredients, with
applications in food, beverage, dietary supplements, pharmaceutical, oral care and industrial end markets. Innophos combines
more than a century of experience in specialty phosphate manufacturing with a growing capability in a broad range of other
specialty ingredients to supply a product range produced to stringent regulatory manufacturing standards and the quality
demanded by customers worldwide. Many of Innophos' products are application-specific compounds engineered to meet
customer performance requirements and are often critical to the taste, texture and performance of foods, beverages,
pharmaceuticals, oral care products and other applications. For example, Innophos products act as flavor enhancers in
beverages, electrolytes in sports drinks, texture additives in cheeses, leavening agents in baked goods, pharmaceutical
excipients, cleaning agents in toothpaste and provide a wide range of nutritional fortification solutions for food, beverage and
nutritional supplement manufacturers.
Effective November 2011, our business included Kelatron Corporation ("Kelatron"), a leading producer of technically
advanced bioactive mineral ingredients, with a high quality base of customers in the dietary supplement and sports nutrition
markets.
Effective July 2012, our business included AMT Labs, Inc. ("AMT"), a manufacturer of high quality bioactive mineral
ingredients for the food, beverage, confectionary and dietary supplement industries for more than 20 years.
Effective December 2012, our business included the assets of Triarco Industries, Inc. ("Triarco"), a manufacturer of high
quality custom ingredients for the food, beverage and dietary supplement industries for more than 30 years. Triarco specializes
in botanical and enzyme based ingredients that provide important nutritional benefits and are often formulated with bioactive
minerals and specialty phosphates.
The combined businesses of Kelatron, AMT and Triarco generate annual revenues in excess of $50 million with attractive
positions in high growth end markets.
Page 21 of 83
2012 Overview
Our financial performance in 2012 was highlighted by:
• Net sales of $862.4 million compared to $810.5 million for 2011, a $51.9 million improvement mostly attributable to
increased selling prices in specialty phosphates and volume benefits from acquisitions;
• Net income of $74.2 million or $3.30 per share (diluted);
• Reaching settlement with Rhodia on their obligation for the Mexican water duties resulting in $7.2 million of net
income;
• The acquisition in July 2012 of AMT and an affiliated real estate company holding all AMT real property for $27
million;
• The acquisition in December 2012 of Triarco's assets for $45 million in cash plus $1 million in shares of Innophos
Holdings, Inc. common stock;
• Net cash provided from operations of $101.4 million which was invested in growth, through capital expenditures and
the acquisitions of AMT and Triarco, and returns to stockholders through increased dividends and share repurchases;
• Capital expenditures of $33.1 million with the focus on manufacturing investments consisting of:
•
•
•
capacity enhancements for US / Canada and Mexico Specialty Ingredients facilities to support growth objectives;
expanding geographically, including an investment in a China blending facility and food lab;
enhancing Mexico's capability to process multiple grades of rock consistent with the Company's supply chain
diversification strategy;
•
Increases to the quarterly dividend rate of $0.02/share for the first quarter payment and $0.08/share for the fourth
quarter payment leading to total year dividends of $1.14/share paid on the Common Stock in 2012 and a fourth quarter
dividend rate of $0.35/share which is more than double the rate paid just 2 years ago;
150,000 shares of common stock repurchased for $7.3 million; and
•
• A refinancing of the credit facility, reducing interest rates by 75 basis points, adding $100 million of revolver capacity,
swapping the LIBOR exposure on $100 million of floating rate debt for 5 years at 0.9475% and extending the
maturities an additional 2 years out to December 2017.
Refer to the Company’s results of operations and liquidity for the year ended December 31, 2012 for further details.
Recent Trends and Outlook
Market demand was flat to moderately lower in 2012, with this trend accentuated by year-end destocking. Although we are
encouraged by what looks to be a strong start to 2013, this partly represents a carry-over of December orders to January, and we remain
cautious on overall demand levels for 2013.
Momentum continues to improve in our product innovation and geographic expansion initiatives; however, we currently expect
only modest market growth in 2013. Overall, we expect growth in Specialty Phosphates around the low end of our 4-6% long term target with
further growth of approximately 5% anticipated from the full year benefit of acquisitions completed in 2012. First quarter 2013 revenue
growth is expected to be moderately below the full year expectation in comparison to a strong first quarter 2012 for Mexico Specialty
Phosphates.
We do not expect any major change in raw material purchase prices or underlying selling prices through the first quarter 2013.
However, the US & Canada segment will have higher sequential costs of goods sold in the first quarter reflecting purchase accounting effects
for the Triarco acquisition.
We will see a further significant reduction in depreciation as the stepped up asset values created at the formation of the Company in
2004 reach the end of their depreciation lives. This will be partly offset by the amortization of the intangibles associated with recent
acquisitions. Overall, we expect depreciation and amortization expense to be $7 million lower in 2013 than in 2012, of which $4.5 million
will benefit Specialty Phosphates. This benefit, combined with improved mix and better operating leverage, is expected to increase Specialty
Phosphates operating income margins by approximately 200 basis points sequentially. We expect full year Specialty Phosphates operating
income margins to be similar to the 15% achieved for the first three quarters of 2012.
For the short term, GTSP is expected to continue near break-even through the first quarter. As with last year, fertilizer prices have
been declining through the winter period, and no improvement in pricing is anticipated before the second quarter. Mining expenses for the
Page 22 of 83
development of our Mexico phosphate concessions were lower than initially anticipated in the second half of 2012 and are expected to
continue at approximately their current run rate for the first half of 2013.
Net debt (total debt less cash) increased by $69 million in the 2012 fourth quarter to $149 million resulting primarily from the $45
million of cash paid for the Triarco acquisition and a temporary increase in Mexico working capital.
Results of Operations
The following table sets forth a summary of the Company’s operations and their percentages of total revenue for the
periods indicated. (dollars in millions):
Net sales
Cost of goods sold
Gross profit
Operating expenses:
2012
Amount
$
862.4
685.0
177.4
Year Ended December 31,
2011
2010
%
100.0
79.4
20.6
Amount
810.5
$
605.2
205.3
%
100.0
74.7
25.3
Amount
714.2
$
556.8
157.4
Selling, general and administrative
Research & development
Income from operations
Interest expense, net
Foreign exchange losses (gains), net
Other income
Provision for income taxes
Net income
64.3
3.1
110.0
6.0
(2.0 )
—
31.8
74.2
$
7.5
0.4
12.8
0.7
(0.2 )
—
3.7
8.6
$
65.4
2.9
137.0
5.7
0.9
—
43.9
86.5
8.1
0.3
16.9
0.7
0.1
—
5.4
10.7
$
59.6
2.4
95.4
28.3
0.6
—
21.3
45.2
%
100.0
78.0
22.0
8.3
0.3
13.4
4.0
0.1
—
3.0
6.3
Year Ended December 31, 2012 compared to the Year Ended December 31, 2011
Net Sales
Net sales represent the selling price of the products, net of any customer-related rebates, plus freight and any other items
invoiced to customers. Net sales for the year ended December 31, 2012 were $862.4 million, an increase of $51.9 million, or
6.4%, as compared to $810.5 million for the same period in 2011. Selling price increases had a positive effect on revenue of
2.9% or $23.5 million with Specialty Phosphates up 5.1% on positive trends in all product lines, partially offset by lower
pricing in GTSP & Other with fertilizer market prices well below 2011 levels. Volumes increased 3.5% or $28.4 million due to
the effects of acquisitions on Specialty Phosphates and higher fertilizer sales.
The Company calculates pure selling price dollar variances as the selling price for the current year to date period minus
the selling price for the prior year to date period, and then multiplies the resulting selling price difference by the prior year to
date period volume. Volume variance is calculated as the total sales variance minus the selling price variance and refers to the
revenue effect of changes in tons sold at the relative prices applicable to the variation in tons, otherwise known as volume/mix.
The following table illustrates for the year ended December 31, 2012 the percentage changes in net sales by reportable segment
compared with the prior year, including the effect of price and volume/mix changes upon revenue:
Specialty Phosphates US & Canada
Specialty Phosphates Mexico
Total Specialty Phosphates
GTSP & Other
Total
Price
Volume/Mix
Total
4.8 %
6.1 %
5.1 %
(13.2 )%
2.9 %
3.6 %
(5.3 )%
1.3 %
19.5 %
3.5 %
8.4%
0.8%
6.4%
6.3%
6.4%
Note: Included within Specialty Phosphates US & Canada and Total Specialty Phosphates volume/mix variances were
benefits of 3.6% and 2.7%, respectively, from the Kelatron business acquired in the fourth quarter of 2011 and the AMT
business acquired in the third quarter of 2012.
Page 23 of 83
The following table illustrates for the year ended December 31, 2012 the percentage changes for net sales by Specialty
Phosphates product lines compared with the prior year, including the effect of price and volume/mix changes:
Specialty Ingredients
Food & Technical Grade PPA
STPP & Detergent Grade PPA
Price
Volume/Mix
Total
4.8 %
6.4 %
4.8 %
1.0 %
7.2 %
(5.4 )%
5.8 %
13.6 %
(0.6 )%
Note: Included within Specialty Ingredients volume/mix was a 3.9% benefit from the Kelatron business acquired in the
fourth quarter of 2011 and the AMT business acquired in the third quarter of 2012.
Gross Profit
Gross profit represents net sales less cost of goods sold. Gross profit for the year ended December 31, 2012 was $177.4
million, a decrease of $27.9 million, or 13.6%, as compared to $205.3 million for the same period in 2011. Gross profit
percentage decreased to 20.6% for the year ended December 31, 2012 versus 25.3% for the same period in 2011. Gross profit
was unfavorably affected by higher raw material costs slightly offset by the benefit from acquisitions which had a combined
unfavorable impact of $57.5 million. The increase in raw material costs related primarily to inflation in market raw material
prices experienced in 2011 and in response to which price increases were achieved in earlier time periods but with the full
effect of raw material increases only evident in cost of goods sold from the second quarter of 2012. There was a $0.5 million
unfavorable impact for a planned maintenance outage at our Geismar facility, and there was $2.4 million of out of period cost
in Mexico. Gross profit was favorably affected $23.5 million for higher selling prices, $7.1 million due to the recording of a
settlement with Rhodia on their liability for the charges to be paid to the Mexican water authority (CNA), $2.6 million
favorable exchange rate impact mostly from Mexican peso based costs, and $3.3 million lower depreciation. Included in 2012
was $0.6 million for acquisition related fair value adjustments and in 2011 there was $3.4 million income for updates to the
provision for the Mexican CNA Water Tax Claims.
Operating Expenses and Research and Development
Operating expenses consist primarily of selling, general and administrative and research and development expenses.
Operating expenses for the year ended December 31, 2012 were $67.4 million, a decrease of $0.9 million, or 1.3%, as
compared to $68.3 million for 2011. The decrease was due to $4.3 million lower non-cash stock compensation, $1.1 million
lower short term incentive accruals, and a $0.4 million decrease in all other costs partially offset by $2.9 million increase for
the Kelatron and AMT businesses and $2.0 million higher depreciation for the ERP system that was put into service in the third
quarter of 2011.
Operating Income
Operating income for the year ended December 31, 2012 was $110.0 million, a decrease of $27.0 million, or 19.7%, as
compared to $137.0 million for the same period in 2011. Operating income percentages decreased to 12.8% for 2012 from
16.9% for 2011.
Interest Expense, net
Net interest expense, including deferred financing amortization expense, for the year ended December 31, 2012 was $6.0
million, an increase of $0.3 million, or 5.3% as compared to $5.7 million for the same period in 2011. The $0.3 million increase
was due to accelerated deferred financing from the refinancing of our credit facility in the fourth quarter 2012.
Foreign Exchange
Foreign exchange gain for the year ended December 31, 2012 was $2.0 million as compared to a loss of $0.9 million for
2011. The U.S. Dollar is the functional currency of our Mexican and Canadian operations. Consequently, foreign exchange
gain or loss is recorded on remeasurement of non-U.S. dollar denominated monetary assets and liabilities. Such gains and
losses fluctuate from period to period as the foreign currencies strengthen or weaken against the U.S. dollar and the amount of
non-U.S. dollar denominated assets and liabilities increases or decreases.
Provision for Income Taxes
The income tax rate was 30% for the year ended December 31, 2012 compared to 34% for the same period in 2011. The
variance in the income tax rate is primarily due to the non-taxable indemnification from the Rhodia settlement related to the
Mexican CNA Water Tax Claims which lowered the income tax rate 3%, the reversal of valuation allowances on certain state
Page 24 of 83
net operating loss carry-forwards which lowered the income tax rate 2%, partially offset by increases in tax contingency
reserves which increased the income tax rate 1%.
Net Income
Net income for the year ended December 31, 2012 was $74.2 million, a decrease of $12.3 million as compared to $86.5
million for the same period in 2011, due to the factors described above.
Year Ended December 31, 2011 compared to the Year Ended December 31, 2010
Net Sales
Net sales represent the selling price of the products, net of any customer-related rebates, plus freight and any other items
invoiced to customers. Net sales for the year ended December 31, 2011 were $810.5 million, an increase of $96.3 million, or
13.5%, as compared to $714.2 million for the same period in 2010. Selling price increases had a positive effect on revenue of
12.1% or $86.3 million which occurred across all product lines and segments. Volumes increased 1.4% or $10.0 million which
occurred primarily in Food & Technical Grade PPA.
The Company calculates pure selling price dollar variances as the selling price for the current year to date period minus
the selling price for the prior year to date period, and then multiplies the resulting selling price difference by the prior year to
date period volume. Volume variance is calculated as the total sales variance minus the selling price variance and refers to the
revenue effect of changes in tons sold at the relative prices applicable to the variation in tons, otherwise known as volume/mix.
The following table illustrates for the year ended December 31, 2011 the percentage changes in net sales by reportable segment
compared with the prior year, including the effect of price and volume/mix changes upon revenue:
Price
Volume/Mix
Total
Specialty Phosphates US & Canada
Specialty Phosphates Mexico
Total Specialty Phosphates
GTSP & Other
6.1%
28.4%
11.1%
33.8%
13.5%
Note: Kelatron sales for November/December had a 0.4% effect on Specialty Phosphates US & Canada volume/mix and
(1.4 )%
14.4 %
2.1 %
(5.2 )%
1.4 %
7.5 %
14.0 %
9.0 %
39.0 %
12.1 %
Total
total variances.
The following table illustrates for the year ended December 31, 2011 the percentage changes for net sales by Specialty
Phosphates product lines compared with the prior year, including the effect of price and volume/mix changes:
Specialty Ingredients
Food & Technical Grade PPA
STPP & Detergent Grade PPA
Price
Volume/Mix
Total
7.4 %
10.0 %
16.6 %
0.5 %
12.2 %
(2.3 )%
7.9%
22.2%
14.3%
Note: Kelatron sales for November/December had a 0.4% effect on the Specialty Ingredients volume/mix and total
variances.
Gross Profit
Gross profit represents net sales less cost of goods sold. Gross profit for the year ended December 31, 2011 was $205.3
million, an increase of $47.9 million, or 30.4%, as compared to $157.4 million for the same period in 2010. Gross profit
percentage increased to 25.3% for the year ended December 31, 2011 versus 22.0% for the same period in 2010. Gross profit
was favorably affected by $86.3 million for higher selling prices, $6.9 million for lower depreciation, and $3.4 million
primarily resulting from a reduction in provision for excess water duty charges in Mexico following settlement with Rhodia on
Rhodia's liability for the charges and improved estimates on the probable amount to be paid to the Mexican water authority
(CNA). There was a $3.2 million unfavorable impact for a planned maintenance outage at our Coatzacoalcos, Mexico
manufacturing facility and a $1.2 million unfavorable exchange rate impact mostly from Mexican peso based costs. Higher raw
material costs and higher manufacturing costs partially offset by increased sales volumes had a combined unfavorable impact
of $66.4 million. Included in 2010 was a charge of $21.0 million for the Mexican CNA matter, net of a $20.2 million Rhodia
indemnity receivable and $1.1 million expense for the planned maintenance outage at our Geismar, LA. manufacturing facility.
Page 25 of 83
Operating Expenses and Research and Development
Operating expenses in 2011 consisted primarily of selling, general and administrative and research and development
expenses. Operating expenses for the year ended December 31, 2011 were $68.3 million, an increase of $6.3 million, or 10.2%,
as compared to $62.0 million for 2010. The increase was primarily due to $3.3 million of ERP system support expenses, $1.3
million of non-cash stock compensation paid under our employee benefit programs and higher employee related medical
expenses, $1.1 million increased commercial activities, $1.1 million higher depreciation due to the capitalization of the ERP
system which was put into service on August 27, 2011 and $0.4 million of miscellaneous net increases. This was partially
offset by $0.9 million lower legal expenses related to the arbitration of a phosphate rock supply dispute in the prior year.
Operating Income
Operating income for the year ended December 31, 2011 was $137.0 million, an increase of $41.6 million, or 43.6%, as
compared to $95.4 million for the same period in 2010. Operating income percentages increased to 16.9% for 2011 from 13.4%
for 2010.
Interest Expense, net
Net interest expense, including deferred financing amortization expense, for the year ended December 31, 2011 was $5.7
million, a decrease of $22.6 million, or 79.9% as compared to $28.3 million for the same period in 2010. This decrease is due
to the replacement in mid-2010 of $246 million of notes averaging 9% interest with a senior secured bank credit facility of up
to $225 million that averaged interest rates below 4% in 2011. Included in 2010 were $5.6 million call premiums and $5.8
million accelerated deferred financing costs related to the redemption of $190 million Senior Subordinated Notes.
Foreign Exchange
Foreign exchange loss for the year ended December 31, 2011 was $0.9 million as compared to a loss of $0.6 million for
2010. The U.S. Dollar is the functional currency of our Mexican and Canadian operations. Consequently, foreign exchange
gain or loss is recorded on remeasurement of non-U.S. dollar denominated monetary assets and liabilities. Such gains and
losses fluctuate from period to period as the foreign currencies strengthen or weaken against the U.S. dollar and the amount of
non-U.S. dollar denominated assets and liabilities increases or decreases.
Provision for Income Taxes
The effective tax rate increase from 32.1% in 2010 to 33.7% in 2011 is primarily the result of the net tax effect of
Mexican Comision National del Agua, or CNA, Fresh Water Claims reducing our tax rate by 4.9% in 2010 partially offset by a
3.6% favorable effect of foreign tax rates due to higher income in jurisdictions with lower tax rates.
Net Income
Net income for the year ended December 31, 2011 was $86.5 million, an increase of $41.3 million as compared to $45.2
million for the same period in 2010, due to the factors described above.
Page 26 of 83
Segment Reporting
The Company reports its core Specialty Phosphates business separately from GTSP & Other. Specialty Phosphates
consists of the products lines Specialty Ingredients, Food & Technical Grade PPA and STPP & Detergent Grade PPA.
Kelatron, AMT and Triarco are included in the Specialty Phosphates US & Canada segment and in the Specialty Ingredients
product line. GTSP & Other includes fertilizer co-product GTSP and other non-Specialty Phosphate products. The primary
performance indicators for the chief operating decision maker are sales and operating income. The following table sets forth the
historical results of these indicators by segment:
Segment Net Sales
Specialty Phosphates US & Canada
Specialty Phosphates Mexico
Total Specialty Phosphates
GTSP & Other
Total
Net Sales % Growth
Specialty Phosphates US & Canada
Specialty Phosphates Mexico
Total Specialty Phosphates
GTSP & Other
Total
Segment Operating Income
Specialty Phosphates US & Canada
Specialty Phosphates Mexico
Total Specialty Phosphates
GTSP & Other (a) (b) (c)
Total
Segment Operating Income % of net sales
Specialty Phosphates US & Canada
Specialty Phosphates Mexico
Total Specialty Phosphates
GTSP & Other (a) (b) (c)
Total
Depreciation and amortization expense
Specialty Phosphates US & Canada
Specialty Phosphates Mexico
Total Specialty Phosphates
GTSP & Other
Total
2012
2011
2010
569,816
187,743
757,559
104,840
862,399
$
$
525,662
186,211
711,873
98,614
810,487
$
$
495,473
145,078
640,551
73,680
714,231
8.4 %
0.8 %
6.4 %
6.3 %
6.4 %
6.1 %
28.4 %
11.1 %
33.8 %
13.5 %
86,002
21,913
107,915
2,078
109,993
$
$
94,055
21,948
116,003
21,009
137,012
$
$
101,286
9,739
111,025
(15,589 )
95,436
15.1 %
11.7 %
14.2 %
2.0 %
12.8 %
17.9 %
11.8 %
16.3 %
21.3 %
16.9 %
20.4 %
6.7 %
17.3 %
(21.2 )%
13.4 %
23,214
14,578
37,792
4,542
42,334
$
$
19,808
18,050
37,858
5,818
43,676
$
$
28,367
15,721
44,088
5,383
49,471
$
$
$
$
$
$
$
(a)
(b)
(c)
The year ended December 31, 2012, includes a $7.1 million benefit to earnings primarily for the settlement with
Rhodia on their liability for the charges to be paid the CNA for the CNA Fresh Water Claims and a $2.4 million
charge to earnings for out of period costs in Mexico.
The year ended December 31, 2011, includes a $3.4 million benefit to earnings related to updates to the provision for
the CNA Fresh Water Claims.
The year ended December 31, 2010, includes a net $21.0 million charge to earnings for the above mentioned water
claims.
Segment Net Sales:
Specialty Phosphates US & Canada net sales increased 8.4% for the year ended December 31, 2012 when compared with
the same period in 2011. Selling price increased 4.8% primarily in Specialty Ingredients and Food & Technical Grade PPA.
Volumes increased 3.6% due entirely to the Kelatron and AMT acquisitions as market demand for the base business was flat to
Page 27 of 83
slightly negative. In 2011 net sales increased 6.1% when compared with 2010. Selling prices increased 7.5% with increases
across all product lines. Volumes decreased 1.4% primarily due to a final step in STPP reformulation at a large industrial
customer that occurred in early 2011 and, towards the end of the year, some weakening in demand for horticulture and
industrial applications correlating more closely to the agricultural and broader economic environment.
Specialty Phosphates Mexico net sales increased 0.8% for the year ended December 31, 2012 when compared with the
same period in 2011. Selling prices increased 6.1% with increases in all product lines. Volumes decreased 5.3% driven by
lower market demand that was partially offset by our increased focus on, and broader offering of, Food Grade PPA. In 2011 net
sales increased 28.4% when compared with 2010. Volumes increased 14.4% reflecting significant success in growing higher
value food grade PPA and specialty ingredients supported by record production levels for the specialty ingredient product
ranges manufactured in Mexico. Selling prices increased 14.0% with increases across all product lines..
GTSP & Other net sales increased 6.3% for the year ended December 31, 2012 when compared with the same period in
2011 with 19.5% higher volume partially offset by 13.2% lower selling prices. In 2011 net sales increased 33.8% when
compared with 2010 with 39.0% higher selling prices partially offset by 5.2% lower volumes.
Segment Operating Income Percentage of Net Sales:
The 280 basis point decrease in Specialty Phosphates US & Canada for the year ended December 31, 2012 compared
with the same period in 2011 is mainly due to increases in raw material costs and a maintenance outage in the current year
which combined for a 660 basis point decrease in margins. Partially offsetting was increased selling prices which increased
margins by 380 basis points. The 250 basis point decrease in Specialty Phosphates US & Canada for the year ended
December 31, 2011 compared with the same period in 2010 is mainly due to the effects of higher raw material costs along with
increased operating expenses primarily resulting from running the new ERP system partially offset by expenses for the planned
maintenance outage at the Geismar, La. manufacturing facility in 2010 which combined for a 810 basis point decrease in
margins. Increased selling prices increased margins by 560 basis points.
The 10 basis point decrease in Specialty Phosphates Mexico for the year ended December 31, 2012 compared with the
same period in 2011 is mainly due to higher raw material costs partially offset by lower depreciation and lower operating
expenses which combined for a 510 basis point decrease in margins. Increased selling prices increased margins by 500 basis
points. The 510 basis point increase in Specialty Phosphates Mexico for the year ended December 31, 2011 compared with the
same period in 2010 is mainly due to increased selling prices which increased margins by 1,150 basis points. Increased raw
material cost and higher manufacturing costs, due to higher operating rates and a planned maintenance outage at the
Coatzacoalcos manufacturing facility, partially offset by lower legal expenses combined for a 640 basis point decrease in
margins.
The 1,930 basis point decrease in GTSP & Other for the year ended December 31, 2012 compared with the same period
in 2011 is primarily due to lower selling prices which decreased margins by 1,190 basis points. Higher raw material costs
which exceeded lower depreciation contributed an 850 basis point decrease in margins. The net effect of the 2012 versus 2011
benefit of $3.7 million for the settlement with Rhodia on their liability for the charges to be paid to the CNA increased margins
by 380 basis points. Out of period costs in the current period decreased margins by 270 basis points. The 4,250 basis point
increase in GTSP & Other for the year ended December 31, 2011 compared with the same period in 2010 is due to higher
selling prices which increased margins by 3,400 basis points. There was a 3,310 basis point increase in margins from a net
$24.4 million improvement in the Mexican water duties provision ($3.4 million income in 2011 compared to $21.0 million
expense in 2010). Increased raw material costs and higher manufacturing costs partly due to costs from a planned maintenance
outage at the Coatzacoalcos manufacturing facility combined to decrease margins by 2,460 basis points.
Liquidity and Capital Resources
The following table sets forth a summary of the Company’s cash flows for the periods indicated.
(Dollars in millions)
Operating Activities
Investing Activities
Financing Activities
Year Ended December 31,
2011
2010
2012
$
$
101.4
(104.8 )
(5.1 )
$
46.3
(54.7 )
(20.1 )
76.0
(31.2)
(113.5)
Page 28 of 83
Year Ended December 31, 2012 compared to the Year Ended December 31, 2011
Net cash provided by operating activities was $101.4 million for the year ended December 31, 2012 as compared to $46.3
million for 2011, an increase of $55.1 million. The increase in operating activities cash resulted primarily from favorable
changes of $75.9 million in working capital and $1.8 million in other long term assets and liabilities partially offset by
unfavorable changes of $10.3 million in non-cash adjustments to income and $12.3 million in net income as described earlier.
The change in working capital is a use of cash of $14.6 million in 2012 compared to a use in 2011 of $90.5 million, a
change in cash of $75.9 million. The change in working capital is mainly due to focused efforts to reduce accounts receivable
and inventory levels in 2012 after experiencing increased levels in 2011, partially offset by higher tax receivable balances for
our Mexico entities and reduced current liabilities resulting from the payment of Mexican water duties for all years except the
2005-2008 disputed period. The higher creditable tax balances are due to required prepayments of income taxes and the
backlog of value added tax, or VAT, refunds due the Company from the Mexican government.
Total inventories decreased $12.2 million from December 2011 levels resulting in days of inventory on hand decreasing
to 86 days. The following chart shows its historical performance:
Inventory Days on Hand
2012
2011
2010
86
102
84
Net cash used for investing activities was $104.8 million for the year ended December 31, 2012, compared to $54.7
million for 2011, an increase in the use of cash of $50.1 million which was mainly due to the acquisitions of AMT and Triarco
in 2012 compared with the Kelatron acquisition in 2011. Capital spending was $1.1 million lower than 2011. Lower capital
spending on the company's ERP project and expansion project at Nashville, TN was mostly offset by increased project
spending at the Coatzacoalcos Mexico plant and the China blending facility.
On July 17, 2012, Innophos, Inc. purchased for cash 100% of the equity of AMT Labs, Inc. and an affiliated real estate
company holding all AMT real property, including unused land and buildings to support future expansion. The combined
purchase price was $26.9 million, with $19.4 million being allocated to the AMT purchase and $7.5 million being allocated to
the real estate entity. The price was funded from our revolving line of credit as well as cash from operations.
On December 31, 2012 Innophos, Inc. purchased the assets of Triarco Industries, Inc. for $44.8 million in cash and $1.0
million in shares of Innophos Holdings, Inc. common stock. The cash portion of the purchase price was financed by borrowings
under the company's senior credit facility. The acquisition includes potential for additional incentive compensation contingent
upon success in delivering growth objectives over the next two years.
Innophos currently estimates that full exploration costs to a proven reserves standard for its Baja California mining
concessions could require expenditures of $10 to $15 million over a period, currently estimated at three to five years, inclusive
of expenditures to date. This estimate includes mineral rights payments, taxes, mineral resource measurement, beneficiation
process design and completion of feasibility studies. Full expenditures would only occur if interim milestone goals were
successfully attained. Combined 2010 through 2012 expenditures on the exploration of the Baja California Sur concession
deposits were approximately $3.1 million, and management currently expects to spend an additional $1-2 million in 2013
above the previous annual trend rate to accelerate evaluations of its Santo Domingo concession. Innophos intends to seek one
or more partners for these efforts, but anticipates no difficulties in completing the exploration phase without a partnership.
Net cash from financing activities for the year ended December 31, 2012, was a use of $5.1 million, compared to a use of
$20.1 million in 2011, a decrease in the use of cash of $15.0 million. This was mainly due to $21.0 million increased
borrowings partially offset by $4.9 million increased dividend payments and $1.5 million deferred financing cost from the
refinancing of our credit agreement.
On February 27, 2012 the Company's Board of Directors declared an increase to its dividend from $0.25 per share to
$0.27 per share to holders of record on April 16, 2012. On October 26, 2012 the Company's Board of Directors declared an
increase to its dividend from $0.27 per share to $0.35 per share to holders of record on November 16, 2012.
In August 2011, the Company announced a share repurchase program for Company common stock of up to $50 million.
Under the program, shares will be repurchased from time to time at management's discretion, either through open market
transactions, block purchases, private transactions or other means and will be funded through existing liquidity and cash from
operations. A five year time limit has been set for the expiration of the program as initially structured. The timing of
repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions and other
factors. However, annual repurchase amounts are expected at a minimum to be sufficient to reduce significantly, or eliminate,
Page 29 of 83
earnings per share dilution caused by shares issued upon the exercise of stock options and in connection with other equity
based compensation plans. During the third quarter, the Company repurchased 150,000 shares of its common stock on the open
market at an average price of $40.93 per share or a total of $6.1 million. During the third quarter of 2012, the Company
repurchased 150,000 shares of its common stock on the open market at an average price of $48.36 per share or $7.3 million.
Year Ended December 31, 2011 compared to the Year Ended December 31, 2010
Net cash provided by operating activities was $46.3 million for the year ended December 31, 2011 as compared to $76.0
million for 2010, a decrease of $29.7 million. The decrease in operating activities cash resulted primarily from an unfavorable
change of $71.4 million in working capital partially offset by a $41.3 million favorable change in net income as described
earlier.
The change in working capital is a use of cash of $90.6 million in 2011 compared to a use in 2010 of $19.2 million, a
decrease in cash of $71.4 million. The change in working capital is mainly due to higher accounts receivable resulting from
higher sales and increased exports which bear longer terms and higher inventory levels as described below. Other current
liabilities saw a significant decrease compared to 2010 mainly due to recording a $41.6 million liability for Mexican water
duties in 2010, which was partially offset by increases in other current assets mainly due to recording a $20.2 million
receivable for a Rhodia indemnity in 2010.
Total inventories increased $46.5 million from December 2010 levels resulting in days of inventory on hand increasing to
102 days. The increase came from higher values affecting both raw materials and finished goods, the timing of phosphate rock
purchases and a decision to increase U.S. finished goods inventory levels in support of improved service levels. The following
chart shows its historical performance:
Inventory Days on Hand
2011
2010
2009
102
84
89
Net cash used for investing activities was $54.7 million for the year ended December 31, 2011, compared to $31.2
million for 2010, an increase in the use of cash of $23.5 million which was mainly due to the investment in Kelatron and higher
spending on several manufacturing expansion projects.
On October 31, 2011, Innophos, Inc. acquired Kelatron and its parent for approximately $21 million.
The Company is investing to grow its food, beverage and pharmaceutical phosphate business, especially geographically,
and also to diversify its raw material supply long term. Projects were completed in 2011 in the U.S. to increase production
capabilities of various specialty ingredients such as the $4.5 million calcium leavening agents project at the Nashville, TN plant
and the tri-calcium phosphate capacity expansion project at Chicago Heights, IL. In Mexico, projects are focused on increasing
production capabilities of our Specialty Ingredients units and on enhancing Mexico's capability to process multiple grades of
rock consistent with the Company's supply chain diversification strategy. The Company also announced in the 2011 third
quarter a new China subsidiary aimed at developing its Food Grade Specialty Phosphates business in Asia.
Net cash used for financing activities for the year ended December 31, 2011, was a use of $20.1 million, compared to a
use of $113.5 million in 2010, a decrease in the use of cash of $93.4 million. This was mainly due to funds received from the
2010 bank credit facility in the form of a $100 million term loan and a $70 million revolver draw, of which $20 million was
subsequently repaid during 2010. These funds along with $20 million of on-hand cash were used to redeem the $190 million
Senior Subordinated Notes due 2014. In the second quarter of 2010, there was a net $49.5 million decrease in cash for the
redemption of the remaining balance of the 9.5% Senior Unsecured Notes due 2012.
In March 2011, the Company announced a 47% increase in its quarterly dividend rate from $0.17 per share to $0.25 per
share starting with the first quarter 2011 payment in April which resulted in $5.4 million higher dividends paid in 2011
compared to 2010. In February 2012, the Company announced an additional 8% increase in its quarterly dividend rate from
$0.25 per share to $0.27 per share staring with the first quarter 2012 payment to be made in April.
In August 2011, the Company announced a share repurchase program for Company common stock of up to $50 million.
Under the program, shares will be repurchased from time to time at management's discretion, either through open market
transactions, block purchases, private transactions or other means and will be funded through existing liquidity and cash from
operations. A five year time limit has been set for the expiration of the program as initially structured. The timing of
repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions and other
factors. However, annual repurchase amounts are expected at a minimum to be sufficient to reduce significantly, or eliminate,
earnings per share dilution caused by shares issued upon the exercise of stock options and in connection with other equity
Page 30 of 83
based compensation plans. During the third quarter of 2011, the Company repurchased 150,000 shares of its common stock on
the open market at an average price of $40.93 per share or a total of $6.1 million.
Indebtedness
Total debt was $176.0 million as of December 31, 2012. Short term and long term debt net of cash was $149.2 million as
of December 31, 2012, an increase of $32.4 million, or 27.8% from December 31, 2011.
In August, 2010, Innophos entered into a Credit Agreement (the “Credit Agreement”) with a group of lenders
(collectively, the “Lenders”). This agreement was amended and restated on December 21, 2012 increasing the Company's
borrowing capacity, reducing interest rates and extending the maturity to December 21, 2017. The Credit Agreement provides
Innophos with a term loan of $100.0 million and a revolving line of credit from the Lenders of up to $225.0 million, including a
$20.0 million letter of credit sub-facility, all maturing on December 21, 2017. Prepayments of term loan are required at the rate
of 1% of original principal amount per quarter beginning on March 31, 2013. Refer to Note 9 of Notes to Consolidated
Financial Statements in “Item 8. Financial Statements and Supplementary Data”.
Simultaneously with initiating the new senior facility, Innophos entered into an interest rate swap with a swap start date
of December 31, 2012, swapping the LIBOR exposure on $100.0 million of floating rate debt under the new senior facility to a
fixed rate to maturity obligation of 0.9475% plus the applicable margin on the debt expiring on December 21, 2017. The fair
value of this interest rate swap is a liability of approximately $1.0 million as of December 31, 2012.
As indicated elsewhere, the Company has increased the quarterly dividend on its Common Stock to an annual rate of
$1.40 per share starting with the fourth quarter 2012 payment. That policy may change and is subject to numerous conditions
and variables. See the section entitled “Dividends” in Item 5 of this Form 10-K.
On December 31, 2012, the Company had cash and cash equivalents outside the United States of $20.6 million, or 77%
of the Company's balance. Further, the foreign cash amounts are not restricted by law to be used in other countries. Our current
operating plan does not include repatriation of any of the cash and cash equivalents held outside the United States to fund the
United States operations. However, in the event we do repatriate cash and cash equivalents held outside of the United States,
we may be required to accrue and pay United States taxes to repatriate these funds.
The Company’s available financial resources allow for the continuation of dividend payments, pursuit of several “bolt-
on” acquisition projects and further geographic expansion initiatives. We further believe that on-hand cash combined with cash
generated from operations, including our Mexican operations, and availability under our revolving line of credit, will be
sufficient to meet our obligations such as debt service, tax payments, capital expenditures and working capital requirements for
at least the next twelve months. We expect to fund all these obligations through our existing cash and our future operating cash
flows. However, future operating performance for the Company is subject to prevailing economic and competitive conditions
and various other factors that are uncertain. If the cash flows and other capital resources available to the Company, such as its
revolving loan facility, are insufficient to fund our debt and other liquidity needs, the Company may have to take alternative
actions that differ from current operating plans.
In February 2012, we settled certain claims by CNA and all claims with Rhodia affiliates in ongoing New York litigation,
or the New York Litigation, concerning their related indemnification obligations to us.
Settlements were negotiated with CNA for the 1999-2002 claims in the approximate amount of $17.5 million. We
withdrew our appeals associated with those years and made the required payments to CNA in accordance with the CNA
settlement. In accordance with the settlement of New York litigation, the Rhodia parties reimbursed us in an amount equal to
the CNA 1999-2002 payment, and waived their rights to related tax benefits in addition to other agreed consideration. An
additional $7.2 million benefit, at current exchange rates, was recorded in the first quarter 2012 as a result of the settlement.
As part of the CNA settlement process, in February 2012, our Mexican subsidiary, Fosfatados, was required to pay
disputed higher water rates and discounted surcharges and penalties for 2009 and 2010, totaling approximately $2.8 million,
which was less than the amounts previously accrued for potential liability associated with those years. We agreed to make those
payments as part of the settlement of the New York Litigation. In addition, Fosfatados paid the higher rates demanded by CNA
for 2011 and intends to continue to pay the higher rates going forward. The Company still maintains approximately an $11
million liability for the remaining 2005 - 2008 CNA tax water claims.
Capital Expenditures
Capital expenditures were $33 million in 2012, with a higher spend rate in the fourth quarter as activity increased on
some of the larger initiatives that had been delayed from earlier in the year by changes in engineering specifications.
Investment continues to be focused on capacity enhancements for US / Canada and Mexico Specialty Ingredients facilities,
Page 31 of 83
expanding geographically, including the investment in China, and enhancing Mexico's capability to process multiple grades of
rock, consistent with the Company's supply chain diversification strategy. Our expectation for 2013 is for capital expenditure in
the $40-45 million range.
Contractual Obligations and Commercial Commitments
The following table sets forth our long-term contractual cash obligations as of December 31, 2012 (dollars in thousands):
Contractual Obligations
Term loan and revolver
borrowings (1)
Future Service Pension Benefits
Other (2)
Operating Leases
Total contractual cash
obligations
Total
2013
2014
2015
2016
2017
Thereafter
Years ending December 31,
$ 176,000
$
4,000
$
4,000
$
4,000
$
4,000
$ 160,000
$
—
11,801
586,254
19,800
716
149,903
5,114
882
149,903
4,274
1,021
102,603
3,414
1,113
66,853
2,004
1,209
66,853
1,693
6,860
50,139
3,301
$ 793,855
$ 159,733
$ 159,059
$ 111,038
$ 73,970
$ 229,755
$ 60,300
______________________
(1)
Amounts exclude interest payments. Interest on the $176.0 million current balance of the term loan and revolver
borrowings at current rates would be approximately $4.3 million annually.
Represents minimum annual purchase commitments to buy raw materials from suppliers.
(2)
Critical Accounting Estimates and Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with United States generally accepted accounting principles. The
preparation of our financial statements requires us to make estimates, assumptions and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates,
including those related to allowance for bad debts, the recoverability of long-lived assets, including amortizable intangible
assets, goodwill, depreciation and amortization periods, income taxes and commitments and contingencies. We base our
estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We
believe that the following critical accounting policies affect our more significant judgments and estimates used in the
preparation of our consolidated financial statements.
Claims and Legal Proceedings
The categories of asserted or unasserted claims for which the Company has estimated a probable liability and for which
amounts are estimable are critical accounting estimates. Please refer to the section entitled “Commitments and Contingencies”
in Note 16 of Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for
additional information about such estimates.
Deferred Taxes
Deferred taxes are accounted for by recognizing deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the financial statements. Accordingly, deferred tax assets and liabilities
are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Deferred tax assets are assessed for recoverability and a valuation allowance is considered necessary if it is more likely
than not that some portion or all of the net deferred tax assets will not be realized. We continue to analyze our current and
Page 32 of 83
future profitability and probability of the realization of our net deferred tax assets in future periods. Please refer to the section
entitled “Income Taxes” (contained in Note 15) of Notes to Consolidated Financial Statements in “Item 8. Financial Statements
and Supplementary Data” for additional information regarding deferred taxes.
Goodwill
Goodwill represents the excess of the acquisition cost over the fair value of net assets of the businesses acquired.
Accounting Standards Codification (ASC) 350, “Intangibles—Goodwill and Other,” requires periodic tests of the impairment
of goodwill. ASC 350 requires a comparison, at least annually, of the net book value of the assets and liabilities associated with
a reporting unit, including goodwill, with the fair value of the reporting unit, which corresponds to the discounted cash flows of
the reporting unit, in the absence of an active market. When this comparison indicates that impairment must be recorded, the
impairment recognized is the amount by which the carrying amount of the assets exceeds the fair value of these assets. The
annual goodwill impairment review is conducted during the fourth quarter of each year.
Fair values for goodwill testing are estimated using a discounted cash flow approach. Significant estimates in the
discounted cash flow approach include the cash flow forecasts for each of our reporting units, the discount rate and the terminal
value. The five year cash flow forecasts of the company’s reporting units is based upon management’s estimate at the date of
the assessment, which incorporates managements long-term view of selling prices, sales volumes for Innophos’ products, key
raw materials and energy costs, and our operating cost structure. The aggregated fair value of our reporting units was
reconciled to our market capitalization at the date of the assessment, plus a suitable control premium. The terminal value was
determined by applying business growth factors for each reporting unit which are in-line with longer term historical growth
rates, to the latest year for which a forecast exists.
Our market capitalization during fourth quarter of 2012 exceeded the book value of our equity.
Our reporting units for goodwill purposes are Specialty Phosphates United States, Specialty Phosphates Canada,
Specialty Phosphates Mexico and GTSP & Other. As of December 31, 2012, the fair values of our reporting units were
substantially greater than their carrying values.
Long-lived assets
Under ASC 360, “Property, Plant, and Equipment,” long-lived assets including property, plant and equipment and
amortized intangible assets are evaluated and reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to the undiscounted future cash flows expected to be generated
by the asset or asset group. When this comparison indicates that impairment must be recorded, the impairment recognized is the
amount by which the carrying amount of the assets exceeds the fair value of the assets.
The determination of whether or not assets are impaired and the corresponding useful lives of these long-lived assets
requires significant judgment. The development of future cash flow projections requires management estimates related to
forecasted sales and expected costs trends. To the extent that changes in business conditions occur or other management
decisions are made that result in adjusted management projections or alternative use of the assets, impairment losses or
accelerated depreciation may occur in future periods.
Stock-Based Compensation Expense
Our compensation programs can include share-based payments. The primary share-based awards and their general terms
and conditions currently in effect are as follows:
•
Stock options, which entitle the holder to purchase, after the end of a vesting term, a specified number of shares of
Innophos common stock at an exercise price per share set equal to the market price of Innophos common stock on the
date of grant.
• Restricted stock grants, which entitle the holder to receive, at the end of each vesting term, a specified number of
shares of Innophos common stock, and which also entitle the holder to receive dividends paid on such grants
throughout the vesting period.
•
Performance share awards which entitle the holder to receive, at the end of a vesting term, a number of shares of
Innophos common stock, within a range of shares from zero to a specified maximum, calculated using a multi-year
future average return on performance parameters selected in advance as defined solely by reference to the
Company’s own activities. Amounts equivalent to dividends will accrue over the performance period and are paid on
performance share awards when vested and distributed.
Page 33 of 83
• Annual stock retainer grants, which entitle independent members of the Board of Directors to receive a number of
shares of the Company’s common stock equal to a fixed retainer value.
The fair value of the options granted during 2012, 2011 and 2010 was determined using the Black-Scholes option-pricing
model. The assumptions used in the Black-Scholes option-pricing model were as follows:
Non-qualified stock options
Expected volatility
Dividend yield
Risk-free interest rate
Expected term
Weighted average grant date fair value of stock options
Year Ended
December 31,
2012
Year Ended
December 31,
2011
Year Ended
December 31,
2010
53.2 %
2.4 %
1.3 %
6 years
20.41
$
54.4 %
2.3 %
2.3 %
6 years
17.14
$
57.5 %
3.6 %
2.8 %
6 years
10.46
$
Since Innophos Holdings, Inc. was a newly public entity and has limited historical data on the price of its publicly traded
shares, the expected volatility for the valuation of its stock options prior to 2009 was based on peer group historical volatility
data equaling the expected term. Since 2009, the Company had chosen a blended volatility which consists of 50% historical
volatility average of a peer group and 50% historical volatility average of Innophos. The expected term for the stock options is
based on the simplified method since the Company has limited data on the exercises of its stock options. These stock options
qualify as “plain vanilla” stock options in accordance with SAB 110. The dividend yield is the expected annual dividend
payments divided by the average stock price up to the date of grant. The risk-free interest rates are derived from the U.S.
Treasury securities in effect on the date of grant whose maturity period equals the options expected term. The Company applies
an expected forfeiture rate to stock-based compensation expense. The estimate of the forfeiture rate is based primarily upon
historical experience of employee turnover. As actual forfeitures become known, stock-based compensation expense is adjusted
accordingly.
Pension and Post-Retirement Costs / Post-Employment Plan
The Company maintains both noncontributory defined benefit pension plans and defined contribution plans that together
cover all U.S. and Canadian employees.
In the United States, salaried and hourly employees are covered by a defined contribution plan with a 401(k) feature. The
plan provides for employee contributions, company matching contributions, and an age-weighted annual company contribution
to eligible employees. Union-represented hourly employees at our Nashville site are covered by a traditional defined benefit
plan providing benefits based on years of service and final average pay whose benefit accruals were frozen as of August 1,
2007, after which the Nashville union employees began participating in the Company’s existing noncontributory defined
contribution benefit plan. All plans were established by Innophos in 2004.
In Canada, salaried employees are covered by defined contribution plans which provide for company contributions as a
percent of pay, employee contributions, and company matching contributions. Union-represented hourly employees are
covered by a defined benefit plan providing benefits based on a negotiated benefit level and years of service.
Our pension and postretirement benefit costs are developed from actuarial valuations. Inherent in these valuations are key
assumptions, including the discount rate and the expected long-term rate on plan assets. These assumptions require significant
judgment and material changes in our pension and postretirement benefit costs may occur in the future due to changes in these
assumptions, changes in levels of benefits provided, and changes in asset levels. Such assumptions are based on benchmarks
obtained from third party sources.
As a sensitivity measure, the effect of a 25 basis-point decrease in our discount rate assumption would increase our net
periodic benefit cost for our pension and post-retirement plans by approximately $74. A 1% decrease in our expected rate of
return on plan assets would increase our pension plan expense by $172.
Recently Issued Accounting Standards
New accounting standards effective in 2012 are described in the Recent Accounting Pronouncements section in Note 1 of
Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
Page 34 of 83
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks as part of our ongoing business operations. Primary exposures include changes in
interest rates, as borrowings under our Loan Agreement will bear interest at floating rates based on LIBOR plus an applicable
borrowing margin. We manage our interest rate risk by balancing the amount of fixed-rate and floating-rate debt to
the extent practicable consistent with our credit status. For fixed-rate debt, interest rate changes do not affect earnings or cash
flows. Conversely, for floating-rate debt, interest rate changes generally affect our earnings and cash flows, assuming other
factors are held constant.
At December 31, 2012, we had $100.0 million principal amount of term loan debt and a $225.0 million revolving credit
facility, of which $76.0 million was outstanding, both of which are variable rate debt and approximate fair value. Total
remaining availability was $147.1 million, taking into account $1.9 million in face amount of letters of credit issued under the
sub-facility. Simultaneously with initiating the new senior facility in December of 2012, we entered into an interest rate swap
with a swap start date of December 31, 2012, swapping the LIBOR exposure on $100 million of floating rate debt under the
new senior facility to a fixed rate to maturity obligation of 0.9475% expiring in December 2017. The fair value of this interest
rate swap is a liability of approximately $1.0 million as of December 31, 2012.
Changes in economic conditions could result in higher interest rates, thereby increasing our interest expense on our
revolving line of credit. Changes in economic conditions may also result in lower operating income, reducing our funds
available for capital investment, operations or other purposes. In addition, a substantial portion of our cash flow has been used
to service debt and fund working capital needs, which may affect our ability to make future acquisitions or capital expenditures.
We may from time to time use interest rate protection agreements to minimize our exposure to interest rate fluctuation.
Regardless of hedges, we may experience economic loss and a negative impact on earnings or net assets as a result of interest
rate fluctuations. Based on $76.0 million outstanding borrowings as floating rate debt (not included in the swap) under our
revolving credit facility, an immediate increase of one percentage point would cause an increase to interest expense of
approximately $0.8 million per year.
From time to time, we will enter into longer term natural gas and electricity supply contracts in an effort to eliminate
some of the volatility in our energy costs. We did enter into an economic hedge for approximately 75% of our 2012 U.S. &
Canada natural gas requirements.
We do not currently, but may from time to time, hedge our currency rate risks.
We believe that our concentration of credit risk related to trade accounts receivable is limited since these receivables are
spread among a number of customers and are geographically dispersed. No customer accounted for more than 10% of our sales
in the last 3 years.
Foreign Currency Exchange Rates
The U.S. Dollar is the functional currency of the Canadian and Mexican operations. Accordingly, these operations’
monetary assets and liabilities are translated at current exchange rates, non-monetary assets and liabilities are translated at
historical exchange rates, and revenue and expenses are translated at average exchange rates and at historical exchange rates for
the related revenue and expenses of non-monetary assets and liabilities. All transaction gains and losses are included in net
income.
Our principal source of exchange rate exposure in our foreign operations consists of expenses, such as labor expenses,
which are denominated in the foreign currency of the country in which we operate. A decline in the value of the U.S. Dollar
relative to the local currency would generally cause our operational expenses (particularly labor costs) to increase (conversely,
a decline in the value of the foreign currency relative to the U.S. Dollar would cause these expenses to decrease). We believe
that normal exchange rate fluctuations consistent with recent historical trends would have a modest impact on our expenses,
and would not materially affect our financial condition or results of operations. Nearly all of our sales are denominated in U.S.
Dollars and our exchange rate exposure in terms of sales revenues is minimal.
Inflation and changing prices
Our costs and expenses will be subject to inflation and price fluctuations. Significant price fluctuations in raw materials,
freight, and energy costs, if not compensated for by cost savings from production efficiencies or price increases passed on to
customers could have a material effect on our financial condition and results of operations. Refer to “Item 1A. Risk Factors”
contained in this Annual Report on Form 10-K for further information on raw materials availability and pricing.
Page 35 of 83
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to
as “structured finance or special purpose entities”, which would have been established for the purpose of facilitating off-
balance sheet arrangements or other contractually narrow or limited purposes.
Page 36 of 83
ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Balance Sheets at December 31, 2012 and December 31, 2011
Statements of Comprehensive Income for each of the three years ended December 31, 2012
Statements of Stockholders’ Equity for each of the three years ended December 31, 2012
Statements of Cash Flows for each of the three years ended December 31, 2012
Notes to Consolidated Financial Statements
Page
38
39
40
41
42
43
Page 37 of 83
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Innophos Holdings, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material
respects, the financial position of Innophos Holdings, Inc. and its subsidiaries at December 31, 2012 and 2011, and the results
of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with
accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(b) presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company's management is responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A.
Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the
Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management's Report on Internal Controls over Financial Reporting, management has excluded Triarco
from its assessment of internal controls over financial reporting as of December 31, 2012, the year of the acquisition due to the
close proximity of the acquisition date to the date of management's assertion of the effectiveness of the Company's internal
control over financial reporting. We have also excluded Triarco from our audit of internal controls over financial reporting.
Triarco is a wholly owned subsidiary whose total assets and total net sales represent 6.4% and 0%, respectively, of the related
consolidated financial statement amounts as of and for the year ended December 31, 2012.
/s/PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 20, 2013
Page 38 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangibles and other assets, net
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable, trade and other
Other current liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total liabilities
Commitments and contingencies (note 16)
Common stock, par value $.001 per share; authorized 100,000,000; issued 22,110,249 and
21,770,641; outstanding 21,830,870 and 21,620,119 shares
Paid-in capital
Common stock held in treasury, at cost (279,379 and 150,522 shares)
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
See notes to consolidated financial statements
December 31,
2012
2011
$
$
$
$
26,815
94,033
163,606
99,927
384,381
195,723
83,214
75,948
739,266
4,000
36,485
46,030
86,515
172,000
36,428
294,943
$
$
$
$
22
115,782
(12,411 )
346,866
(5,936 )
444,323
739,266
$
$
35,242
104,421
169,728
75,316
384,707
187,421
61,587
53,300
687,015
4,000
32,640
71,609
108,249
148,000
37,558
293,807
22
112,193
(6,156)
292,144
(4,995)
393,208
687,015
Page 39 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Selling, general and administrative
Research & development expenses
Total operating expenses
Operating income
Interest expense, net
Foreign exchange losses (gains)
Income before income taxes
Provision for income taxes
Net income
Net income attributable to common shareholders
Per share data (see Note 12):
Income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Other comprehensive (loss) income, net of tax:
Change in interest rate swaps, (net of tax $71, $448 and ($136))
Change in pension and post-retirement plans, (net of tax $572, $388
and $140)
Other comprehensive (loss) income, net of tax
Comprehensive income
$
$
$
$
$
$
$
$
$
Year Ended December 31,
2011
810,487
605,172
205,315
$
2012
862,399
684,979
177,420
64,320
3,107
67,427
109,993
5,977
(1,957 )
105,973
31,783
74,190
74,150
$
65,380
2,923
68,303
137,012
5,726
875
130,411
43,889
86,522
86,522
$
2010
714,231
556,826
157,405
59,564
2,405
61,969
95,436
28,289
659
66,488
21,333
45,155
45,141
3.40
3.30
$
$
3.99
3.83
$
$
2.11
2.02
21,795,155
22,475,881
21,694,453
22,578,567
21,421,226
22,359,447
(114) $
(732) $
223
(827 )
(941) $
$
73,249
(1,174 )
(1,906) $
$
84,616
(1,062)
(839)
44,316
See notes to consolidated financial statements
Page 40 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Statements of Stockholders’ Equity
(Dollars and shares in thousands)
Balance December 31, 2009
Net income
Other comprehensive loss, (net of tax $4)
Proceeds from stock award exercises and
issuances
Issuance of annual retainer stock to external
Board of Directors
Share-based compensation
Excess tax benefits from exercise of stock
options
Dividends declared
Balance, December 31, 2010
Net income
Other comprehensive loss, (net of tax $836)
Proceeds from stock award exercises and
issuances
Issuance of annual retainer stock to external
Board of Directors
Share-based compensation
Excess tax benefits from exercise of stock
options
Common stock repurchases
Dividends declared
Balance, December 31, 2011
Net income
Other comprehensive loss, (net of tax $643)
Proceeds from stock award exercises and
issuances
Issuance of annual retainer stock to external
Board of Directors
Share-based compensation
Excess tax benefits from exercise of stock
options
Common stock repurchases
Treasury stock reissued for acquisition of
business
Dividends declared
Balance, December 31, 2012
Number of
Common
Shares
Common
Stock
21,334
$
21
Retained
Earnings
(Deficit)
$ 197,541
45,155
Paid-in
Capital
$ 100,066
Accumulated
Other
Comprehensive
Income/(Loss)
$
(2,250) $
(839 )
119
11
236
5,090
640
(14,944 )
21,464
$
21
$ 227,752
86,522
$ 106,032
$
(3,089) $
(1,906 )
300
7
(151 )
1
(2,600 )
6,250
2,511
(6,156 )
(22,130 )
21,620
$
22
$ 292,144
74,190
$ 106,037
$
(4,995) $
(941 )
332
8
(150 )
21
(2,255 )
1,912
3,931
(7,254 )
1,000
21,831
$
22
$ 346,866
$ 103,371
$
(5,936) $
(19,468 )
Total
Shareholders'
Equity
295,378
45,155
(839)
236
—
5,090
640
(14,944)
330,716
86,522
(1,906)
(2,599)
—
6,250
2,511
(6,156)
(22,130)
393,208
74,190
(941)
(2,255)
—
1,912
3,931
(7,254)
1,000
(19,468)
444,323
See notes to consolidated financial statements
Page 41 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided from
operating activities:
Depreciation and amortization
Amortization of deferred financing charges
Deferred income tax provision (benefit)
Deferred profit sharing
Share-based compensation
Changes in assets and liabilities:
Decrease in restricted cash
Decrease (increase) in accounts receivable
Decrease (increase) in inventories
(Increase) decrease in other current assets
Increase (decrease) in accounts payable
(Decrease) increase in other current liabilities
Changes in other long-term assets and liabilities
Net cash provided from operating activities
Cash flows used for investing activities:
Capital expenditures
Acquisition of businesses, net of cash acquired
Net cash used for investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options
Long-term debt borrowings
Long-term debt repayments
Deferred financing costs
Excess tax benefits from exercise of stock options
Common stock repurchases
Dividends paid
Net cash used for financing activities
Net change in cash
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year Ended December 31,
2012
2011
2010
$
74,190
$
86,522
$
45,155
42,334
884
167
—
1,912
—
13,017
12,154
(21,283 )
2,059
(20,573 )
(3,456 )
101,405
(33,060 )
(71,706 )
(104,766 )
528
333,000
(309,000 )
(1,461 )
3,931
(7,254 )
43,676
608
5,379
(286 )
6,250
—
(28,154 )
(45,021 )
3,238
(5,939 )
(14,685 )
(5,242 )
46,346
(34,195 )
(20,533 )
(54,728 )
484
22,000
(19,000 )
—
2,511
(6,156 )
(24,810 )
(19,921 )
49,471
7,150
(6,680)
(2,064)
5,090
1,749
(18,346)
(9,546)
(34,270)
16,716
24,522
(2,989)
75,958
(31,192)
—
(31,192)
236
170,000
(267,000)
(2,828)
640
—
(14,559)
(5,066 )
(20,082 )
(113,511)
(8,427 )
35,242
26,815
$
(28,464 )
63,706
35,242
$
(68,745)
132,451
63,706
$
See notes to consolidated financial statements
Page 42 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
1. Basis of Statement Presentation:
Summary of Significant Accounting Policies
Fiscal Year
Our fiscal year end is December 31.
Description of Business and Principles of Consolidation
Innophos is a leading international producer of mineral based performance-critical specialty ingredients with applications
in food, beverage, pharmaceutical, oral care and industrial end markets. Innophos combines more than a century of experience
in specialty phosphate manufacture with a growing capability in a broad range of other specialty ingredients, to supply a
product range produced to the highest standards of quality and consistency demanded by customers worldwide. Many of
Innophos' products are application-specific compounds engineered to meet customer performance requirements and are often
critical to the taste, texture, performance or nutritional content of foods, beverages, pharmaceuticals, oral care products and
other applications. For example, Innophos products act as flavor enhancers in beverages, electrolytes in sports drinks, texture
additives in cheeses, leavening agents in baked goods, pharmaceutical excipients, cleaning agents in toothpaste and provide a
wide range of nutritional fortification solutions for food, beverage and nutritional supplement manufacturers.
In October 2011, Innophos acquired 100% of the stock of Kelatron's holding company, KI Acquisition, Inc., for a
purchase price of approximately $21 million, subject to specified adjustments. Founded in 1975 and based in Ogden, Utah ,
Kelatron is a leading producer of technically advanced bioactive mineral ingredients, with a high quality base of customers in
the supplement and sports nutrition markets. Bioactive mineral ingredients are manufactured to enhance the digestive system's
ability to absorb these essential minerals. Kelatron products deliver a wide range of minerals that are essential in small
quantities to a balanced diet (micronutrients) and are highly complementary to the macronutrients of calcium, magnesium,
potassium and phosphorus currently manufactured by Innophos.
In July 2012, Innophos acquired 100% of the equity of AMT Labs, Inc. and an affiliated real estate company holding all
AMT real property for $26.9 million, with $19.4 million being allocated to the AMT purchase and $7.5 million being allocated
to the real estate entity. Located in North Salt Lake, Utah, AMT has been manufacturing bioactive mineral ingredients for the
food, beverage, confectionary and dietary supplement industries for more than 20 years.
In December 2012, Innophos purchased all of Triarco Industries, Inc., ("Triarco"), assets for $45 million in cash plus $1
million in shares of Innophos Holdings, Inc. Common Stock. Triarco, a privately held company based in New Jersey, has been
manufacturing high quality custom ingredients for the food, beverage, dietary supplement and nutraceutical industries for more
than 30 years. Triarco specializes in botanical and enzyme based ingredients that provide important benefits in growing
markets such as sports nutrition, dietary supplements and fortified beverages.
Innophos Holdings, Inc. is the parent of Innophos Investments Holdings, Inc., which is the parent to Innophos
Investments II, Inc., which owns 100% of Innophos, Inc; all are incorporated under the laws of the State of Delaware. All
intercompany transactions are eliminated in consolidation.
Out of Period Adjustments
During the second quarter of fiscal 2012, we identified certain adjustments in our financial statements related to 2011
through the first quarter of fiscal 2012. We corrected the items during the second quarter of fiscal 2012, which had the effect of
increasing cost of goods sold by $2.4 million and decreasing net income by $1.6 million. These prior period adjustments are not
material to the financial results of the previously issued annual financial statements or the 2012 financial statements.
Certain prior year balances have been reclassified to conform to current year presentation.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles
requires the use of judgments and estimates made by management. Actual results could differ from those estimates. Some of
the more significant estimates pertaining to the Company include accruals for contingencies, distributor incentives and rebates,
the valuation of inventories, the allowance for doubtful accounts, income tax valuation allowances, the recoverability of long-
lived assets and goodwill analysis and cash flows and assumptions used in the recognition and measurement of assets acquired
Page 43 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
in business combinations. Management routinely reviews its estimates and assumptions utilizing currently available
information, changes in facts and circumstances, and historical experience.
Cash Equivalents
All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.
Accounts Receivable and Allowances for Doubtful Accounts
Trade accounts receivable is recorded at the invoiced amount and does not bear interest. The collectability of accounts
receivable is evaluated based on a combination of factors. Allowances for doubtful accounts are recorded based on the length
of time the receivables are past due and historical experience. In circumstances when it is probable that a specific customer is
unable to meet its financial obligations, an allowance is recorded against amounts due to reduce the receivable to the amount
that is reasonably expected to be collected.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined on the basis of the first-in, first-out method.
These costs include raw materials, direct labor, manufacturing overhead and depreciation. Spare parts are included in inventory
and are initially recorded at cost.
Inventories, including spare parts, are evaluated for excess quantities, obsolescence or shelf-life expiration. This
evaluation includes an analysis of historical sales levels by product and projections of future demand. To the extent
management determines there are excess, obsolete or expired inventory quantities, valuation reserves are recorded against all or
a portion of the value of the related products with the appropriate charge to cost of goods sold.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Major renewals and improvements are
capitalized. Maintenance, repairs and minor renewals are expensed as incurred. The cost and related accumulated depreciation
of all property, plant and equipment retired or otherwise disposed of are eliminated from the accounts and any resulting gain or
loss is reflected in net income. Interest is capitalized in connection with the construction of major renewals and improvements.
Capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life.
Depreciation is calculated on the straight-line basis over the estimated useful lives of the related assets, ranging from ten to
forty years for buildings and improvements, three to twenty years for machinery and equipment, and three to seven years for
capitalized software. Leasehold improvements are amortized over the lease term or the estimated useful life of the
improvement, whichever is less.
External direct costs in developing or obtaining internal use computer software and payroll, and payroll-related costs for
employees dedicated solely to the project, to the extent of the time spent directly on the project and which they meet the
requirements of ASC 350-40, are capitalized.
Long-Lived Assets
Under ASC 360,” Property, Plant, and Equipment,” long-lived assets including property, plant and equipment and
amortizable intangible assets are evaluated and reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to the undiscounted future cash flows expected to be generated
by the asset or asset group. When this comparison indicates that impairment must be recorded, the impairment recognized is the
amount by which the carrying amount of the assets exceeds the fair value of the assets.
The determination of whether or not assets are impaired and the corresponding useful lives of these long-lived assets
requires significant judgment. The development of future cash flow projections requires management estimates related to
forecasted sales and expected costs trends. To the extent that changes in business conditions occur or other management
decisions are made that result in adjusted management projections or alternative use of the assets, impairment losses or
accelerated depreciation may occur in future periods.
Page 44 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Goodwill
Goodwill represents the excess of the acquisition cost over the fair value of net assets of the businesses acquired. ASC
350, “Intangibles—Goodwill and Other,” requires periodic tests of the impairment of goodwill. ASC 350 requires a
comparison, at least annually, of the net book value of the assets and liabilities associated with a reporting unit, including
goodwill, with the fair value of the reporting unit, which corresponds to the discounted cash flows of the reporting unit, in the
absence of an active market. During 2012, the Company adopted new accounting guidance, which provides an option for
companies to use a qualitative approach to test goodwill for impairment, if certain conditions are met. If after the qualitative
assessment, an entity determines that it's more likely than not that the fair value of a reporting unit exceeds the carrying
amount, then performing the traditional two-step impairment test is unnecessary. If a company determines otherwise, then it is
required to perform the first step of the two-step impairment test. When this comparison indicates that impairment must be
recorded, the impairment recognized is the amount by which the carrying amount of the assets exceeds the fair value of these
assets. The annual goodwill impairment review is conducted during the fourth quarter of each year.
Other Intangible Assets
Other intangible assets, which consist of developed technology, customer relationships, tradenames, a non-compete
agreement, patents, licenses and software, are amortized on a straight-line basis over their estimated useful lives which can be
up to twenty years.
Revenue Recognition
Revenue from sales of our products to our customers is recognized when title and risk of loss passes to the customer,
which occurs either upon shipment or delivery, depending upon the agreed sales terms with customers. In the United States and
Canada, the Company records estimated reductions to revenue for distributor incentives and customer incentives such as
rebates, at the time of the initial sale. Distributor and customer incentives in Mexico are immaterial to the financial statements.
The estimated reductions are based on the sales terms, historical experience and trend analysis. Accruals for distributor
incentives are reflected as a direct reduction to accounts receivable and accruals for rebates are recorded as accrued expenses.
This analysis requires a significant amount of judgment from management. Changes in the assumptions used to calculate these
estimates or changes resulting from actual results are recorded against revenue in the period in which the change occurs.
Shipping and Handling Fees and Costs and Advertising Expenses
Shipping and handling fees and costs invoiced to customers are included in Net sales. Shipping and handling fees and
costs incurred by the Company are included in Cost of goods sold. Advertising expenses, which are not significant, are
expensed as incurred.
Foreign Currency Translation
The U.S. dollar is the functional currency of the Canadian and Mexican operations. Accordingly, these operations
monetary assets and liabilities are translated at current exchange rates, non-monetary assets and liabilities are translated at
historical exchange rates. Revenue and expenses related to monetary assets and liabilities are translated at average exchange
rates and at historical exchange rates for the related revenue and expenses of non-monetary assets and liabilities. All translation
gains and losses are included in net income.
Research and Development Expenses
Research and development expenditures, including expenditures relating to the development of new products and
processes and significant improvements and refinements to existing products, are expensed as incurred.
Employee Termination Benefits
The Company does not have a written severance plan for its Mexican operations, nor does it offer similar termination
benefits to affected employees in all Mexican restructuring initiatives however, Mexican law requires payment of certain
minimum termination benefits. Accordingly, in situations where minimum statutory termination benefits must be paid to the
affected employees, the Company records employee severance costs associated with these activities in accordance with ASC
712, Compensation – Nonretirement Post Employment Benefits. The Company does have a written severance plan which is in
accordance with ASC 712 for its U.S. and Canadian operations. The Company has an accrued obligation for post-employment
benefits for U.S. and Canadian operations when the amounts are probable and reasonably estimated. In all other situations
where the Company pays out termination benefits, including supplemental benefits paid in excess of statutory minimum
Page 45 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
amounts and benefits offered to affected employees based on management’s discretion, the Company records these termination
costs in accordance with ASC 420, Exit or Disposal Cost Obligations.
The timing of the recognition of charges for employee severance costs depends on whether the affected employees are
required to render service beyond their legal notification period in order to receive the benefits. If affected employees are
required to render service beyond their legal notification period, charges are recognized ratably over the future service period.
Otherwise, charges are recognized when a specific plan has been confirmed by management and required employee
communication requirements have been met.
Legal Costs
The Company expenses legal costs as incurred, including those legal costs which may be incurred in connection with a
loss contingency.
Income Taxes
The Company’s United States subsidiaries file a consolidated U.S. tax return. The Company's Mexican subsidiaries filed
a consolidated Mexico tax return. The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Under
ASC 740, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax
bases using enacted tax rates applied to those differences.
Deferred tax assets are assessed for realizability and a valuation allowance is provided if a portion of the associated tax
benefit is not expected to be realized.
If any material uncertain tax positions arise, the Company’s policy is to accrue associated penalties in selling, general and
administrative expenses and to accrue interest as part of net interest expense. Other than the assessments disclosed in Note 15,
Income Taxes, as of December 31, 2012, no significant adjustments have been proposed to the Company's tax positions and the
Company currently does not anticipate any adjustments that would result in a material change to its financial position during
the next twelve months.
Environmental Costs
Environmental liabilities are recorded undiscounted when it is probable that these liabilities have been incurred and the
amounts can be reasonably estimated. These liabilities are estimated based on an assessment of many factors, including the
amount of remediation costs, the timing and extent of remediation actions required by the applicable governmental authorities,
and the amount of the Company’s liability after considering the liability and financial resources of other potentially responsible
parties. Generally, the recording of these accruals coincides with the assertion of a claim or litigation, completion of a
feasibility study or a commitment to a formal plan of action. Anticipated recoveries from third parties are recorded as a
reduction of expense only when such amounts are realized. Any insurance receivables would be recorded gross of the estimated
liability.
Comprehensive Income (Loss)
Comprehensive income (loss) is composed of net income (loss), adjusted for changes in comprehensive income items
such as changes in defined benefit pension plan funded status.
Stock Options
The Company recognizes compensation expense for its Long-Term Incentive Plans (LTIP). Under applicable accounting
standards, the fair value of share-based compensation is determined at the grant date and the recognition of the related expense
is recorded over the period in which the share-based compensation vests. Refer to Note 11 for additional information.
Business Combinations
An acquired business is included in the consolidated financial statements upon obtaining control of the acquired assets.
Assets acquired and liabilities assumed are recognized at the date of acquisition at their respective fair values. Any excess of
the purchase price over the estimated fair values of the net assets acquired is recognized as goodwill. For business
combinations entered into after January 1, 2009, legal costs, audit fees, business valuation costs, and all other business
acquisition costs are expensed when incurred.
Page 46 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Recently Issued Accounting Standards
Adopted
In May 2011, the FASB issued changes to conform existing guidance regarding fair value measurement and disclosure
between U.S. GAAP and International Financial Reporting Standards. These changes both clarify the FASB's intent about the
application of existing fair value measurement and disclosure requirements and amend certain principles or requirements for
measuring fair value or for disclosing information about fair value measurements. The clarifying changes relate to the
application of the highest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a
reporting entity's shareholders' equity, and disclosure of quantitative information about unobservable inputs used for Level 3
fair value measurements. The amendments relate to measuring the fair value of financial instruments that are managed within a
portfolio; application of premiums and discounts in a fair value measurement; and additional disclosures concerning the
valuation processes used and sensitivity of the fair value measurement to changes in unobservable inputs for those items
categorized as Level 3, a reporting entity's use of a nonfinancial asset in a way that differs from the asset's highest and best use,
and the categorization by level in the fair value hierarchy for items required to be measured at fair value for disclosure purposes
only. These changes became effective for the Company on January 1, 2012. The implementation of this standard did not have a
material impact on the Company's consolidated financial position and results of operations.
Issued but not yet adopted
In July 2012, the Financial Accounting Standards Board issued updated guidance on the periodic testing of indefinite-
lived intangible assets for impairment. The updated guidance gives companies the option to perform a qualitative assessment to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and, thus,
whether further impairment testing is necessary. The updated accounting guidance is effective for fiscal years beginning after
September 15, 2012, with early adoption permitted. The implementation of this standard is not expected to have a material
impact on the Company's consolidated financial position and results of operations.
2. Restricted Cash:
Restricted cash consisted of escrow funds agreed to be deposited in connection with a dispute between the Company and
a third party. The dispute was settled on February 24, 2010 and the funds were disbursed to the third party in accordance with
the settlement terms.
3. Inventories:
Inventories consist of the following:
Raw materials
Finished products
Spare parts
2012
49,856
104,228
9,522
163,606
$
$
2011
44,937
116,488
8,303
169,728
$
$
Inventory reserves for excess quantities, obsolescence or shelf-life expiration as of December 31, 2012 and December 31,
2011 were $11,551 and $9,911, respectively.
Page 47 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
4. Other Current Assets:
Other current assets consist of the following:
Rhodia indemnity receivable for CNA water tax claims (see note 16)
Creditable taxes (value added taxes)
Vendor inventory deposits (prepaid)
Prepaid income taxes
Other prepaids
Deferred income taxes
Other
5. Property, Plant and Equipment, net:
Property, plant and equipment, at cost, consist of the following:
Land and buildings
Machinery and equipment
Construction-in-progress
Less accumulated depreciation
2012
2011
—
35,181
19,445
22,000
6,806
13,611
2,884
99,927
$
$
13,571
20,473
19,671
4,829
2,585
10,347
3,840
75,316
$
$
2012
104,532
406,727
20,708
531,967
336,244
195,723
$
$
2011
93,911
383,767
8,823
486,501
299,080
187,421
$
$
Depreciation expense, excluding depreciation expense in changes of inventory, was $37,930, $39,006 and $43,056 in
2012, 2011 and 2010, respectively. Unamortized capitalized software, included in machinery and equipment, was $21,572 and
$24,441 for the years ended December 31, 2012 and December 31, 2011, respectively.
6. Goodwill:
Balance, December 31, 2010
Investment in Kelatron
Balance, December 31, 2011
Investment in AMT
Investment in Triarco
Investment in Kelatron
Balance, December 31, 2012
Total
$ 51,706
9,881
$ 61,587
5,047
16,614
(34)
$ 83,214
Specialty
Phosphates
Canada
2,530
Specialty
Phosphates
Mexico
$ 38,584
GTSP &
Other
$
3,355
2,530
$ 38,584
$
3,355
$
Specialty
Phosphates
US
7,237
9,881
$ 17,118
5,047
16,614
$
$
(34 )
$ 38,745
$
2,530
$ 38,584
$
3,355
Page 48 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
7. Intangibles and Other Assets, net:
Intangibles and other assets consist of the following:
Developed technology and application patents, net of accumulated
amortization of $16,155 for 2012 and $13,980 for 2011
Customer relationships, net of accumulated amortization of $7,666 for 2012
and $5,957 for 2011
Tradenames and license agreements, net of accumulated amortization of
$4,852 for 2012 and $4,246 for 2011
Non-compete agreement, net of accumulated amortization of $644 for 2012
and $567 for 2011
Total Intangibles
Deferred financing costs, net of accumulated amortization of $1,092 for
2012 and $837 for 2011 (see note 9)
Deferred income taxes
Other Assets
Total other assets
Useful life
(years)
2012
2011
7-20
28,325
5-15
29,384
5-20
12,598
4-10
$
$
$
$
666
70,973
2,567
—
2,408
4,975
75,948
$
$
$
$
24,010
13,333
5,974
73
43,390
1,991
5,450
2,469
9,910
53,300
Amortization expense for intangibles was $4,567, $3,528 and $3,377 in 2012, 2011 and 2010, respectively. Anticipated
amortization expense for the next five years related to intangibles is as follows:
Intangible amortization expense
2013
6,920
$
2014
6,893
$
2015
6,852
$
2016
6,904
$
2017
6,701
$
The preceding expected amortization expense is an estimate. Actual amounts of amortization expense may differ from
estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets, accelerated amortization of
intangible assets and other events.
In 2011, the Company acquired $10.2 million of intangible assets as part of its acquisition of Kelatron Corporation and in
2012, acquired $10.1 million and $22.1 million as part of its acquisitions of AMT and Triarco, respectively. (see Note 22).
8. Other Current Liabilities:
Other current liabilities consist of the following:
CNA water tax claims (see Note 16)
Payroll related
Taxes other than income taxes
Benefits and pensions
Freight and rebates
Dividends payable
Other
Page 49 of 83
2012
2011
10,855
10,723
8,352
6,727
4,604
—
4,769
46,030
$
$
31,523
11,708
5,885
7,717
4,418
5,405
4,953
71,609
$
$
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
9. Short-term Borrowings, Long-Term Debt, and Interest Expense:
Short-term borrowings and long-term debt consist of the following:
Term loan due 2017
Revolver borrowings under the credit facility
Total borrowings
Less current portion
Long-term debt
2012
100,000
76,000
176,000
4,000
172,000
$
$
$
2011
95,000
57,000
152,000
4,000
148,000
$
$
$
In August, 2010, Innophos entered into a Credit Agreement (the “Credit Agreement”) with a group of lenders
(collectively, the “Lenders”). This agreement was amended and restated on December 21, 2012 increasing the Company's
borrowing capacity, reducing interest rates extending the maturity to December 21, 2017. The Credit Agreement provides
Innophos with a term loan of $100.0 million and a revolving line of credit from the Lenders of up to $225.0 million, including a
$20.0 million letter of credit sub-facility, all maturing on December 21, 2017. Prepayments of term loan are required at the rate
of 1% of original principal amount per quarter beginning on March 31, 2013. Interest accruing on amounts borrowed under the
term loan and revolving line is based on an applicable margin over LIBOR (London Interbank Offered Rate) or bank base rate,
ranging from 125 to 225 basis points for LIBOR and 25 to 125 basis points for base rate loans, in each case with loan period
and interest alternative as chosen by the Company, which margin is adjusted quarterly depending on a total leverage ratio (as
computed under the Credit Agreement) for the period in question. Commitment fees on the unused revolving line range from
15 to 37.5 basis points, depending on total leverage ratio (as computed under the Credit Agreement) for the period in question.
The current applicable margin for LIBOR based loans, base rate loans and the commitment fee are 150, 50 and 20 basis points,
respectively.
The Credit Agreement also provides for possible additional revolving indebtedness under an incremental facility of up to
$50.0 million (i.e. an aggregate of revolving capacity up to $275.0 million) upon future request by Innophos Holdings, Inc. to
existing Lenders (and depending on their consent) or from other willing financial institutions invited by the Company and
reasonably acceptable to the administrative agent to join in the Credit Agreement. This revolving credit facility increase, if
implemented, may provide for higher applicable margins to either the increased portion or possibly the entire revolving credit
facility, with limitations, for interest rates than those in effect for the original revolving commitments under the Credit
Agreement.
The obligations of the Company under the Credit Agreement are secured by first priority liens on substantially all the
United States assets of the Company, as well as a pledge of 65% of the voting equity of entities holding the Companies’ foreign
subsidiaries.
The Credit Agreement contains representations given to the Lenders about the nature and status of the Companies’
business that serve as conditions to future borrowings, and affirmative, as well as negative, covenants typical of senior facilities
of this kind that prohibit or limit a variety of actions by the Companies and their subsidiaries generally without the Lenders’
approval. These include covenants that affect the ability of those entities, among other things, to (a) incur or guarantee
indebtedness, (b) create liens, (c) enter into mergers, recapitalizations or assets purchases or sales, (d) change names, (e) make
certain changes to their business, (f) make restricted payments that include dividends, purchases and redemptions of equity
(g) make advances, investments or loans, (h) effect sales and leasebacks or (i) enter into transactions with affiliates, (j) allow
negative pledges or limitations on the repayment abilities of subsidiaries or (k) amend subordinated debt. However, subject to
continued compliance with the overall leverage restrictions described in more detail below, the Companies retain flexibility
under the Credit Agreement to develop their business and achieve strategic goals by, among other things, being permitted to
take on additional debt, pay dividends (as long as the Total Leverage Ratio shall be .25 less than the then applicable level
described below), re-acquire equity and make domestic acquisitions. Foreign acquisitions and investments are also permitted up
to a fixed limit which is set initially at $100.0 million and can increase with ongoing cash generation up to as high as $300.0
million.
Page 50 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Among its affirmative covenants, the Credit Agreement requires the Companies to maintain the following consolidated
ratios (as defined and calculated according to the Credit Agreement) as of the end of each fiscal quarter:
(a) “Total Leverage Ratio” less than or equal to 3.00 to 1.00.
(b) “Senior Leverage Ratio” less than or equal to 2.50 to 1.00.
(c) “Fixed Charge Coverage Ratio” greater than or equal to 1.25 to 1.00.
As of December 31, 2012, the Total Leverage Ratio, Senior Leverage Ratio, and Fixed Charge Coverage Ratio calculated
in accordance with the agreement were 1.17, 1.17 and 1.85, respectively.
The Credit Agreement provides for “Events of Default” that, unless waived, can or will lead to acceleration of obligations
upon the occurrence, continuation and/or notice, as applicable, of specified events typical of senior facilities of this kind. These
include (a) failures to pay interest or principal on loans, (b) misrepresentations, (c) failures to observe covenants, (d) cross
defaults of other indebtedness in excess of $20.0 million, (e) uninsured and unsatisfied judgments in excess of $20.0 million or
certain orders or injunctions, (f) bankruptcy and insolvency events, (g) events leading to aggregate liability under the Employee
Retirement Income Security Act of 1974 (ERISA) in excess of $20.0 million, (h) changes of control, (i) invalidity of credit
support /security agreements, and (i) certain disadvantageous changes in Credit Agreement debt compared to subordinated
debt.
Fees and expenses incurred in 2010 with the execution of the Credit Agreement were approximately $2.8 million. This
amount was recorded as deferred financing costs and amortized over the initial term of the Credit Agreement using the
effective interest method. Additional fees and expenses incurred with the amended and restated Credit Agreement were
approximately $1.5 million. This amount was recorded as deferred financing costs and will be amortized, along with the
residual value of the initial fees and expenses incurred in 2010, over the new term of the Credit Agreement using the effective
interest method. In addition, in connection with the amendment and restatement of the Credit Agreement, the Company
charged to earnings approximately $0.3 million of accelerated deferred financing charges in the fourth quarter of 2012.
As of December 31, 2012, $100.0 million was outstanding under the Term Loan and $76.0 million was outstanding under
the revolving line of credit, both of which approximate fair value, with total availability at $147.1 million, taking into account
$1.9 million in face amount of letters of credit issued under the sub-facility. The current weighted average interest rate for all
debt is 2.2%.
Simultaneously with initiating the new senior facility, Innophos entered into an interest rate swap, swapping the LIBOR
exposure on $100.0 million of floating rate debt under the new senior facility to a fixed rate to maturity obligation of 0.9475%
plus the applicable margin on the debt expiring in December 2017. This interest rate swap has been designated as a cashflow
hedge (Level II) with the changes in value recorded through other comprehensive income. The fair value of this interest rate
swap is a liability of approximately $1.0 million as of December 31, 2012.
We manage our interest rate risk by balancing the amount of fixed-rate and floating-rate debt to the extent practicable
consistent with our credit status.
Innophos and its subsidiaries and affiliates may from time to time seek to acquire or otherwise retire outstanding debt
through privately negotiated transactions, exchanges or otherwise. Debt repurchases or exchanges, if any, will depend on
prevailing market conditions, Company liquidity requirements, restrictive financial covenants and other factors applicable at
the time. The amounts involved may be material.
We believe that the cash generated from operations and availability under our revolving credit facility will be sufficient
to meet our debt service, tax payments, capital expenditures and working capital requirements for at least the next twelve
months. Our current business plans support these operating needs, including our scheduled repayments of debt in accordance
with the terms of those agreements. However, future operating performance is subject to prevailing economic and competitive
conditions and other factors that are uncertain. If the cash flows and other capital resources available to the Company are
insufficient to fund our debt and other liquidity needs, the Company may have to take alternative actions that differ from the
Company’s current operating plan.
Total interest paid by the Company for all indebtedness for 2012, 2011 and 2010 was $5,432, $6,046 and $29,709.
As of December 31, 2012, the Company was in full compliance with all debt covenant requirements.
Page 51 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Interest expense, net consists of the following:
Year Ended December 31,
2011
2010
2012
Interest expense
Deferred financing cost
Interest income
Less: amount capitalized for capital projects
Total interest expense, net
10. Other Long-Term Liabilities:
Other long-term liabilities consist of the following:
$
$
Deferred income taxes
Pension and post retirement liabilities (U.S. and Canada only)
Environmental liabilities
Profit sharing liabilities
Other liabilities
$
5,419
884
(65 )
(261 )
5,977
$
$
5,802
608
(238 )
(446 )
5,726
$
22,309
7,150
(329)
(841)
28,289
2012
2011
21,497
7,253
1,100
4,435
2,143
36,428
$
$
24,308
6,185
1,100
3,795
2,170
37,558
$
$
11. Stockholders’ Equity / Stock-Based Compensation:
Our compensation programs include share-based payments. The primary share-based awards and their general terms and
conditions currently in effect are as follows:
• Restricted stock grants, which entitle the holder to receive, at the end of each vesting term, a specified number of
shares of the Company's common stock, and which also entitle the holder to receive dividends paid on such grants
throughout the vesting period.
•
•
Stock options, which entitle the holder to purchase, after the end of a vesting term, a specified number of shares of
the Company’s common stock at an exercise price per share set equal to the market price of the Company’s common
stock on the date of grant.
Performance share awards which entitle the holder to receive, at the end of a vesting term, a number of shares of the
Company’s common stock, within a range of shares from zero to a specified maximum (generally 200%), calculated
using a combination of performance indicators as defined solely by reference to the Company’s own activities.
Amounts equivalent to dividends will accrue over the performance period and are paid on performance share awards
when vested and distributed.
• Annual stock retainer grants, which entitle independent members of the Board of Directors to receive a number of
shares of the Company’s common stock equal to a fixed retainer value.
Restricted Stock
There were a total of 6,700 restricted shares granted in the first quarter of 2009 and the first quarter of 2010 with a fair
value of $0.1 million. These awards are classified as equity awards and vested at varying times through January 31, 2011. The
related compensation expense is based on the date of grant share price of $8.24 and $27.55 for the 2009 and 2010 grants,
respectively. The compensation expense was amortized on a straight-line basis over the requisite vesting period.
On March 30, 2012 there were a total of 14,370 restricted shares granted to certain employees with a fair value of $0.7
million. These awards are classified as equity awards and vest annually over three years. The related compensation expense is
based on the date of grant share price of $50.12. The compensation expense is amortized on a straight-line basis over the
requisite vesting period and accelerated for those employees that are retirement eligible during the vesting period.
Page 52 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Stock Options
On October 22, 2007 the Company granted 287,200 non-qualified stock options at an exercise price of $15.20 per share
to certain employees with a fair value of $1.0 million. The non-qualified stock options vest annually over three years with a ten
year term from date of grant.
On December 19, 2007 the Company granted 2,000 non-qualified stock options to a certain employee at an exercise price
of $14.47 per share with a fair value of $7. The non-qualified stock options vest annually over three years with a ten year term
from date of grant.
On April 25, 2008 the Company granted 248,550 non-qualified stock options at an exercise price of $18.38 per share to
certain employees with a fair value of $0.9 million. The non-qualified stock options vest annually over three years with a ten
year term from date of grant.
On May 7, 2009 and June 2, 2009 the Company granted 84,651 and 136,849 non-qualified stock options at an exercise
price of $14.57 per share to certain employees with a fair value of $0.5 million and $0.9 million, respectively. The non-
qualified stock options vest annually over three years with a ten year term from date of grant.
On March 11, 2010 the Company granted 169,150 non-qualified stock options at an exercise price of $25.68 per share to
certain employees with a fair value of $1.7 million. The non-qualified stock options vest annually over three years with a ten
year term from date of grant.
On March 10, 2011 the Company granted 95,920 non-qualified stock options at an exercise price of $39.67 per share to
certain employees with a fair value of $1.6 million. The non-qualified stock options vest annually over three years with a ten
year term from date of grant.
On March 30, 2012 the Company granted 39,683 non-qualified stock options at an exercise price of $50.12 per share to
certain employees with a fair value of $0.8 million. The non-qualified stock options vest annually over three years with a
March 30, 2022 expiration date.
Performance Share Awards
On May 7, 2009 the Company granted 94,150 performance share awards to certain employees with a fair value of $0.9
million. The performance share awards vest at the end of the three year service period. Amounts equivalent to declared
dividends will accrue on the performance shares and will vest over the same period. In the third quarter of 2009 the Company
revised its estimate of the number of performance shares expected to be earned at the end of the performance period, as a result
of revising its estimate of projected performance, and increased the number of performance shares by 94,150 with an associated
fair value of $1.4 million.
On October 30, 2009 the Company granted 2,067 performance share awards to a certain employee with a fair value of
less than $0.1 million. The performance share awards vest at the end of the three year service period. Amounts equivalent to
declared dividends will accrue on the performance shares and will vest over the same period. In the fourth quarter of 2009 the
Company revised its estimate of the number of performance shares expected to be earned at the end of the performance period,
as a result of revising its estimate of projected performance, and increased the number of performance shares by 2,067 with an
associated fair value of less than $0.1 million.
On March 11, 2010 the Company granted 79,500 performance share awards to certain employees with a fair value of $1.8
million. The performance share awards vest at the end of the three year service period. Amounts equivalent to declared
dividends will accrue on the performance shares and will vest over the same period.
On March 10, 2011 the Company granted 50,970 performance share awards to certain employees with a fair value of $1.9
million. The performance share awards vest at the end of the three year service period. Amounts equivalent to declared
dividends will accrue on the performance shares and will vest over the same period.
On March 30, 2012, the Company granted 43,106 performance shares to certain employees with a fair value of $2.2
million. The performance shares vest at the end of the three year performance cycle and the number of shares distributable
depends on the extent to which the Company attains pre-established performance goals. Amounts equivalent to declared
dividends will accrue on the performance shares and will vest over the same period.
Page 53 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
At December 31, 2012, assuming all performance share grants are at maximum, there were approximately 1.6 million
shares available for future grants under the 2009 Plan.
Stock Grants
In July 2010 the six external members of the Board of Directors were each granted 1,871 shares of the Company’s
common stock with an aggregated fair value of $0.3 million which immediately vested as part of their director fees.
In May 2011 the six external members of the Board of Directors were each granted 1,144 shares of the Company’s
common stock with an aggregated fair value of $0.3 million which immediately vested as part of their director fees.
In May 2012 the six external members of the Board of Directors were each granted 1,275 shares of the Company's
common stock with an aggregated fair value of $0.4 million which immediately vested as part of their director fees.
The following table summarizes the components of stock-based compensation expense, all of which has been classified
as selling, general and administrative expense:
Year Ended December 31,
2011
2010
2012
Stock options
Restricted stock
Performance shares
Stock grants
Total stock-based compensation expense
$
$
$
1,436
236
(120 )
360
1,912
$
1,601
6
4,343
300
6,250
$
$
1,969
62
2,759
300
5,090
A summary of stock option activity during the three years ended December 31, 2012, is presented below:
Number of
Options
Weighted
Average
Exercise
Price
Outstanding at January 1, 2010
Granted
Forfeited / Surrendered
Exercised
Outstanding at December 31, 2010
Exercisable at December 31, 2010
Outstanding at January 1, 2011
Granted
Forfeited / Surrendered
Exercised
Outstanding at December 31, 2011
Exercisable at December 31, 2011
Outstanding at January 1, 2012
Granted
Forfeited / Surrendered
Exercised
Outstanding at December 31, 2012
Exercisable at December 31, 2012
Page 54 of 83
$
919,086
169,150
(49,702 )
(117,568 )
920,966
537,317
920,966
95,920
(25,531 )
(91,213 )
900,142
620,677
900,142
39,683
(37,238 )
(181,165 )
721,422
545,829
$
$
$
$
$
$
$
$
12.89
25.68
15.59
7.61
15.77
12.64
15.77
39.67
17.18
13.10
18.55
14.45
18.55
50.12
16.62
9.34
22.69
17.92
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
The fair value of the options granted during 2012, 2011 and 2010 was determined using the Black-Scholes option-pricing
model. The assumptions used in the Black-Scholes option-pricing model were as follows:
Non-qualified stock options
Expected volatility
Dividend yield
Risk-free interest rate
Expected term
Weighted average grant date fair value of stock options
Year Ended
December 31, 2012
53.2 %
2.4 %
1.3 %
6
Year Ended
December 31, 2011
54.4 %
2.3 %
2.3 %
6
Year Ended
December 31, 2010
57.5 %
3.6 %
2.8 %
6
$
20.41
$
17.14
$
10.46
Prior to 2009, since Innophos Holdings, Inc. was a newly public entity and has limited historical data on the price of its
publicly traded shares, the expected volatility for the valuation of its stock options and performance shares was based solely on
peer group historical volatility data equaling the expected term. Since 2009, the Company has chosen a blended volatility which
consists of 50% historical volatility average of a peer group and 50% historical volatility of Innophos. The expected term for
the stock options is based on the simplified method since the Company has limited data on the exercises of stock options. These
stock options qualify as “plain vanilla” stock options in accordance with SAB 110. The dividend yield is the expected annual
dividend payments divided by the average stock price up to the date of grant. The risk-free interest rates are derived from the
U.S. Treasury securities in effect on the date of grant whose maturity period equals the options expected term. The Company
applies an expected forfeiture rate to stock-based compensation expense. The estimate of the forfeiture rate is based primarily
upon historical experience of employee turnover. As actual forfeitures become known, stock-based compensation expense is
adjusted accordingly.
A summary of performance share activity is presented below:
Outstanding at January 1, 2010
Granted (at targeted return on invested capital)
Forfeited
Vested
Adjustment to estimate of shares to be earned
Outstanding at December 31, 2010
Outstanding at January 1, 2011
Granted (at targeted return on invested capital)
Forfeited
Vested
Adjustment to estimate of shares to be earned
Outstanding at December 31, 2011
Outstanding at January 1, 2012
Granted (at targeted return on invested capital)
Forfeited
Vested
Adjustment to estimate of shares to be earned
Outstanding at December 31, 2012
Weighted
Average
Grant
Date Fair
Value
15.43
25.68
15.65
15.94
—
17.92
17.92
39.67
—
14.57
25.68
29.08
29.08
50.12
—
25.68
41.19
—
Number
of Shares
$
479,614
79,500
(9,100 )
(281,180 )
$
$
—
268,834
268,834
50,970
—
(189,534 )
79,300
209,570
209,570
43,106
—
$
$
(138,781 )
(113,895 )
—
$
The total intrinsic value of options exercised and stock grants during 2012, 2011 and 2010 was $8.3 million, $2.8 million
and $2.2 million, respectively. The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2012
Page 55 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
was $16.8 million and $16.0 million, respectively. The total remaining unrecognized compensation expense related to share-
based payments is as follows:
Unrecognized Compensation Expense
Amount
Weighted-average years to be recognized
Stock
Options
Performance
Based
$
1,052
$
1.0
—
—
During 2011 the Board of Directors authorized a repurchase program for Company common stock of up to $50 million.
Under the program, shares will be repurchased from time to time at management’s discretion, either through open market
transactions, block purchases, private transactions or other means and will be funded through existing liquidity and cash from
operations. A five year time limit has been set for the expiration of the program as initially structured. The timing of
repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions and other
factors. However, annual repurchase amounts are expected at a minimum to be sufficient to reduce significantly, or eliminate,
earnings per share dilution caused by shares issued upon the exercise of stock options and in connection with other equity based
compensation plans. Treasury stock is recognized at the cost to reacquire the shares. As of December 31, 2012, there is a
balance of $36.6 million remaining under the repurchase program.
12. Earnings per share (EPS)
The Company accounts for earnings per share in accordance with ASC 260 and related guidance, which requires two
calculations of earnings per share (EPS) to be disclosed: basic EPS and diluted EPS. Under ASC Subtopic 260-10-45, as of
January 1, 2009 unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our
restricted stock, are considered participating securities for purposes of calculating EPS. Under the two-class method, a portion
of net income is allocated to these participating securities and therefore is excluded from the calculation of EPS allocated to
common stock, as shown in the table below.
The numerator for basic and diluted earnings per share is net earnings attributable to shareholders reduced by dividends
attributable to unvested shares. The denominator for basic earnings per share is the weighted average number of common stock
outstanding during the period. The denominator for diluted earnings per share is weighted average shares outstanding adjusted
for the effect of dilutive outstanding stock options, performance share awards and restricted stock awards.
The following is a reconciliation of the weighted average basic number of common shares outstanding to the diluted
number of common and common stock equivalent shares outstanding and the calculation of earnings per share using the two-
class method:
Net income
Less: earnings attributable to unvested shares
Net income available to common shareholders
Weighted average number of common and potential common shares
outstanding:
Basic number of common shares outstanding
Dilutive effect of stock equivalents
Diluted number of weighted average common shares outstanding
Earnings per common share:
Earnings per common share—Basic
Earnings per common share—Diluted
Year Ended December 31,
2011
2010
2012
74,190
(40 )
$
74,150
$
86,522
—
86,522
$
45,155
(14)
45,141
21,795,155
680,726
22,475,881
21,694,453
884,114
22,578,567
21,421,226
938,221
22,359,447
$
$
3.40
3.30
$
$
3.99
3.83
$
$
2.11
2.02
Total outstanding options, performance share awards and unvested restricted stock not included in the calculation of
diluted earnings per share as the effect would be anti-dilutive are 40,696, 225,848 and 532,759 for the years ended 2012, 2011
and 2010, respectively.
Page 56 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
13. Dividends
The following is the dividend activity for 2012, 2011 and 2010:
Dividends declared – per share
Dividends declared – aggregate
Dividends paid – per share
Dividends paid – aggregate
Dividends declared – per share
Dividends declared – aggregate
Dividends paid – per share
Dividends paid – aggregate
Dividends declared – per share
Dividends declared – aggregate
Dividends paid – per share
Dividends paid – aggregate
$
$
$
March 31
June 30
$
0.27
5,885
0.25
5,405
0.27
5,891
0.27
5,885
March 31
June 30
$
0.25
5,426
0.17
3,649
0.25
5,442
0.25
5,426
March 31
June 30
$
0.17
3,640
0.17
3,633
0.17
3,641
0.17
3,640
$
2012
Quarters ended
September 30
—
—
0.27
5,891
$
2011
Quarters ended
September 30
0.25
5,404
0.25
5,442
$
2010
Quarters ended
September 30
—
—
0.17
3,641
December 31
0.35
$
7,629
0.35
7,629
December 31
0.25
$
5,405
0.25
5,404
December 31
0.34
$
7,293
0.17
3,645
$
$
$
$
$
$
$
$
$
$
$
$
Total
0.89
19,405
1.14
24,810
Total
1.00
21,677
0.92
19,921
Total
0.68
14,574
0.68
14,559
We are a holding company that does not conduct any business operations of our own. As a result, we are dependent upon
cash dividends, distributions and other transfers from our subsidiaries, most directly Innophos, Inc., our primary operating
subsidiary, and Innophos Investments Holdings, Inc., its parent, to make dividend payments on our Common Stock.
14. Pension Plans and Postretirement Benefits:
Innophos maintains both noncontributory defined benefit pension plans and defined contribution plans that together cover
substantially all U.S. and Canadian employees.
In the United States, salaried and hourly employees are covered by a defined contribution plan with a 401(k) feature. The
plan provides for employee contributions, company matching contributions, and an age-weighted annual company contribution
to eligible employees. Union-represented hourly employees, at our Nashville site, are covered by a traditional defined benefit
plan providing benefits based on years of service and final average pay. On April 26, 2007, the Company and the Union for the
hourly employees at our Nashville facility agreed that it would freeze its defined benefit pension plan (the “Plan”) as of
August 1, 2007. The accrual of additional benefits or increase in the current level of benefits under the Plan ceased as of
August 1, 2007, after which the Nashville union employees now participate in the Company’s existing non contributory defined
contribution benefit plan. All plans were established by Innophos in 2004.
In Canada, salaried employees are covered by defined contribution plans which provide for company contributions as a
percent of pay, employee contributions, and company matching contributions. Union-represented hourly employees are covered
by a defined benefit plan providing benefits based on a negotiated benefit level and years of service. The defined contribution
plans were established by the Company in 2004; the defined benefit plan for union-represented hourly employees is a
continuation of the Rhodia Canada Inc.’s pension plan for its Port Maitland union employees, which was included in the
acquisition of the Phosphates Business from Rhodia on August 13, 2004.
Innophos also has other postretirement benefit plans covering substantially all of its U.S. and Canadian employees.
Certain employee groups covered under the plans do not receive benefits post-age 65. In the United States, the health care plans
are contributory with participants’ contributions adjusted annually, and limits on the company’s share of the costs; the life
insurance plans are noncontributory. The effects of the Medicare Prescription Drug, Improvement and Modernization Act of
2003, or the Act, are not significant. In Canada, the plans are non-contributory.
Page 57 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Innophos uses a December 31 measurement date for all of its plans. For the purposes of the following schedules,
beginning of the year is January 1.
The weighted average discount rate at the measurement dates for the Company’s defined benefit pension plans and the
post-retirement benefit plans is developed using a spot interest yield curve based upon a broad population of corporate bonds
rated AA or higher, adjusted to match the duration of each plan’s projected benefit payment stream.
The expected return is based on a specific asset mix, active management, rebalancing among diversified asset classes
within the portfolio, and a consistent underlying inflation assumption to calculate the appropriate long-term expected
investment return.
As a sensitivity measure, the effect of a 25 basis-point decrease in our discount rate assumption would increase our net
periodic benefit cost for our pension and post-retirement plans by approximately $74. A 1% decrease in our expected rate of
return on plan assets would increase our pension plan expense by $172.
The amounts in accumulated other comprehensive income (loss), or AOCI, for all plans that are expected to be amortized
as components of net periodic benefit cost (benefit) during 2013 are as follows:
Prior service cost
Net actuarial loss/(gain)
Transition obligation
Pension
Other
Benefits
Total
$
$
104
382
—
$
—
37
30
104
419
30
The changes in benefit obligations recognized in other comprehensive loss during 2012 and 2011 are as follows:
Change in accumulated other comprehensive
income
Amortization of net gain
Amortization of prior service cost /
transition obligation
Prior service cost arising during period
from amendments
Net loss arising during period
Total change in accumulated other
comprehensive income
Deferred taxes
Net amount recognized
Pension Benefits
Other Benefits
Total
2012
2011
2012
2011
2012
2011
$
(276 ) $
(165 ) $
(47 ) $
38
$
(323 ) $
(127)
(104 )
(107 )
—
1,243
—
2,118
37
—
546
(163 )
(67 )
(270)
(533 )
374
—
1,789
863
(331 )
532
$
1,846
(503 )
1,343
$
536
(241 )
295
$
(284 )
115
(169 ) $
1,399
(572 )
827
$
$
Page 58 of 83
(533)
2,492
1,562
(388)
1,174
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
U.S. Plans
Obligations and Funded Status—U.S. Plans At December 31
Accumulated benefit obligation
Change in projected benefit obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Actual benefits paid
Plan amendments
Projected benefit obligation at end of year
Change in plan assets
Fair value of trust assets at beginning of year
Actual return on plan assets
Employer contributions
Actual benefits paid
Fair value of trust assets at end of year
Funded status of the plan
Amounts recognized in the consolidated balance sheets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amounts recognized
Amounts recognized in accumulated other comprehensive
income
Prior service (credit) cost
Net actuarial loss (gain)
Total amount recognized
Deferred taxes
Net amount recognized
$
$
$
$
$
$
$
$
$
$
Pension Benefits
Other Benefits
2012
2011
2012
2011
2,719
$
2,461
$
4,435
$
3,404
$
2,461
—
110
178
(30 )
—
2,719
$
$
1,369
52
170
(30 )
$
1,561
(1,158 ) $
$
—
—
(1,158 )
(1,158 ) $
$
$
—
728
728
(277 )
451
$
2,143
—
111
231
(24 )
—
2,461
$
$
3,404
327
161
678
(135 )
—
4,435
$
1,252
$
(9 )
150
(24 )
$
1,369
(1,092 ) $
$
—
—
(1,092 )
(1,092 ) $
$
—
—
135
(135 )
—
(4,435 ) $
$
$
—
(221 )
(4,214 )
(4,435 ) $
$
$
—
507
507
(193 )
314
$
$
—
126
126
(48 )
78
3,348
284
140
249
(84)
(533)
3,404
—
—
84
(84)
—
(3,404)
—
(150)
(3,254)
(3,404)
(68)
(551)
(619)
235
(384)
Page 59 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Components of net periodic benefit cost
Service cost
Interest cost
Expected return on assets
Amortization of:
Prior service cost
Actuarial (gain) loss
Net periodic cost
Weighted average assumptions for balance
sheet liability at end of year
Discount rate
Expected long-term rate of return
Rate of compensation increase
Weighted average assumptions for net periodic
benefit cost at beginning of year
Discount rate
Expected long-term rate of return
Rate of compensation increase
Estimated Future Benefit Payments
Fiscal 2013
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal Years 2018-2022
Pension Benefits
Other Benefits
2012
2011
2010
2012
2011
2010
$
$
$
—
110
(110 )
$
—
111
(77 )
$
—
109
(86 )
—
14
14
$
—
—
34
$
—
(7 )
16
$
327
161
—
(67 )
—
421
$
$
284
140
—
132
(78 )
478
$
$
338
164
—
239
(97 )
644
4.00 %
6.35 %
NA
4.50 %
6.72 %
NA
5.25 %
5.00 %
3.75 %
4.25 %
5.00 %
NA
NA
NA
NA
3.00 %
3.00 %
3.00%
4.50 %
6.72 %
NA
5.25 %
5.00 %
NA
5.75 %
6.00 %
4.25 %
5.00 %
5.50 %
NA
NA
NA
NA
3.00 %
3.00 %
3.00 %
Pension Benefits
$
70
85
103
117
132
771
Other Benefits
221
$
282
334
390
418
2,047
Innophos expects to contribute approximately $0.1 million to its U.S. defined benefit pension plan in 2013.
The estimated actuarial gain, prior service cost, and transition obligation (asset) for the defined benefit pension plans that
will be amortized from accumulated other comprehensive income into net periodic benefit cost during the 2013 fiscal year are
$57, $0 and $0, respectively.
The estimated actuarial gain, prior service cost, and transition obligation (asset) for the postretirement plan that will be
amortized from accumulated other comprehensive income into net periodic benefit cost during the 2013 fiscal year are $0, $0
and $0, respectively.
Assumed health care cost trend rates on the U.S. plans do not have a significant effect on the amounts reported for the
health care plans as a result of limits on the Company’s share of the cost.
Page 60 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Plan Assets
The investment policy for the Company’s defined benefit pension plan is designed to achieve long-term objectives of
return, while mitigating against downside risk and considering expected cash flow. Innophos, Inc.’s defined benefit pension
plan invests in mutual funds and commercial paper and the weighted-average asset allocations at December 31, 2012 and 2011
by asset category are as follows:
Asset Category
Equity securities
Fixed income securities
Total
Plan Assets at
December 31
2012
2011
39.5 %
60.5
100.0 %
17.6 %
82.4
100.0 %
The fair values of Innophos, Inc.’s pension plan assets at December 31, 2012 by asset category are as follows:
Equity securities
Fixed income securities
Defined Contribution Plan—U.S.
Total
Level 1
Level 2
Level 3
$
$
617
944
1,561
$
$
617
944
1,561
$
$
—
—
—
$
$
—
—
—
Innophos Inc.’s expense for the defined contribution plan was $3.3 million, $3.2 million and $3.2 million for 2012, 2011
and 2010, respectively.
Page 61 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Canadian Plans
Obligations and Funded Status—Canadian Plans at December 31
Accumulated benefit obligation
Projected change in benefit obligation
Projected benefit obligation at beginning of year
Service cost
Interest cost
Plan amendments
Actuarial loss (gain)
Actual benefits paid
Exchange rate changes
Projected benefit obligation at end of year
Change in plan assets
Fair value of trust assets at beginning of year
Actual return on plan assets
Employer contributions
Actual benefits paid
Exchange rate changes
Fair value of trust assets at end of year
Funded status of the plan
Amounts recognized in the consolidated balance sheets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amounts recognized
Amounts recognized in accumulated other comprehensive
income
Net transition obligation
Prior service cost
Net actuarial loss
Total amount recognized
Deferred taxes
Net amount recognized
$
$
$
$
$
$
$
$
$
$
Pension Benefits
Other Benefits
2012
2011
2012
2011
13,322
$
11,657
$
1,905
$
1,876
$
11,657
339
602
—
878
(392 )
238
13,322
13,460
939
804
(392 )
274
15,085
1,763
$
$
$
$
1,763
—
—
1,763
$
$
$
$
—
209
5,645
5,854
(1,550 )
4,304
$
10,224
280
575
316
883
(363 )
(258 )
11,657
$
$
12,946
239
922
(363 )
(284 )
$
$
$
13,460
1,803
1,803
—
—
1,803
$
1,876
81
99
—
(150 )
(39 )
38
1,905
$
$
—
—
39
(39 )
—
—
(1,905 ) $
$
$
—
(30 )
(1,875 )
$
(1,905 ) $
$
$
—
306
4,905
5,211
(1,303 )
3,908
$
$
200
—
452
652
(173 )
479
1,650
68
95
—
143
(39)
(41)
1,876
—
—
39
(39)
—
—
(1,876)
—
(38)
(1,838)
(1,876)
225
—
635
860
(215)
645
Page 62 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Components of net periodic benefit cost
Service cost
Interest cost
Expected return on assets
Amortization of:
Actuarial loss (gain)
Prior service cost
Net transition obligation
Net periodic cost
Pension Benefits
Other Benefits
2012
2011
2010
2012
2011
2010
$
$
$
339
602
(944 )
280
575
(964 )
$
211
543
(861)
261
104
—
362
$
165
107
—
163
$
93
102
—
88
$
$
81
99
—
47
—
30
257
$
$
68
95
—
40
—
31
234
$
$
54
85
—
21
—
30
190
Weighted average assumptions for balance sheet
liability at end of year
Discount rate
Rate of compensation increase
Weighted average assumptions for net periodic
benefit cost at end of year
Discount rate
Expected long-term rate of return
Rate of compensation increase
Accrued health care cost trend rates at end of
year
Health care cost trend rate assumed for
next year (initial rate)
Rate to which the cost trend rate is
assumed to decline (ultimate rate)
Year that the rate reaches the ultimate rate
4.25 %
5.50 %
5.50%
4.25 %
5.00 %
5.50%
NA
NA
NA
NA
NA
NA
5.00 %
6.50 %
NA
5.50 %
7.00 %
NA
6.50%
7.00%
NA
5.00 %
5.50 %
6.50%
NA
NA
NA
NA
NA
NA
10 %
10 %
10%
5 %
2019
5 %
2019
5%
2019
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-
percentage-point change in assumed health care cost trend rates would have the following effects:
Effect of a change in the assumed rate of increase in health benefit costs
Effect of a 1% increase on:
Total of service cost and interest cost
Postretirement benefit obligation
Effect of a 1% decrease on:
Total of service cost and interest cost
Postretirement benefit obligation
Other Benefits
2012
2011
$
$
$
$
25
281
$
$
(20 ) $
(226 ) $
35
343
(28 )
(272)
The estimated net actuarial loss, prior service cost, and transition obligation (asset) for all defined benefit pension plans
that will be amortized from accumulated other comprehensive income into net periodic benefit cost during the 2013 fiscal year
are $326, $104 and $0, respectively.
The estimated actuarial loss, prior service cost, and transition obligation (asset) for the postretirement plan that will be
amortized from accumulated other comprehensive income into net periodic benefit cost during the 2013 fiscal year are $37, $0
and $30, respectively.
Page 63 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Plan Assets
Innophos Canada Inc.’s pension plan invests in mutual funds and the weighted-average asset allocations at December 31,
2012 and 2011 by asset category are as follows:
Asset Category
Equity securities
Debt securities
Other
Total
2012
2011
60.5 %
35.5
4.0
100.0 %
53.8 %
43.3
2.9
100.0 %
The fair values of Innophos Canada, Inc.’s pension plan assets at December 31, 2012 by asset category are as follows:
Equity securities
Fixed income securities
Other
Total
Level 1
Level 2
Level 3
$
$
9,129
5,356
600
15,085
$
$
9,129
—
600
9,729
$
$
—
5,356
—
5,356
$
$
—
—
—
—
The Pension Committee has promulgated a Statement of Investment Policies and Procedures based on the “prudent
person portfolio approach” to ensure investment and administration of the assets of the Plan within the parameters set out in the
Ontario Pension Benefits Act and the Regulations hereunder. Investment managers appointed by the Plan are directed to achieve
a satisfactory return through a diversified portfolio consistent with acceptable risks and prudent management. In accordance
with the investment and risk philosophy of the Committee, a target asset mix of 60% equities and 40% fixed income
instruments has been established. Investment weightings and results are tested regularly against appropriate benchmark
portfolios.
Cash Flows
Contributions
Innophos Canada, Inc. contributed $0.8 million to its pension plan in 2012.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Estimated Future Benefit Payments
Fiscal 2013
Fiscal 2014
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal Years 2018-2022
Pension Benefits
$
395
468
526
530
570
3,455
Other Benefits
30
$
47
58
76
89
587
Innophos plans to contribute approximately $0.8 million to its Canadian pension plan in 2013.
Defined Contribution Plans—Canada
Innophos Canada Inc.’s expense for the defined contribution plans was approximately $0.1 million for 2012, 2011 and
2010, respectively.
Page 64 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
Mexico
In accordance with Mexican labor law, a Mexican employee is entitled to certain post employment payments after
reaching fifteen years of service. In addition, Mexican employees also participate in a statutory profit sharing program based on
10% of adjusted taxable income.
15. Income Taxes:
A reconciliation of the U.S. statutory rate and income taxes follows:
2012
Year Ended December 31,
2011
2010
US
Canada/Mexico/Europe/Asia
Total
Current income taxes
Deferred income taxes
Total
Income
before
income taxes
$ 84,815
21,158
$ 105,973
Income tax
expense
$ 25,973
5,810
$ 31,783
$ 31,616
167
$ 31,783
Income
before
income taxes
$ 79,250
51,161
$ 130,411
Income
tax expense/
(benefit)
$ 30,831
13,058
$ 43,889
$ 38,510
5,379
$ 43,889
Income
(loss) before
income taxes
$ 85,687
(19,199 )
$ 66,488
Income tax
expense/
(benefit)
$ 22,462
(1,129)
$ 21,333
$ 28,013
(6,680)
$ 21,333
Year Ended December 31,
2011
2010
2012
Income tax expense at the U.S. statutory rate
State income taxes
Domestic manufacturing deduction
CNA matter related non-taxable reimbursement
Foreign tax rate differential
Change in valuation allowance
Permanent book / tax differences
Provision for income taxes
$
$
Net deferred tax assets were reflected on the consolidated balance sheets as follows:
$
37,091
3,173
(1,912 )
(3,101 )
(1,233 )
(2,237 )
2
31,783
$
45,645
2,207
(1,741 )
850
(2,586 )
—
(486 )
23,270
1,158
(1,920)
(3,253)
1,050
—
1,028
21,333
$
43,889
$
Net current deferred tax assets
Net noncurrent deferred tax assets
Net current deferred tax liabilities
Net noncurrent deferred tax liabilities
Net deferred tax assets (liabilities)
Year Ended December 31,
2011
2012
$
$
13,611
—
—
(21,497 )
$
(7,886) $
10,347
5,450
—
(24,308)
(8,511)
Page 65 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
The components of the Company’s deferred tax assets/ (liabilities) were as follows:
Deferred tax assets:
Inventories
Accrued liabilities
Tax losses
Total deferred tax assets
Deferred tax liabilities:
Gain on bond retirement
Intangibles
Fixed assets
Total deferred tax liabilities
Total valuation allowances
Net deferred tax assets (liabilities)
Year Ended December 31,
2011
2012
$
$
$
3,606
13,361
5,823
22,790
(1,344 )
(5,136 )
(20,165 )
(26,645 )
(4,031 )
(7,886) $
4,877
18,553
6,308
29,738
(1,361)
(5,062)
(25,277)
(31,700)
(6,549)
(8,511)
The U.S. operations do not have any Federal tax loss carry forwards as of December 31, 2012. The Company realized tax
benefits of $3,931 and $2,511 from stock options exercised in 2012 and 2011, respectively.
The Company maintained a $4.0 million and $6.5 million valuation allowance at December 31, 2012 and 2011,
respectively, primarily related to certain state net operating loss carryforwards as it is more likely than not that these tax
benefits will not be realized. In 2012, the Company released $2.3 million of the valuation allowance on the state net operating
loss carryforwards as it is more likely than not that these tax benefits will be realized. The state net operating losses will expire
in the years 2013 through 2030.
As of December 31, 2012, taxes have not been provided on approximately $195.5 million of accumulated foreign
unremitted earnings that are expected to remain invested indefinitely. Due to complexities in the tax laws and the assumptions
that would have to be made, it is not practicable to estimate the amounts of income taxes that would have to be provided.
The Company has recorded a tax contingency of $0.7 million, net of Federal benefit, for uncertain state income tax
positions in accordance with ASC 740-10-05-6. The Company’s policy is to accrue associated penalties in selling, general and
administrative expenses and to accrue interest in net interest expense. Currently, the Company is under examination, or has
been contacted for examination, by certain foreign jurisdictions for its income tax returns for the years 2006 through 2008. As
of December 31, 2012, our subsidiary, Innophos Mexicana requested a refund of $2.4 million for the 2009 tax year which is
being disputed by the Mexican tax authorities. The Company believes that its tax position is more likely than not to be
sustained and has not recorded a charge for this tax matter. In addition, Innophos Canada, Inc. was assessed approximately $4.0
million for the tax years 2006, 2007, and 2008 by the Canadian tax authorities. On October 21, 2011, the Company filed a
response to the Canadian tax authorities for the above tax matter disputing the full assessment. The Company believes that its
tax position is more likely than not to be sustained and has not recorded a charge for this tax matter. On January 3, 2013, the
Company was notified that the Internal Revenue Service will conduct an examination of the Company's 2010 tax return. Other
than the assessments mentioned above, as of December 31, 2012, no significant adjustments have been proposed to the
Company's tax positions and the Company currently does not anticipate any adjustments that would result in a material change
to its financial position during the next twelve months. The Company does not anticipate that total unrecognized tax benefits
will significantly change prior to December 31, 2013.
Income taxes paid were $45,080, $27,164 and $33,618 for 2012, 2011 and 2010, respectively.
Page 66 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
16. Commitments and Contingencies:
Leases
Under agreements expiring through 2020, the Company leases railcars and other equipment under various operating
leases. Rental expense for 2012, 2011 and 2010 was $6,172, $5,443 and $4,919, respectively. Minimum annual rentals for all
operating leases are:
Year Ending
2013
2014
2015
2016
2017
Thereafter
Lease Payments
$
5,114
4,274
3,414
2,004
1,693
3,301
Purchase Commitments and Supplier Concentration
The Company has multiple raw material supply contracts one of which with an initial term through 2018 with an
automatic five year renewal term at prices established annually based on a formula. The minimum annual purchase obligation
for several of these raw material supply contracts, at current prices, approximates $149.9 million for 2013.
Our business activities depend on long-term or renewable contracts to supply materials or products. In particular, we rely
to a significant degree on single-source supply contracts and some of these contractual relationships may be with a relatively
limited number of suppliers. Although most of our supplier relationships are typically the result of multiple contractual
arrangements of varying terms, in any given year, one or more of these contracts may come up for renewal. In addition, from
time to time, we enter into toll manufacturing agreements or other arrangements to produce minimum quantities of product for
a certain duration. If we experience delays in delivering contracted production, we may be subject to contractual liabilities to
the buyers to whom we have promised the products.
Environmental
The Company’s operations are subject to extensive and changing federal and state environmental laws and regulations.
The Company’s manufacturing sites have an extended history of industrial use, and soil and groundwater contamination have
or may have occurred in the past and might occur or be discovered in the future.
Environmental efforts are difficult to assess for numerous reasons, including the discovery of new remedial sites,
discovery of new information and scarcity of reliable information pertaining to certain sites, improvements in technology,
changes in environmental laws and regulations, numerous possible remedial techniques and solutions, difficulty in assessing
the involvement of and the financial capability of other potentially responsible parties and the extended time periods over
which remediation occurs. Other than the items listed below, the Company is not aware of material environmental liabilities
which are probable and estimable. As the Company’s environmental contingencies are more clearly determined, it is
reasonably possible that amounts may need to be accrued. However, management does not believe, based on current
information, that environmental remediation requirements will have a material impact on the Company’s results of operations,
financial position or cash flows.
Future environmental spending is probable at our site in Nashville, TN, the eastern portion of which had been used
historically as a landfill, and a western parcel previously acquired from a third party, which reportedly had housed, but no
longer does, a fertilizer and pesticide manufacturing facility. We have an estimated liability with a range of $0.9-$1.2 million.
The remedial action plan has yet to be finalized, and as such, the Company has recorded a liability, which represents the
Company’s best estimate, of $1.1 million as of December 31, 2012.
Litigation
2008 RCRA Civil Enforcement – Geismar, Louisiana plant
Following several inspections by the Environmental Protection Agency, or EPA, at our Geismar, LA purified phosphoric
acid, or PPA, plant and related submissions we made to support claimed exemptions from the federal Resource, Conservation
Page 67 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
and Recovery Act, or RCRA, in March 2008, EPA referred our case to the Department of Justice, or DOJ, for civil
enforcement. Although no citations were ever issued or formal proceedings instituted, the agencies claim we violate RCRA by
failing to manage appropriately two materials that DOJ/EPA alleges are hazardous wastes. Those materials are: (i) Filter
Material from an enclosed intermediate filtration step to further process green phosphoric acid we receive as raw material via
pipeline from the adjacent site operated by an affiliate of Potash Corporation of Saskatchewan, or PCS; and (ii) Raffinate, a co-
product we provide to PCS under a long-term contract we have with PCS.
Since referral of the case to DOJ, we and PCS have engaged in periodic discussions with DOJ/EPA and the Louisiana
Department of Environmental Quality, or LDEQ, or collectively the Government Parties, in order to resolve the matter. In
addition to asserting that the two materials in question are not hazardous wastes, we have also sought to demonstrate that both
the nature and character of the materials as well as their use, handling and disposition were detailed in a solid waste permit
amendment application filed in 1989 by PCS's predecessor, when our plant was first constructed, and approved by the LDEQ
under the state RCRA program.
In the course of discussions with the Government Parties, the DOJ/EPA has required that we undertake, as an interim
measure, the construction of a new filter unit that would replace the existing closed system and allow the removal and separate
handling of the Filter Material. We built that unit, which is now in operation.
We and PCS also have initiated joint efforts to explore possible technical solutions to remaining concerns of the
Government Parties, including Raffinate treatment. To date, treatment techniques for Raffinate have not yet been fully
evaluated from a technological or cost standpoint. Based upon work so far, there appears to be at least one technically viable
approach, but it has yet to be fully evaluated.
Even though the companies have conducted substantial technical work in an attempt to develop a feasible approach to
address regulatory concerns, we cannot guarantee that our technical efforts will be successful, whether either party would be
willing to implement solutions at what cost allocation or, depending on those factors and the Government Parties' position,
whether this matter will be settled or will require litigation. Should litigation become necessary to defend our operations at
Geismar as compliant with environmental laws and regulations or with PCS as to cost responsibility, no assurance can be given
as to its outcome.
Based upon advice of our environmental counsel, we have determined that the risk of an effort by the Government Parties
to shut down our Geismar plant or PCS's Geismar plant from which we obtain the green acid raw material is remote. In
addition, we have concluded that the contingent liability arising from compliance costs for this matter as discussed above is
neither remote nor probable, but is reasonably possible. On the assumption that “deep well injection” at the site is ultimately
employed or required as the technologically acceptable approach for Raffinate, based on preliminary cost estimates to date, we
estimate this technical approach to range from approximately $10 to $16 million.
Mexican CNA Water Tax Claims
In January 2012, Fosfatados was served with CNA resolutions claiming higher water fees, surcharges and penalties for
2005 through 2008 for the total amount of approximately $10.9 million, at current exchange rates (net of regulatory discounts),
for which the Company has recorded an accrual. The Company has timely contested the resolutions in Mexican Courts and
posted security for the amount claimed by granting liens, in accordance with Mexican law, on specified production assets
located at its Coatzacoalcos plant.
Other Legal Matters
In March 2008, Sudamfos S.A., or Sudamfos, an Argentine phosphate producer, filed an arbitration before the ICC
International Court of Arbitration, Paris, France, concerning an alleged agreement for our Mexicana subsidiary, Mexicana, to
sell it 12,500 metric tons of phosphoric acid, but subsequently withdrew the proceeding. In October 2008, Mexicana filed suit
in Mexico against Sudamfos to collect approximately $1.2 million representing the contract price for prior deliveries of acid
that Sudamfos had refused to pay. In October 2009, Sudamfos answered the suit and counterclaimed for $3.0 million based
upon the agreement originally alleged in the arbitration. In subsequent proceedings including available appeals, Mexicana's
claim was sustained and Sudamfos' counterclaim was denied. Mexicana has now begun formal collection proceedings against
Sudamfos.
In addition, we are party to legal proceedings and contractual disputes that arise in the ordinary course of our business.
Except as to the matters specifically discussed, management believes that these matters represent remote liabilities. However,
Page 68 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
these matters cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material
adverse effect on our business, results of operations, financial condition, and/or cash flows.
17. Financial Instruments and Concentration of Credit Risks:
The Company believes that its concentration of credit risk related to trade accounts receivable is limited since these
receivables are spread among a number of customers and are geographically dispersed. The ten largest customers accounted
for 35%, 30% and 31%, respectively, of net sales for 2012, 2011 and 2010. No customer accounted for more than 10% of our
sales in the last three years.
18. Valuation Allowances:
Valuation allowances as of December 31, 2012, 2011 and 2010, and the changes in the valuation allowances for the year
ended December 31, 2012, 2011 and 2010 are as follows:
Deferred taxes valuation allowances
$
6,549
$
(2,518) $
—
$
—
Balance, January
1,
2012
Charged/
(credited)
to costs
and
expenses
Deductions
(Bad debts)
(Credited)
to Goodwill
Balance, January
1,
2011
Charged/
(credited)
to costs
and
expenses
Deductions
(Bad debts)
(Credited)
to Goodwill
Deferred taxes valuation allowances
$
5,860
$
689
$
—
$
—
Deferred taxes valuation allowances
$
5,663
$
197
$
—
$
—
Balance, January
1,
2010
Charged/
(credited)
to costs
and
expenses
Deductions
(Bad debts)
(Credited)
to Goodwill
Balance,
December 31, 2012
$
4,031
Balance,
December 31, 2011
$
6,549
Balance,
December 31, 2010
$
5,860
19. Segment Reporting:
The company discloses certain financial and supplementary information about its reportable segments, revenue by
products and revenues by geographic area. Operating segments are defined as components of an enterprise about which
separate discrete financial information is evaluated regularly by the chief operating decision maker, in order to decide how to
allocate resources and assess performance. The primary performance indicators for the chief operating decision maker are sales
and operating income, with sales on a ship-from basis. All references to sales in this Form 10-K, either on a ship-from or ship-
to basis, are on the same basis of revenue recognition and are recognized when title and risk of loss passes to the customer,
which occurs either upon shipment or delivery, depending upon the agreed sales terms with customers.
The Company's reportable segments reflect the core businesses in which Innophos operates and how it is managed. The
Company reports its core specialty phosphates business separately from granular triple super-phosphate, or GTSP, and other
non-specialty phosphate products (GTSP & Other). Kelatron, AMT and Triarco are included in the Specialty Phosphates US &
Canada segment and in the Specialty Ingredients product line. Specialty Phosphates consists of the products lines Specialty
Ingredients, Food & Technical Grade PPA, and STPP & Detergent Grade PPA. GTSP & Other includes fertilizer co-product
GTSP and other non-specialty phosphate products.
Page 69 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
For the year ended December 31, 2012
Sales
Intersegment sales
Total sales
Operating income (a)
Depreciation and amortization expense
Other data
Capital expenditures
Long-lived assets
Total assets
Reconciliation of total assets to reported assets
Total assets
Eliminations
Reported assets (b)
For the year ended December 31, 2011
Sales
Intersegment sales
Total sales
Operating income (a)
Depreciation and amortization expense
Other data
Capital expenditures
Long-lived assets
Total assets
Reconciliation of total assets to reported assets
Total assets
Eliminations
Reported assets (b)
$
$
$
$
$
$
$
$
$
$
$
$
Eliminations
—
$
$
(58,018 )
(58,018 )
Eliminations
—
$
$
(51,469 )
(51,469 )
Total
862,399
—
862,399
109,993
42,334
33,060
195,723
1,018,478
1,018,478
(279,212)
739,266
Total
810,487
—
810,487
137,012
43,676
34,195
187,421
927,895
927,895
(240,880)
687,015
—
—
—
—
—
—
—
—
$
$
$
$
$
—
—
—
—
—
—
—
—
$
$
$
$
$
Specialty
Phosphates
US & Canada
569,816
1,779
571,595
86,002
23,214
11,068
130,869
715,508
$
$
$
$
Specialty
Phosphates
Mexico
$
$
$
$
187,743
55,830
243,573
21,913
14,578
20,481
63,447
296,315
GTSP &
Other
104,840
409
105,249
2,078
4,542
1,511
1,407
6,655
$
715,508
(260,559)
454,949
$
$
296,315
(18,653 )
277,662
$
6,655
—
6,655
$
$
Specialty
Phosphates
US & Canada
525,662
1,303
526,965
94,055
19,808
25,323
127,020
648,408
$
$
$
$
Specialty
Phosphates
Mexico
GTSP &
Other
$
$
$
$
186,211
49,781
235,992
21,948
18,050
5,001
59,384
278,470
98,614
385
98,999
21,009
5,818
3,871
1,017
1,017
$
$
$
$
$
648,408
(230,840)
417,568
$
$
278,470
(10,040 )
268,430
$
1,017
—
1,017
$
$
Page 70 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
For the year ended December 31, 2010
Sales
Intersegment sales
Total sales
Operating income
Depreciation and amortization expense
Other data
Capital expenditures
Long-lived assets
Total assets
Reconciliation of total assets to reported assets
Total assets
Eliminations
Reported assets (b)
$
$
$
$
$
$
Specialty
Phosphates
US & Canada
495,473
2,794
498,267
101,286
28,367
26,174
117,953
555,550
$
$
$
$
$
555,550
(195,823)
359,727
$
Specialty
Phosphates
Mexico
GTSP &
Other
$
$
$
$
145,078
36,056
181,134
9,739
15,721
5,000
72,318
270,866
270,866
$
(5,380 )
265,486
$
$
73,680
135
73,815
(15,589)
5,383
$
$
18
1,677
1,677
1,677
—
1,677
$
$
Eliminations
—
$
(38,985 )
(38,985 )
—
—
—
—
—
—
—
—
$
$
$
$
$
Total
714,231
—
714,231
95,436
49,471
31,192
191,948
828,093
828,093
(201,203)
626,890
(a)
(b)
The years ended December 31, 2012 and December 31, 2011, include a $3.4 million net benefit and a $21.0 million
charge to earnings, respectively, for the CNA Fresh Water Claims in GTSP & Other.
GTSP & Other reflects only direct assets. All Mexico indirect assets are included in Specialty Phosphates Mexico.
Product Revenues
Specialty Ingredients
Food & Technical Grade PPA
STPP & Detergent Grade PPA
GTSP & Other
Total
Geographic Revenues
US
Mexico
Canada
Other foreign countries
Total
$
$
$
$
$
$
$
Year Ended December 31,
2011
486,522
133,574
91,777
98,614
810,487
$
Year Ended December 31,
2011
436,981
128,018
34,976
210,512
810,487
$
$
$
$
2012
514,535
151,779
91,246
104,839
862,399
2012
471,851
131,353
38,905
220,290
862,399
2010
450,923
109,334
80,294
73,680
714,231
2010
409,903
108,281
37,467
158,580
714,231
Revenues for the geographic information are attributed to geographic areas based on the destination of the sale.
Intersegment sales are recorded based on established transfer price.
Long-lived assets include property, plant and equipment.
Page 71 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
20. Quarterly information (unaudited):
2012
Quarters ended
Net sales
Gross profit
Net income
Per share data:
Income per share:
Basic
Diluted
Net sales
Gross profit
Net income
Per share data:
Income per share:
Basic
Diluted
March 31
$ 228,252
June 30
$ 214,180
55,868
27,588
(a)
(a)
42,368 (b)
16,504 (b)
September 30 December 31
$ 211,188 $ 208,779 $ 862,399
177,420
74,190
36,405
13,392
42,779
16,706
Total
$
$
1.27
1.22
(a) $
(a) $
0.76 (b) $
0.73 (b) $
0.77 $
0.74 $
0.61
0.60
2011
Quarters ended
March 31
$ 197,598
57,329
25,969
June 30
$ 201,627
49,164
20,746
September 30 December 31
$ 202,102 $ 209,160 $ 810,487
205,315
86,522
49,592
20,950
49,230
18,857
Total
$
$
1.19
1.15
$
$
0.95
0.92
$
$
0.87 $
0.84 $
0.97
0.93
(a) The first quarter of fiscal 2012 included benefits to earnings, primarily for the settlement with Rhodia on their liability
for the charges to be paid the CNA for the Fresh Water Claims, decreasing cost of goods sold by $7.1 million and increasing
net income by $7.2 million.
(b) The second quarter of fiscal 2012 included out of period adjustments increasing cost of goods sold by $2.4 million
and decreasing net income by $1.6 million.
21. Related Party Transactions:
In 2009, Innophos Holdings, Inc. elected an independent director who also is the Chief Operating Officer of an Innophos
customer, this independent director subsequently left his position at this customer in August of 2012. Pursuant to an existing
sales agreement, in-place prior to the election of this director, the Company had sales to this customer of approximately $18.6
million, $16.6 million and $13.3 million in the fiscal years ended December 31, 2012, 2011 and 2010, respectively.
22. Acquisitions:
The Company has made two recent acquisitions in the bioactive mineral ingredients sector and one recent acquisition in
botanical and enzyme based specialty food ingredients. Bioactive mineral ingredients are mineral based ingredients for food,
beverage and dietary supplement end markets that are manufactured to be readily digestible. Historically, Innophos has enjoyed
a strong position in “macronutrients,” minerals such as calcium, magnesium and potassium that are required in relatively large
amounts for a balanced diet. The human diet also requires smaller quantities of a wide range of other minerals such as
chromium, selenium, zinc and iron classified as “micronutrients.” The bioactive mineral acquisitions described below have
created a strong position for Innophos in micronutrient ingredients to complement the Company's existing strength in
macronutrients while the acquisition of a botanical and enzyme based product line further enhances the Company's ability to
supply a broad range of nutrition fortification solutions to its customers.
In October 2011, Innophos acquired privately held Kelatron Corporation in a transaction accounted for under the
acquisition method of accounting for business combinations. Kelatron, based in Ogden, Utah, is a leading producer of
technically advanced bioactive mineral ingredients, with a high quality base of customers in the dietary supplement and sports
nutrition markets. The acquisition had a purchase price of approximately $21 million in cash, subject to working capital
Page 72 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
adjustments, and was funded from our revolving line of credit. The price was funded from our revolving line of credit. Under
the acquisition method of accounting, the assets acquired and liabilities assumed were recorded at their respective fair values as
of the acquisition date. The reported consolidated financial condition and results of operations after completion of the
acquisition reflect those fair values, and Kelatron's results of operations have been included in the consolidated financial
statements from the date of acquisition. The purchase accounting for the acquisition has been closed and immaterial
adjustments were recognized in the second quarter of 2012.
In July 2012, Innophos purchased AMT Labs, Inc. and an affiliated company holding real property to support future
expansion. AMT, a privately held company based in North Salt Lake, Utah, has been manufacturing high quality bioactive
mineral ingredients for the food, beverage, confectionary and dietary supplement industries for more than 20 years. The
combined purchase price was $26.9 million in cash, with $19.4 million being allocated to the AMT purchase and $7.5 million
being allocated to the real estate entity, plus a contingent payment arrangement. The arrangement provides for payments of up
to $3.0 million if certain new market development opportunities, measured by adjusted revenue, are realized following the
acquisition. The fair value of the contingent consideration arrangement is determined to be zero based on probability of
achievement. The purchase consideration was funded from our revolving line of credit, as well as cash from operations.
For the year ended December 31, 2012, the Company's results of operations included revenues of $5.5 million and an
immaterial effect on net income attributable to AMT. Acquisition related costs of $0.2 million were expensed as incurred and
were included in selling, general and administrative expenses.
The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents
the goodwill amount resulting from the acquisition and will be included in the Specialty Phosphates US segment. The
Company expects the goodwill created to be deductible for tax purposes. This transaction was treated as an asset purchase for
U.S. federal tax purposes.
In December 2012, Innophos acquired the assets of Triarco Industries, Inc. ("Triarco"). Triarco, a privately held company
based in New Jersey, has been manufacturing high quality custom ingredients for the food, beverage and dietary supplement
industries for more than 30 years. Triarco specializes in botanical and enzyme based ingredients that provide important
nutritional benefits and are often formulated with bioactive minerals and specialty phosphates. In the transaction, an Innophos
subsidiary purchased all of Triarco's assets for $44.8 million in cash plus $1 million in shares of Innophos Holdings, Inc.
Common Stock. The cash portion of the purchase price was financed by Innophos from borrowings under the company's senior
credit facility. The acquisition includes potential for additional incentive compensation, payable to certain previous owners of
Triarco who joined the Company, contingent upon success in delivering growth objectives over the next two years. Closing of
the purchase occurred upon execution of the definitive agreements effective as of December 31, 2012. Acquisition related costs
of $0.7 million were expensed as incurred and were included in selling, general and administrative expenses.
The preliminary purchase price allocation for AMT and Triarco resulted in the following amounts being allocated to the
assets acquired and liabilities assumed at the acquisition date based upon their respective fair values summarized below (in
thousands):
Cash
Accounts receivable
Inventory, including fair value adjustment of $270 and $468
Other current assets
Property, plant and equipment
Goodwill
Intangible assets
Accounts payable
Other current liabilities
Total
AMT
Triarco
$
325
849
2,020
39
9,483
5,047
10,050
(377 )
(219 )
27,217 $
—
1,788
4,012
25
2,864
16,614
22,100
(1,409 )
(180 )
45,814
$
$
Page 73 of 83
INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts, the number of shares or where otherwise noted)
The intangible assets acquired with AMT and Triarco include the following (in thousands):
Customer relationships
Developed technology
Tradename
Non-compete agreement
Useful life
(years)
10-15
$
7-8
5-10
4-10
AMT
Triarco
7,040 $
1,900
930
180
10,720
4,590
6,300
490
22,100
$
10,050
$
The allocation of the purchase price for the AMT and Triarco acquisitions have been prepared on a preliminary basis and
changes to those allocations may occur as additional information becomes available. The excess of purchase price over the fair
value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the
acquisition and will be included in the Specialty Phosphates US segment. The Company expects the goodwill created to be
deductible for tax purposes. This transaction was treated as an asset purchase for U.S. federal tax purposes.
Pro forma financial information (unaudited):
The following unaudited pro forma information presents the combined results of operations for the twelve months ended
December 31, 2012 and December 31, 2011 as if the acquisitions of AMT and Triarco had been completed on January 1, 2011
and the acquisition of Kelatron had been completed on January 1, 2010. The unaudited pro forma results do not reflect any
material adjustments, operating efficiencies or potential cost savings which may result from the consolidation of operations.
Revenues
Net income
Income per common share - Basic
Income per common share - Diluted
2012
$ 892,857
70,039
$
3.21
$
3.12
$
Year Ended December 31,
2011
$ 860,770
83,743
$
3.86
$
3.71
$
2010
$ 725,741
45,117
$
2.11
$
2.02
$
Note: the twelve months ended December 31, 2011 includes non-recurring transaction costs of approximately $2.0
million.
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Control and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934) that are designed to provide reasonable assurance that information required to be reported in the
Company’s consolidated financial statements and filings is recorded, processed, summarized and reported within the periods
specified in the rules and forms of the SEC and that such information is accumulated and communicated to the Company’s
management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure. The Principal Executive Officer and Principal Financial Officer, with the participation of
management, concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level
as of December 31, 2012.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The
Company’s internal control framework and processes are designed to provide reasonable assurance to management and the
Page 74 of 83
Board of Directors regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial
statements in accordance with United States generally accepted accounting principles.
As of December 31, 2012, management conducted an assessment of the Company’s internal control over financial
reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control — Integrated Framework. Based on the assessment, management concluded that, as of December 31, 2012,
the Company’s internal control over financial reporting is effective at the reasonable assurance level.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In December 2012, the Company acquired Triarco, whose financial statements reflect total assets and net sales
constituting 6.4% and 0%, respectively, of the condensed consolidated financial statement amounts for the period ended
December 31, 2012. We excluded this entity from our annual assessment of the effectiveness on internal control over financial
reporting for the year ending December 31, 2012, the year of the acquisition due to the close proximity of the acquisition date
to the date of management's assertion of the effectiveness of the Company's internal control over financial reporting.
PricewaterhouseCoopers LLP an independent registered public accounting firm, has audited the Company’s financial
statements included in this report on Form 10-K and issued its report on the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2012, which is included in “Item 8. Financial Statements and Supplementary
Data”.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during or with respect to the fourth quarter of
2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
Page 75 of 83
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item relating to Directors and Corporate Governance is set forth under the captions “The
Board of Directors and its Committees—Board Committees”, “The Board of Directors and its Committees—Audit
Committee”, “Proposals—Election of Board Members”, “The Board of Directors and its Committees—Other Corporate
Governance Matters”, “The Board of Directors and its Committees—Nominating and Corporate Governance Committee”,
“Policy on Communications from Security Holders and Interested Parties” and “Section 16(a) Beneficial Ownership
Compliance” in the registrant’s Proxy Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934 in connection with the 2012 Annual Meeting of Stockholders (the “Proxy Statement”) and is incorporated herein by
reference.
The information required by this item relating to Executive Officers is set forth in Item 1 under the caption “Executive
Officers” and is herein incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth under the caption “Executive Compensation”, “The Board of Directors
and its Committees—Compensation of Directors” and “The Board of Directors and its Committees—Compensation Committee
Interlocks and Insider Participation” in the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item is set forth under the captions “Security Ownership of Directors and Executive
Officers” and “Security Ownership of Certain Beneficial Owners” in the Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is set forth under the caption “The Board of Directors and its Committees—
Director Independence”, “Executive Compensation—Certain Transactions” and “Policy With Respect to Related Person
Transactions” in the Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is set forth under the caption “Information Regarding the Independence of the
Independent Registered Public Accounting Firm” in the Proxy Statement and is incorporated herein by reference.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following exhibits are filed as part of this 10-K.
PART IV
See the attached Exhibit Index.
(b) Financial Statement Schedules.
Schedule I—Condensed Financial Information of the Registrant.
Page 76 of 83
CONDENSED FINANCIAL STATEMENTS OF INNOPHOS HOLDINGS, INC.
INNOPHOS HOLDINGS, INC.
Condensed Balance Sheets
(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents
Receivables due from affiliates
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Investment in subsidiaries
Intangibles and other assets, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity
Total stockholders’ equity
Total liabilities and stockholder’s equity
$
$
$
December 31,
2012
2011
$
$
$
14
200
—
1,558
1,772
—
—
443,952
—
445,724
—
—
1,401
1,401
—
—
1,401
31
5,643
—
1,558
7,232
—
—
392,720
—
399,952
—
—
6,426
6,426
—
318
6,744
444,323
444,323
445,724
$
393,208
393,208
399,952
$
Page 77 of 83
INNOPHOS HOLDINGS, INC.
Condensed Statements of Operations
(Dollars in thousands)
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Selling, general and administrative
Research & development expenses
Total operating expenses
Operating loss
Interest expense, net
Foreign exchange (gains) losses
Equity income
Income before income taxes
Benefit for income taxes
Net income
Year Ended December 31,
2011
2010
2012
$
—
—
—
3
—
3
(3 )
—
—
$
—
—
—
7
—
7
(7 )
—
—
(74,193 )
74,190
—
74,190
$
(86,529 )
86,522
—
86,522
$
—
—
—
3
—
3
(3)
2,256
—
(46,624)
44,365
(790)
45,155
$
$
Page 78 of 83
INNOPHOS HOLDINGS, INC.
Condensed Statements of Cash Flows
(Dollars in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash used for operating
activities:
Amortization of deferred financing charges
Gain on retirement of bonds
Equity income
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
Decrease in accounts payable
Increase (decrease) in other current liabilities
Changes in other long-term assets and liabilities
Net cash (used for) provided from operating activities
Cash flows provided from investing activities:
Investment in subsidiaries
Net cash provided from investing activities
Cash flows provided from financing activities:
Proceeds from exercise of stock options
Principal repayment of senior unsecured notes
Deferred financing costs
Common stock repurchases
Dividends paid
Net cash used for financing activities
Net change in cash
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Basis of Presentation
Year Ended December 31,
2011
2010
2012
$
74,190
$
86,522
$
45,155
—
—
—
—
(74,190 )
(86,529 )
5,443
—
(5,025 )
(318 )
100
(1,795 )
—
448
6
(1,348 )
31,419
31,419
26,410
26,410
528
—
—
(7,254 )
(24,810 )
(31,536 )
(17 )
31
14
$
484
—
—
(6,156 )
(19,921 )
(25,593 )
(531 )
562
31
$
706
—
(46,624)
3,068
—
(534)
(211)
1,560
71,940
71,940
236
(56,000)
(2,828)
—
(14,559)
(73,151)
349
213
562
$
Innophos Holdings, Inc. (“Company”) is a holding company that conducts substantially all of its business operations
through its subsidiaries.
There are significant restrictions on the Company’s ability to obtain funds from any of its subsidiaries through dividends,
loans or advances. Accordingly, the condensed financial statements have been presented on a “parent-only” basis. Under a
parent-only presentation, the Company’s investments in its consolidated subsidiaries are presented under the equity method of
accounting. These parent-only financial statements should be read in conjunction with Innophos Holdings, Inc. audited
consolidated financial statements included elsewhere herein.
Debt
The Company redeemed for cash all remaining $56.0 million of the 9.5% Senior Unsecured Notes due April 2012 on
April 15, 2010.
For a discussion of the debt obligations of Innophos Holdings, Inc.’s subsidiaries, see Note 9 of Notes to Consolidated
Financial Statements in “Item 8. Financial Statements and Supplementary Data”.
Page 79 of 83
Dividends
We are a holding company that does not conduct any business operations of our own. As a result, we are dependent upon
cash dividends, distributions and other transfers from our subsidiaries, most directly Innophos, Inc., our primary operating
subsidiary, and Innophos Investments Holdings, Inc., its parent, to make dividend payments on our Common Stock.
In August, 2010, Innophos entered into a Credit Agreement (the “Credit Agreement”) with a group of lenders
(collectively, the “Lenders”). This agreement was amended and restated on December 21, 2012 increasing the Company's
borrowing capacity, reducing interest rates extending the maturity to December 21, 2017. The Credit Agreement contains
representations given to the Lenders about the nature and status of the Companies’ business that serve as conditions to future
borrowings, and affirmative, as well as negative, covenants typical of senior facilities of this kind that prohibit or limit a variety
of actions by the Companies and their subsidiaries generally without the Lenders’ approval. These include covenants that affect
the ability of those entities, among other things, to make restricted payments that include dividends. However, subject to
continued compliance with the overall leverage restrictions, the Companies retain flexibility under the Credit Agreement to
develop their business and achieve strategic goals by, among other things, being permitted to pay dividends (as long as the
Total Leverage Ratio shall be .25 less than the then applicable level prescribed).
Treasury Stock
During 2011 the board of directors authorized a repurchase program for Company common stock of up to $50 million.
Under the program, shares will be repurchased from time to time at management’s discretion, either through open market
transactions, block purchases, private transactions or other means and will be funded through existing liquidity and cash from
operations. A five year time limit has been set for the expiration of the program as initially structured. The timing of
repurchases and the exact number of shares of common stock to be purchased will depend upon market conditions and other
factors. However, annual repurchase amounts are expected at a minimum to be sufficient to reduce significantly, or eliminate,
earnings per share dilution caused by shares issued upon the exercise of stock options and in connection with other equity
based compensation plans. Treasury stock is recognized at the cost to reacquire the shares. As of December 31, 2012, there is a
balance of $36.6 million remaining under the repurchase program.
Income Taxes
The Company is a member of a U.S. consolidated income tax return. The Company generated Federal net operating
losses which can be used by Innophos, Inc. in the U.S. consolidated income tax return. Therefore, the benefit recorded for
income taxes in 2010 is the result of net operating losses which are realizable by Innophos, Inc. The tax amounts established for
the use of these losses are recorded through intercompany accounts which will cash settle.
Commitments and Contingencies
Innophos Holdings, Inc. has no direct commitments and contingencies, but its subsidiaries have direct commitments and
contingencies. For a discussion of the commitments and contingencies of Innophos Holdings, Inc.’s subsidiaries, see Note 16 of
Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data”.
Page 80 of 83
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Innophos Holdings, Inc. has
duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized on the 20th day of February, 2013.
SIGNATURES
INNOPHOS HOLDINGS, INC.
By:
/S/ RANDOLPH GRESS
Randolph Gress
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons
on behalf of Innophos Holdings, Inc. and in the capacities and on the dates indicated.
Signatures
Title
Dates
/S/ RANDOLPH GRESS
Randolph Gress
Chief Executive Officer and Director
(Principal Executive Officer)
/S/ NEIL I. SALMON
Neil I. Salmon
Vice President and Chief Financial Officer
(Principal Financial Officer)
/S/ CHARLES BRODHEIM
Charles Brodheim
Vice President and Corporate Controller
(Principal Accounting Officer)
/S/ GARY CAPPELINE
Director
Gary Cappeline
/S/ AMADO CAVAZOS
Director
Amado Cavazos
/S/ LINDA MYRICK
Linda Myrick
/S/ KAREN OSAR
Karen Osar
/S/ JOHN STEITZ
John Steitz
/S/ STEPHEN ZIDE
Stephen Zide
Director
Director
Director
Director
February 20, 2013
February 20, 2013
February 20, 2013
February 20, 2013
February 20, 2013
February 20, 2013
February 20, 2013
February 20, 2013
February 20, 2013
Page 81 of 83
Exhibit No.
Description
EXHIBIT INDEX
3.1 Second Amended and Restated Certificate of Incorporation of Innophos Holdings, Inc. incorporated by
reference to Exhibit 3.1 of Amendment No. 4 to Registration Statement 333-135851 on Form S-1 of Innophos
Holdings, Inc. filed October 30, 2006
3.2 Amended and Restated By-Laws of Innophos Holdings, Inc. as of November 30, 2007 incorporated by
reference to Exhibit 99.1/99.2B of Form 8-K of Innophos Holdings, Inc. filed December 6, 2007
4.1 Form of Common Stock certificate incorporated by reference to Exhibit 4.1 of Amendment No. 4 to
Registration Statement 333-135851 on Form S-1 of Innophos Holdings, Inc. filed October 30, 2006
4.2 Credit Agreement dated August 27, 2010 by and among Registrant, Innophos Investments Holdings, Inc., and
Innophos, Inc., as Borrowers, a group of Lenders, Wells Fargo Bank, National Association, as Administrative,
and Bank of America, as Syndication Agent, incorporated by reference to Exhibit 99.1 of Form 8-K of
Innophos Holdings, Inc. filed August 31, 2010
4.3 Amended and Restated Credit Agreement, dated as of December 21, 2012, among Registrant , certain domestic
subsidiaries as borrowers, certain domestic subsidiaries as guarantors, a group of Lenders, Wells Fargo Bank,
National Association, as administrative agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
syndication agent incorporated by reference to Exhibit 99.1 of Form 8-K of Innophos Holdings, Inc. filed
December 27, 2012
10.1 Supply Agreement (Sulphuric Acid) dated as of August 13, 2004 between Rhodia, Inc. and Innophos, Inc.
(filed in redacted form per confidential treatment order) incorporated by reference to Exhibit 10.3 of Annual
Report on Form 10-K of Innophos Holdings, Inc. for the year ended December 31, 2007
10.2 Assignment, Assumption, and Consent to be effective May 1, 2009 concerning the Purchase and Sale
Agreement of Anhydrous Ammonia, incorporated by reference to Exhibit 10.2 of Annual Report on Form 10-
K of Innophos Holdings, Inc. for the year ended December 31, 2011
10.3 Amended and Restated Purified Wet Phosphoric Acid Supply Agreement dated as of March 23, 2000 by and
between Rhodia, Inc. and PCS Purified Phosphates incorporated by reference to Exhibit 10.15 to Amendment
No. 4 of Registration Statement 333-129951 on Form S-4 of Innophos, Inc. (filed in redacted form per
confidential treatment order) filed February 14, 2006
10.4 Amended and Restated Acid Purchase Agreement dated as of March 23, 2000 among Rhodia, Inc., PCS Sales
(USA), Inc. and PCS Nitrogen Fertilizer L.P. incorporated by reference to Exhibit 10.16 to Amendment No. 4
of Registration Statement 333-129951 on Form S-4 of Innophos, Inc. (filed in redacted form per confidential
treatment order) filed February 14, 2006
10.5 Base Agreement dated as of September 1, 2003 by and between Pemex-Gas y Petroquimica Basica and Rhodia
Fosfatados De Mexico S.A. de C.V. incorporated by reference to Exhibit 10.17 to Amendment No. 4 of
Registration Statement 333-129951 on Form S-4 of Innophos, Inc. (filed in redacted form per confidential
treatment order) filed February 14, 2006
10.6 Purchase and Sale Agreement of Anhydrous Ammonia dated as of February 15, 2008 , by and between Pemex
Petroquimica, and Innophos Fosfatados De Mexico, S. de R.L. de C.V. (filed in redacted form per confidential
treatment order) incorporated by reference to Exhibit 10.8 of Annual Report on Form 10-K/A of Innophos
Holdings, Inc. for the year ended December 31, 2008
10.7 Sulfur Supply Contract dated as of January 1, 2011 by and Between Pemex Gas Y Petroquimica Basica and
Innophos Fosfatados de Mexico, S. de R.L. de C.V. (filed in redacted form per confidential treatment order),
incorporated by reference to Exhibit 10.7 of Annual Report on Form 10-K of Innophos Holdings, Inc. for the
year ended December 31, 2011
10.8 Supply Agreement dated as of June 18, 1998 by and among Colgate Palmolive Company, Inmobiliaria Hills,
S.A. de C.V., and Rhone-Poulenc de Mexico, S.A. de C.V. incorporated by reference to Exhibit 10.21 of
Registration Statement 333-129951 on Form S-4 of Innophos, Inc. (filed in redacted form per confidential
treatment order) filed November 23, 2005
10.9 Operations Agreement made as of June 18, 1998 by and among Mission Hills, S.A. de C.V, Inmobiliaria Hills.
S.A. de C.V., and Rhone-Poulenc de Mexico, S.A. de C.V. incorporated by reference to Exhibit 10.22 of
Registration Statement 333-129951 on Form S-4 of Innophos, Inc. (filed in redacted form per confidential
treatment order) filed November 23, 2005
10.10 Form of Memorandum of Agreement dated January 30, 2009 by and between Innophos, Inc. and Colgate
Palmolive incorporated by reference to Exhibit 99.1 of Form 8-K of Innophos Holdings, Inc. and Innophos,
Inc. (filed in redacted form per confidential treatment order) filed February 5, 2009
Page 82 of 83
10.11 Form of Individual Employment Agreement for executive officers of Innophos Servicios de Mexico, S. de R.L.
de C.V., incorporated by reference to Exhibit 10.24 of Amendment No. 1 to Annual Report on Form 10-K of
Innophos Holdings, Inc. for the year ended December 31, 2007
10.12 Form of Executive Employment Agreement by and between Innophos Holdings, Inc. and executive officers
incorporated by reference to Exhibit 99.13 of Form 8-K of Innophos Holdings, Inc. filed May 1, 2008
10.13 Innophos Holdings, Inc. Amended and Restated 2005 Executive Stock Option Plan incorporated by reference
to Exhibit 10.28 to Amendment No. 4 of Registration Statement 333-135851 on Form S-1 of Innophos
Holdings, Inc. filed October 30, 2006
10.14 Form of Indemnification Agreement, by and among Innophos Holdings, Inc. and certain Directors and
Executive Officers incorporated by reference to Exhibit 99.2 of Form 8-K of Innophos Holdings, Inc. filed
January 31, 2007
10.15 Form of 2006 Long-Term Equity Incentive Plan incorporated by reference to Exhibit 10.37 to Amendment No.
4 of Registration Statement 333-135851 on Form S-1 of Innophos, Inc. filed October 30, 2006
10.16 Form of 2009 Long-Term Incentive Plan (2009 LTIP) incorporated by reference to Exhibit 99.1 of Form 8-K
of Innophos Holdings, Inc. filed June 4, 2009
10.17 Form of Award Agreement under Long Term Incentive Plans incorporated by reference to Exhibit 4.5 of Form
S-8 of Innophos Holdings, Inc. filed June 15, 2009
10.18 Form of Innophos, Inc. Retirement Savings Restoration Plan effective as of January 1, 2006, incorporated by
reference to Exhibit 10.29 of Annual Report on Form 10-K of Innophos Holdings, Inc. for the year ended
December 31, 2006
10.19 Innophos, Inc. 2010 Executive, Management and Sales Incentive Plan effective January 1, 2010, incorporated
by reference to Exhibit 99.1 of Form 8-K of Innophos Holdings, Inc. filed June 17, 2010
10.2 Purchase Agreement dated June 10, 2004 among Rhodia, Inc., Rhodia Canada Inc., Rhodia de Mexico, S.A. de
C.V., Rhodia Overseas Limited, Rhodia Consumer Specialties Limited, Rhodia, S.A. and Innophos, Inc. (f/k/a
Phosphates Acquisition, Inc.), incorporated by reference to Exhibit 2.1 of Registration Statement 333-129951
on Form S-4 of Innophos, Inc. filed November 23, 2005
10.21 Stock Purchase Agreement dated October 31, 2011 among KI Acquisition, Inc., Innophos, Inc. and
Shareholders of KI Acquisition, Inc., incorporated by reference to Exhibit 99.1 (in redacted form per
confidential treatment order) of Form 8-K of Innophos Holdings, Inc. filed November 3, 2011
10.22 Stock and LLC Purchase Agreement among Innophos, Inc., AMT Labs, Inc., Woody IV, LLC, shareholders of
AMT Labs, Inc. and members of Woody IV, LLC incorporated by reference to Exhibit 2.1 (in redacted form
per confidential treatment order) of Form 8-K of Innophos Holding, Inc. filed July 23, 2012
10.23 Partial Assignment of Rights and Obligations Agreement dated November 1, 2012, by and between
Administracion Portuaria Integral de Coatzacoalcos, S.A. de C.V. and Innophos Fosfatados de Mexico, S. de
R.L. de C.V (in redacted form per confidential treatment order) incorporated by reference to Exhibit 99.1 to
Form 8-K of Innophos Holdings, Inc. filed December 12, 2012
10.24 Asset Purchase Agreement dated as of December 31, 2012 by and among Innophos Acquisition, LLC,
Innophos, Inc., Triarco Industries, Inc., Reed Company, LLC and shareholders of Triarco Industries, Inc. (in
redacted form per confidential treatment order) incorporated by reference to Exhibit 99.1 to Form 8-K of
Innophos Holdings, Inc. filed January 4, 2013
12.1 Statement re: Calculation of Ratio of Earnings to Fixed Charges, filed herewith
21.1 Subsidiaries of Registrant, incorporated by reference to Exhibit 21.1, filed herewith
23.1 Consent of PricewaterhouseCoopers LLP, filed herewith
31.1 Certification of Principal Executive Officer dated February 20, 2013 pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 filed herewith
31.2 Certification of Principal Financial Officer dated February 20, 2013 pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 filed herewith
32.1 Certification of Principal Executive Officer dated February 20, 2013 pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 filed herewith
32.2 Certification of Principal Financial Officer dated February 20, 2013 pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 filed herewith
Pursuant to rules of the Securities and Exchange Commission, agreements and instruments evidencing the rights of
holders of debt whose total amount does not exceed 10% of the total assets of the registrant and its subsidiaries on a
consolidated basis are not being filed as exhibits to this report. The registrant has agreed to furnish a copy of such agreements
and instruments to the Commission upon its request.
Page 83 of 83
[THIS PAGE INTENTIONALLY LEFT BLANK]
OFFICE SSSSSRSSSSSSSRRRRRR
OFFIC SSCERS
CERS
SSRRSSRSRSSRSSS
ECTORS
ECTORS
SS
& DIREC
& DIR
(cid:2)(cid:3)(cid:3)(cid:4)(cid:5)(cid:6)(cid:4)(cid:7)(cid:8)(cid:9)(cid:10)(cid:11)(cid:12)(cid:13)(cid:14)(cid:15)(cid:16)(cid:11)(cid:8)(cid:17)(cid:18)(cid:19)(cid:12)(cid:11)(cid:20)(cid:7)
(cid:21)(cid:4)(cid:22)(cid:20)(cid:23)(cid:8)(cid:4)(cid:18)(cid:8)(cid:24)(cid:15)(cid:20)(cid:11)(cid:12)(cid:14)(cid:4)(cid:20)(cid:7)
(cid:25)(cid:4)(cid:20)(cid:5)(cid:4)(cid:20)(cid:22)(cid:14)(cid:11)(cid:8)(cid:2)(cid:3)(cid:18)(cid:4)(cid:20)(cid:26)(cid:22)(cid:14)(cid:15)(cid:4)(cid:3)
Randolph Gress
(cid:31)(cid:2)(cid:3)(cid:10)(cid:22)(cid:11)(cid:147)?(cid:10)(cid:16)(cid:9)(cid:17)(cid:3)(cid:6)(cid:10)(cid:11)1(cid:22)(cid:23)(cid:16)(cid:10)(cid:13)(cid:11)E(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)
Randolph Gress
(cid:31)(cid:2)(cid:7)(cid:3)(cid:13)(cid:19)(cid:7)(cid:20)(cid:11)(cid:14)(cid:22)(cid:11)(cid:17)(cid:2)(cid:10)(cid:11)(cid:132)(cid:14)(cid:7)(cid:13)(cid:15)(cid:11)E(cid:11)(cid:148)(cid:3)(cid:13)(cid:10)(cid:16)(cid:17)(cid:14)(cid:13)
(cid:27)(cid:28)(cid:29)(cid:30)(cid:31) (cid:9)(cid:28)(cid:8)(cid:29)!(cid:9)(cid:30)(cid:27)(cid:8)(cid:29)(cid:30)(cid:24)(cid:8)(cid:28)(cid:9)!(cid:2)(cid:31)(cid:27)(cid:28)(cid:29)(cid:28)
)(cid:10)(cid:8)(cid:8)(cid:18)(cid:11)_(cid:7)(cid:13)(cid:4)(cid:14)
Iris Alvarado
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)!(cid:11):(cid:9)(cid:13)(cid:16)(cid:2)(cid:7)(cid:18)(cid:3)(cid:20)(cid:4)!(cid:11)
’(cid:14)(cid:4)(cid:3)(cid:18)(cid:17)(cid:3)(cid:16)(cid:18)(cid:11)E(cid:11)(cid:148)(cid:3)(cid:18)(cid:17)(cid:13)(cid:3)(cid:29)(cid:9)(cid:17)(cid:3)(cid:14)(cid:20)
Gary Cappeline
’(cid:10)(cid:7)(cid:15)(cid:11)(cid:27)(cid:20)(cid:15)(cid:10)(cid:12)(cid:10)(cid:20)(cid:15)(cid:10)(cid:20)(cid:17)(cid:11)(cid:148)(cid:3)(cid:13)(cid:10)(cid:16)(cid:17)(cid:14)(cid:13)%(cid:11)
(cid:31)(cid:2)(cid:7)(cid:3)(cid:13)!(cid:11)(cid:31)(cid:14)(cid:19)(cid:12)(cid:10)(cid:20)(cid:18)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:11)(cid:31)(cid:14)(cid:19)(cid:19)(cid:3)(cid:17)(cid:17)(cid:10)(cid:10)
(cid:2)(cid:30)(cid:24)(cid:9)"(cid:9)(cid:30)(cid:24)(cid:9)(cid:30)(cid:27)(cid:8)(cid:28)(cid:9)!(cid:2)(cid:31)(cid:27)(cid:9)(cid:28)(cid:9)(cid:24)(cid:8)"#(cid:21)$(cid:2)(cid:25)(cid:8)
(cid:29)(cid:25)(cid:25)(cid:17)#(cid:30)(cid:27)(cid:2)(cid:30)!(cid:8) (cid:2)(cid:28)&
:(cid:13)(cid:3)(cid:16)(cid:10)(cid:25)(cid:7)(cid:17)(cid:10)(cid:13)(cid:2)(cid:14)(cid:9)(cid:18)(cid:10)(cid:31)(cid:14)(cid:14)(cid:12)(cid:10)(cid:13)(cid:18)(cid:11)’’:
Charles Brodheim
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)(cid:11)E(cid:11)(cid:31)(cid:14)(cid:13)(cid:12)(cid:14)(cid:13)(cid:7)(cid:17)(cid:10)(cid:11)(cid:31)(cid:14)(cid:20)(cid:17)(cid:13)(cid:14)(cid:8)(cid:8)(cid:10)(cid:13)
Amado Cavazos
(cid:148)(cid:3)(cid:13)(cid:10)(cid:16)(cid:17)(cid:14)(cid:13)
Linda Myrick
(cid:148)(cid:3)(cid:13)(cid:10)(cid:16)(cid:17)(cid:14)(cid:13)%(cid:11)(cid:31)(cid:2)(cid:7)(cid:3)(cid:13)!(cid:11)"(cid:14)(cid:19)(cid:3)(cid:20)(cid:7)(cid:17)(cid:3)(cid:20)(cid:4)(cid:11)E(cid:11)
(cid:31)(cid:14)(cid:13)(cid:12)(cid:14)(cid:13)(cid:7)(cid:17)(cid:10)(cid:11)+(cid:14)(cid:6)(cid:10)(cid:13)(cid:20)(cid:7)(cid:20)(cid:16)(cid:10)(cid:11)(cid:31)(cid:14)(cid:19)(cid:19)(cid:3)(cid:17)(cid:17)(cid:10)(cid:10)
Karen Osar
(cid:148)(cid:3)(cid:13)(cid:10)(cid:16)(cid:17)(cid:14)(cid:13)%(cid:11)(cid:31)(cid:2)(cid:7)(cid:3)(cid:13)!(cid:11)/(cid:9)(cid:15)(cid:3)(cid:17)(cid:11)(cid:31)(cid:14)(cid:19)(cid:19)(cid:3)(cid:17)(cid:17)(cid:10)(cid:10)
John Steitz
(cid:148)(cid:3)(cid:13)(cid:10)(cid:16)(cid:17)(cid:14)(cid:13)
Stephen Zide
(cid:148)(cid:3)(cid:13)(cid:10)(cid:16)(cid:17)(cid:14)(cid:13)
Louis Calvarin
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)!(cid:11)1(cid:12)(cid:10)(cid:13)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:18)
William Farran
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)!(cid:11)+(cid:10)(cid:20)(cid:10)(cid:13)(cid:7)(cid:8)(cid:11)(cid:31)(cid:14)(cid:9)(cid:20)(cid:18)(cid:10)(cid:8)(cid:11)
E(cid:11)(cid:31)(cid:14)(cid:13)(cid:12)(cid:14)(cid:13)(cid:7)(cid:17)(cid:10)(cid:11)(cid:28)(cid:10)(cid:16)(cid:13)(cid:10)(cid:17)(cid:7)(cid:13)(cid:21)
Mark Feuerbach
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)!(cid:11)(cid:27)(cid:20)(cid:6)(cid:10)(cid:18)(cid:17)(cid:14)(cid:13)(cid:11)~(cid:10)(cid:8)(cid:7)(cid:17)(cid:3)(cid:14)(cid:20)(cid:18)!(cid:11)
$(cid:13)(cid:10)(cid:7)(cid:18)(cid:9)(cid:13)(cid:21)!(cid:11)_(cid:3)(cid:20)(cid:7)(cid:20)(cid:16)(cid:3)(cid:7)(cid:8)(cid:11):(cid:8)(cid:7)(cid:20)(cid:20)(cid:3)(cid:20)(cid:4)(cid:11)E(cid:11)/(cid:20)(cid:7)(cid:8)(cid:21)(cid:18)(cid:3)(cid:18)
Joseph Golowski
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)!(cid:11)(cid:28)(cid:12)(cid:10)(cid:16)(cid:3)(cid:7)(cid:8)(cid:17)(cid:21)(cid:11):(cid:2)(cid:14)(cid:18)(cid:12)(cid:2)(cid:7)(cid:17)(cid:10)(cid:18)
Gail Holler
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)!(cid:11)(cid:30)(cid:9)(cid:19)(cid:7)(cid:20)(cid:11)~(cid:10)(cid:18)(cid:14)(cid:9)(cid:13)(cid:16)(cid:10)(cid:18)
Russell Kemp
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)!(cid:11)~(cid:10)(cid:18)(cid:10)(cid:7)(cid:13)(cid:16)(cid:2)(cid:11)E(cid:11)(cid:148)(cid:10)(cid:6)(cid:10)(cid:8)(cid:14)(cid:12)(cid:19)(cid:10)(cid:20)(cid:17)%(cid:11)
(cid:31)(cid:2)(cid:3)(cid:10)(cid:22)(cid:11)~(cid:3)(cid:18)4(cid:11)1(cid:22)(cid:23)(cid:16)(cid:10)(cid:13)
Michael Lovrich
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)!(cid:11):(cid:8)(cid:7)(cid:20)(cid:20)(cid:3)(cid:20)(cid:4)(cid:11)E(cid:11)(cid:31)(cid:9)(cid:18)(cid:17)(cid:14)(cid:19)(cid:10)(cid:13)(cid:11)(cid:28)(cid:10)(cid:13)(cid:6)(cid:3)(cid:16)(cid:10)
Neil Salmon
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)(cid:11)E(cid:11)(cid:31)(cid:2)(cid:3)(cid:10)(cid:22)(cid:11)_(cid:3)(cid:20)(cid:7)(cid:20)(cid:16)(cid:3)(cid:7)(cid:8)(cid:11)1(cid:22)(cid:23)(cid:16)(cid:10)(cid:13)
Abraham Shabot
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)!(cid:11)(cid:148)(cid:3)(cid:13)(cid:10)(cid:16)(cid:17)(cid:14)(cid:13)(cid:11)+(cid:10)(cid:20)(cid:10)(cid:13)(cid:7)(cid:8)!
(cid:27)(cid:20)(cid:20)(cid:14)(cid:12)(cid:2)(cid:14)(cid:18)(cid:11)’(cid:7)(cid:17)(cid:3)(cid:20)(cid:11)/(cid:19)(cid:10)(cid:13)(cid:3)(cid:16)(cid:7)
Mark Thurston
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)!(cid:11)(cid:31)(cid:14)(cid:13)(cid:12)(cid:14)(cid:13)(cid:7)(cid:17)(cid:10)(cid:11)(cid:28)(cid:17)(cid:13)(cid:7)(cid:17)(cid:10)(cid:4)(cid:21)(cid:11)
E(cid:11))(cid:14)(cid:13)(cid:8)(cid:15)(cid:25)(cid:3)(cid:15)(cid:10)(cid:11)(cid:132)(cid:9)(cid:18)(cid:3)(cid:20)(cid:10)(cid:18)(cid:18)(cid:11)(cid:148)(cid:10)(cid:6)(cid:10)(cid:8)(cid:14)(cid:12)(cid:19)(cid:10)(cid:20)(cid:17)
Susan Turner
=(cid:3)(cid:16)(cid:10)(cid:11):(cid:13)(cid:10)(cid:18)(cid:3)(cid:15)(cid:10)(cid:20)(cid:17)!(cid:11)(cid:149)(cid:9)(cid:7)(cid:8)(cid:3)(cid:17)(cid:21)(cid:11)E(cid:11)~(cid:10)(cid:4)(cid:9)(cid:8)(cid:7)(cid:17)(cid:14)(cid:13)(cid:21)(cid:11)(cid:11)(cid:11)(cid:11)(cid:11)(cid:11)
(cid:25)(cid:17)(cid:28)"(cid:17)(cid:28)(cid:29)(cid:27)(cid:9)(cid:8)$(cid:17)(cid:25)(cid:29)(cid:27)(cid:2)(cid:17)(cid:30)(cid:31)
3(cid:28)/(cid:11)((cid:31)(cid:14)(cid:13)(cid:12)(cid:14)(cid:13)(cid:7)(cid:17)(cid:10)(cid:11)(cid:30)(cid:10)(cid:7)(cid:15)(cid:24)(cid:9)(cid:7)(cid:13)(cid:17)(cid:10)(cid:13)(cid:18)*
Innophos Holdings, Inc.
K(cid:140)(cid:138)(cid:11):(cid:13)(cid:14)(cid:18)(cid:12)(cid:10)(cid:16)(cid:17)(cid:11):(cid:8)(cid:7)(cid:3)(cid:20)(cid:18)(cid:11)~(cid:15)!(cid:11)(cid:132)(cid:8)(cid:15)(cid:4)(cid:11)/
(cid:31)(cid:13)(cid:7)(cid:20)(cid:29)(cid:9)(cid:13)(cid:21)!(cid:11)"#(cid:11)M(cid:150)(cid:140)NK(cid:5)(cid:127)(cid:139)M(cid:151)(cid:11)3(cid:28)/
(cid:151)M(cid:138)(cid:5)(cid:128)(cid:138)(cid:140)(cid:5)K(cid:128)(cid:138)(cid:140)
;(cid:10)?(cid:3)(cid:16)(cid:14)
(cid:27)(cid:20)(cid:20)(cid:14)(cid:12)(cid:2)(cid:14)(cid:18)(cid:11);(cid:10)?(cid:3)(cid:16)(cid:7)(cid:20)(cid:7)(cid:11)(cid:28)(cid:26)(cid:11)(cid:15)(cid:10)(cid:11)~(cid:26)’(cid:26)(cid:11)(cid:15)(cid:10)(cid:11)(cid:31)(cid:26)=(cid:26)(cid:11)
(cid:132)(cid:14)(cid:18)(cid:24)(cid:9)(cid:10)(cid:18)(cid:11)(cid:15)(cid:10)(cid:11)(cid:8)(cid:14)(cid:18)(cid:11)(cid:31)(cid:3)(cid:13)(cid:9)(cid:10)(cid:8)(cid:14)(cid:18)(cid:11)N(cid:150)(cid:151)
:(cid:3)(cid:18)(cid:14)(cid:11)NN
(cid:31)(cid:14)(cid:8)(cid:14)(cid:20)(cid:3)(cid:7)(cid:11)(cid:132)(cid:14)(cid:18)(cid:24)(cid:9)(cid:10)(cid:18)(cid:11)(cid:15)(cid:10)(cid:11)(cid:8)(cid:7)(cid:18)(cid:11)’(cid:14)(cid:19)(cid:7)(cid:18)
(cid:148)(cid:10)(cid:8)(cid:10)(cid:4)(cid:7)(cid:16)(cid:3)(cid:14)(cid:20)(cid:11);(cid:3)(cid:4)(cid:9)(cid:10)(cid:8)(cid:11)(cid:30)(cid:3)(cid:15)(cid:7)(cid:8)(cid:4)(cid:14)
NN(cid:139)MM(cid:11);(cid:10)?(cid:3)(cid:16)(cid:14)!(cid:11)(cid:148)(cid:26)_(cid:26)
(cid:152)(cid:11)((cid:140)K*(cid:11)(cid:140)(cid:140)(cid:11)(cid:140)(cid:127)KK(cid:11)(cid:128)(cid:150)(cid:11)M(cid:150)
www.innophos.com
(cid:2)(cid:30)(cid:30)(cid:17)"’(cid:17)(cid:31)(cid:8)&(cid:29)(cid:30)# (cid:29)(cid:25)(cid:27)#(cid:28)(cid:2)(cid:30)!(cid:8)
(cid:29)(cid:25)(cid:2)$(cid:2)(cid:27)(cid:2)(cid:9)(cid:31)
:(cid:14)(cid:13)(cid:17)(cid:11);(cid:7)(cid:3)(cid:17)(cid:8)(cid:7)(cid:20)(cid:15)!(cid:11)1(cid:20)(cid:17)(cid:7)(cid:13)(cid:3)(cid:14)!(cid:11)(cid:31)(cid:7)(cid:20)(cid:7)(cid:15)(cid:7)
(cid:31)(cid:2)(cid:3)(cid:16)(cid:7)(cid:4)(cid:14)(cid:11)(cid:30)(cid:10)(cid:3)(cid:4)(cid:2)(cid:17)(cid:18)!(cid:11)(cid:27)(cid:8)(cid:8)(cid:3)(cid:20)(cid:14)(cid:3)(cid:18)
(cid:31)(cid:2)(cid:3)(cid:16)(cid:7)(cid:4)(cid:14)(cid:11)()(cid:7)(cid:17)(cid:10)(cid:13)(cid:25)(cid:7)(cid:21)*!(cid:11)(cid:27)(cid:8)(cid:8)(cid:3)(cid:20)(cid:14)(cid:3)(cid:18)
:(cid:7)(cid:17)(cid:10)(cid:13)(cid:18)(cid:14)(cid:20)!(cid:11)"(cid:10)(cid:25)(cid:11)#(cid:10)(cid:13)(cid:18)(cid:10)(cid:21)
1(cid:4)(cid:15)(cid:10)(cid:20)!(cid:11)3(cid:17)(cid:7)(cid:2)
"(cid:14)(cid:13)(cid:17)(cid:2)(cid:11)(cid:28)(cid:7)(cid:8)(cid:17)(cid:11)’(cid:7)4(cid:10)!(cid:11)3(cid:17)(cid:7)(cid:2)
"(cid:7)(cid:18)(cid:2)(cid:6)(cid:3)(cid:8)(cid:8)(cid:10)!(cid:11)$(cid:10)(cid:20)(cid:20)(cid:10)(cid:18)(cid:18)(cid:10)(cid:10)
+(cid:13)(cid:10)(cid:10)(cid:20)(cid:11):(cid:14)(cid:20)(cid:15)!(cid:11)(cid:28)(cid:14)(cid:9)(cid:17)(cid:2)(cid:11)(cid:31)(cid:7)(cid:13)(cid:14)(cid:8)(cid:3)(cid:20)(cid:7)
+(cid:10)(cid:3)(cid:18)(cid:19)(cid:7)(cid:13)!(cid:11)’(cid:14)(cid:9)(cid:3)(cid:18)(cid:3)(cid:7)(cid:20)(cid:7)
(cid:28)(cid:7)(cid:20)(cid:11)#(cid:14)(cid:18)(cid:10)(cid:11)(cid:15)(cid:10)(cid:11)(cid:27)(cid:17)(cid:9)(cid:13)(cid:29)(cid:3)(cid:15)(cid:10)(cid:11)(;(cid:3)(cid:18)(cid:18)(cid:3)(cid:14)(cid:20)(cid:11)(cid:30)(cid:3)(cid:8)(cid:8)(cid:18)*!(cid:11)(cid:11)(cid:11)
(cid:11)(cid:11)(cid:11)+(cid:9)(cid:7)(cid:20)(cid:7)>(cid:9)(cid:7)(cid:17)(cid:14)!(cid:11);(cid:10)?(cid:3)(cid:16)(cid:14)
(cid:31)(cid:14)(cid:7)(cid:17)<(cid:7)(cid:16)(cid:14)(cid:7)(cid:8)(cid:16)(cid:14)(cid:18)!(cid:11)=(cid:10)(cid:13)(cid:7)(cid:16)(cid:13)(cid:9)